|[September 13, 2013]
Fitch Affirms RGA's Ratings; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed Reinsurance Group of America, Inc.'s (RGA)
'A-' Issuer Default Rating (IDR), and the 'A+' Insurer Financial
Strength (IFS) rating of RGA Reinsurance Company (RGA Reinsurance). The
Rating Outlook for all ratings is Stable. A complete list of ratings
follows at the end of this release.
Key Rating Drivers
RGA maintains leading positions in its core markets: U.S. and Canadian
ordinary life recurring premium with a focus on mortality risk. The
company's market share in the U.S. is benefitting from consolidation
driven by an overall decline in new business assumed as direct writers
retain more mortality risk in response to higher reinsurance costs.
RGA's operating earnings through the first half of 2013 (1H'13) were
below expectations due primarily to a $274 million pre-tax charge in the
second quarter. The charge was related to group disability business in
Australia, which is part of the company's Asia Pacific segment, a
relatively small contributor to RGA's historical earnings. Claims
incidence and reporting lags in the total and permanent disability (TPD)
line are the main drivers of the loss. RGA believes the charge is very
conservative and will cover all future claims related to this business,
although Fitch believes some uncertainty remains.
The losses in Australia also reduced statutory earnings through 1H'13,
since RGA Reinsurance assumes business from RGA Australia. Fitch
believes the poor results in Australia raise questions about overall
risk management and the company's appetite for growth.
RGA's other segments reported results generally in line with
expectations. Canada's operating earnings were lower due primarily to
better than expected mortality in the prior year.
The decline in earnings depressed the company's GAAP earnings-based
interest coverage. Fitch believes, however, that the group's ability to
service its debt remains sound. The holding company has committed to
maintaining cash and liquid assets of at least 1.5x interest expense. As
of June 30, 2013, RGA had $497 million of cash and invested assets at
the holding company level compared with $58 million of adjusted interest
expense. There is no holding company debt maturing until 2017.
Fitch views RGA's financial leverage as in line with its median
guidelines for the current rating at 27% as of June 30, 2013 and
year-end 2012. The total financing and commitments ratio (TFC) is
relatively high at 1.2x.
Fitch views the statutory capitalization of RGA Reinsurance as adequate,
although the company relies on support from its parent to maintain
targeted capital levels. RGA Reinsurance's risk-based capital (RBC)
ratio is estimated to be well above 300% at the end of the second
quarter and is expected to be in the 350% to 360% range for full-year
Fitch's primary concern is the potential for increased earnings
volatility due to a change in RGA's operating profile. RGA's current
ratings are based in part on the company's historical focus on
traditional individual life mortality rsk in the U.S. and Canada, where
results have been stable. Fitch notes that, while individual mortality
experience is still the dominant driver of operating earnings in the
U.S. traditional segment, non-traditional business, including long-term
care and group life and health, account for an increasing proportion of
earnings in this segment, and that trend is expected to continue. Fitch
views this non-traditional business as potentially riskier.
Fitch has also historically viewed RGA as being in non-asset-intensive
businesses. Fitch is monitoring asset growth because of its concern that
contraction in RGA's core U.S. traditional market will cause it to look
for growth in riskier asset-intensive businesses. Asset leverage - GAAP
assets in relation to adjusted equity - was 8x as of June 30, 2013,
unchanged from Dec. 31, 2012.
Fitch is also concerned that heightened regulatory scrutiny of the use
of captives could have a negative impact on RGA.
The ratings assigned to RGA reflect 'non-standard' notching relative to
the IFS rating assigned to RGA Reinsurance. Based on Fitch's notching
guidelines for reinsurers, standard notching between the subsidiary IFS
rating and parent company's IDR rating is one notch. The current
two-notch difference between RGA Reinsurance's 'A+' IFS rating and RGA's
'A-' IDR reflects Fitch's view that RGA Reinsurance has not been a
consistent source of cash flow to the parent. RGA's ratings could be
upgraded one notch to 'standard' notching if RGA Reinsurance became a
consistent source of cash flow to the holding company.
Key rating triggers that could result in a downgrade include: Further
deterioration in the Asia Pacific segment or a loss in another segment
that prevents a recovery in GAAP earnings to 2012 levels within the next
12 to 18 months; GAAP interest coverage maintained below 7x; RBC of RGA
Reinsurance drops well below 300% on a sustained basis; holding company
financial leverage above 30%; TFC maintained well above 1x; GAAP asset
leverage of 10x or higher.
Key rating triggers that could result in an upgrade include: RBC of RGA
Reinsurance of 400% or more on a sustained basis; financial leverage
(excluding collateral financing) maintained in the 15% range; a TFC
ratio of .6x or below on a sustained basis; GAAP interest coverage of
10x or more and GAAP asset leverage below 6x.
Fitch has affirmed the following ratings with a Stable Outlook:
Reinsurance Group of America, Inc.
--IDR at 'A-;
--5.625% senior notes due March 15, 2017 at 'BBB+';
--6.45% senior notes due Nov. 15, 2019 at 'BBB+';
--5.00% senior notes due June 1, 2021 at 'BBB+';
--6.75% junior subordinated debentures due Dec. 15, 2065 at 'BBB-';
--6.20% subordinated debt due 2042 at 'BBB-'.
RGA Reinsurance Company
--IFS at 'A+'.
Additional information is available at 'www.fitchratings.com'.
The issuer did not participate in the rating process, or provide
additional information, beyond the issuer's available public disclosure.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (August 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ Back To Technology News's Homepage ]