Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. REINSURANCE GROUP OF AMERICA INC (898174) 10-Q published on May 03, 2019 at 10:09 am
Reporting Period: Mar 30, 2019
The effective tax rate for the three months ended March 31, 2019 and 2018 was higher than the U.S. Statutory tax rate of 21% primarily as a result of income in non-U.S. jurisdictions with tax rates greater than the U.S. and losses in foreign jurisdictions for which the company established a valuation allowance, which was partially offset with tax benefits related to bases differences in non-U.S. jurisdictions. The effective tax for the three months ended March 31, 2018 was further increased due to the inclusion of U.S. tax related to global intangible low-taxed income (“GILTI”).
Investment related gains, net increased by $8.3 million for the three months ended March 31, 2019, as compared to the same period in 2018. The increase is primarily due to a decrease in realized losses of $18.4 million compared to the same period in 2018. The reduction in realized loss was partially offset by less favorable changes in the fair value of embedded derivatives on modco or funds withheld treaties in the current period compared to 2018 reflecting the impact of changes in interest rates and credit spreads on the calculation of fair value. Changes in the fair value associated with these embedded derivatives reduced investment related gains by $2.1 million for the first three months of 2019 compared to an increase of $13.6 million in the first three months of 2018. Impairments on fixed maturity securities increased by $9.5 million in the first three months of 2019, as compared to the same period in 2018. See Note 4 - “Investments” and Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives.
Income before income taxes increased by $24.6 million, or 35.0%, for the three months ended March 31, 2019, as compared to the same period in 2018. The increase in income before income taxes was primarily due to the impact of higher investment related gains (losses) in the Asset-Intensive segment as well as improved claims experience within the U.S. Traditional segment. Offsetting these somewhat was the change in the value of the embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld basis, net of the corresponding impact to deferred acquisition costs.
Income before income taxes for the U.S. and Latin America Traditional segment increased by $8.8 million for the three months ended March 31, 2019, as compared to the same period in 2018. The increase is primarily due to improved claims experience in 2019 from both individual mortality and group business.
Loss ratios were 78.3% and 84.2% for the three months ended March 31, 2019 and 2018, respectively. The decrease in the loss ratio for the first quarter of 2019, as compared to the same period in 2018, is due to favorable traditional individual life mortality experience and the aforementioned new inforce block transaction in the last quarter of 2018. Loss ratios for the traditional individual life mortality business were 83.5% and 91.3% for the first three months ended March 31, 2019 and 2018, respectively. Excluding creditor business, claims as a percentage of net premiums for this segment were 73.2% and 77.0% for the three months ended March 31, 2019 and 2018, respectively. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of long-term permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent
level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year claims costs to fund claims in later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. As such, investment income becomes a more significant component of profitability of these in force blocks. Excluding creditor business, claims and other policy benefits, as a percentage of net premiums and investment income were 70.1% and 75.3% for the three months ended March 31, 2019 and 2018, respectively.
Market risk is the risk of fluctuations in the value of financial instruments as a result of absolute or relative changes in interest rates, foreign currency exchange rates, equity prices or commodity prices. To varying degrees, the Company products and services, and the investment activities supporting them, generate exposure to market risk. The market risk incurred, and the Company’s strategies for managing this risk, vary by product. As of March 31, 2019, there have been no material changes in the Company’s economic exposure to market risk or the Company’s Enterprise Risk Management function from December 31, 2018, a description of which may be found in its Annual Report on Form 10-K, for the year ended December 31, 2018, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” filed with the Securities and Exchange Commission.