Fitch Affirms Reinsurance Group of America’s IDR at ‘A-‘; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'A-' Issuer Default Rating (IDR) and 'BBB+' senior debt rating of Reinsurance Group of America, Inc. (RGA). At the same time, Fitch has affirmed the 'A+' Insurer Financial Strength (IFS) rating of RGA Reinsurance Co. (RGA Reinsurance), RGA's primary U.S. operating subsidiary. The Rating Outlook for all ratings is Stable. A full rating list is shown below.

The affirmation reflects Fitch's view that RGA's leverage and coverage remain within expectations for the rating, statutory capitalization is adequate, operating results remain relatively stable, and the company's market position remains strong.

RGA's financial leverage ratio of 27% at Sept. 30, 2011, is in line with expectations for the rating level. The increase from 19% at year-end 2010 is due to a combination of Fitch's elimination in 2011 of equity credit for certain hybrids and RGA's issuance of $400 million in senior notes in May of 2011. Half of the proceeds from the debt issuance were used to pay off debt maturing in December 2011, so Fitch expects the ratio to decline somewhat for the full-year 2011. The group's total financing and commitments (TFC) ratio was .9 times (x) at Sept. 30, 2011, flat with year-end 2010. As expected, the company retired $159 million of hybrid debt in the first half of 2011.

RGA's GAAP earnings coverage of interest expense is in line with rating expectations in the 8x range. Statutory interest coverage is below average, but Fitch notes that the holding company has not relied on operating company dividends for debt service. The holding company does receive interest payments in the $45 million to $48 million range annually from surplus notes issued by affiliates. This is equivalent to almost half of the holding company interest expense. The holding company also had $539 million in cash and liquid assets at the end of 2011 net of the $200 million debt maturity in December. Also in December, RGA completed a new $850 million credit facility which expires in 2015. There were no outstanding borrowings at year-end.

RGA's core operating performance has remained relatively stable, driven primarily by mortality experience in the U.S. and Canada. The U.S. mortality loss ratio was up 2% through the first nine months of 2011 but was partially offset by improved mortality experience in Canada. Investment yields declined, but margins improved due to reduced interest credited in line with industry trends. Fitch believes the group has below average exposure to equity market volatility and interest rate risk related to spread products with minimum rate guarantees. The company has consistently generated above-average operating returns. Credit related impairments were up somewhat through the first nine months of 2011, but Fitch views them as moderate in relation to the total investment portfolio.

RGA has maintained and strengthened its leading positions in the U.S. and Canadian ordinary life recurring premium markets, with a focus on mortality risk. RGA maintained its leading position in 2010 despite new business growth of less than 1% (U.S. and Canada combined) and a 15% decline for the U.S. industry as a whole. Net premium growth was up about 1% through the first nine months of 2011.

Fitch's primary concern is RGA's reliance on the capital markets to fund internal growth and acquisitions as well as to finance 'excess' statutory reserve requirements related to term life insurance with long-term guarantees reinsured by RGA Reinsurance. The company's U.S. risk-based capital (RBC) ratio has historically been supported by retrocession, securitization and contributions from the parent, and that is expected to continue. RGA Reinsurance's RBC was estimated at 335% as of Sept. 30, 2011, compared to 355% at year-end 2010. The RBC is expected to be in the 330% to 350% range for the full year 2011. Fitch views as a positive that RGA has little exposure to short-term funding, including commercial paper or securities lending.

The ratings assigned to RGA, Inc. 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 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: RBC of RGA Reinsurance drops well below 300% on a sustained basis; a significant unexpected decline in total adjusted capital (TAC) at RGA Reinsurance; a significant deterioration in North American loss ratios; holding company financial leverage above 30%; TFC well above 1 times (x); and GAAP EBIT coverage below 5x.

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 total financing and commitments (TFC) ratio of .6x or below on a sustained basis; and GAAP earnings coverage of 10x or more.

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% million junior subordinated debentures due Dec. 15, 2065 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 other than through the medium of its public disclosure.

The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Sept. 22, 2011.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Fitch Ratings
Primary AnalystCynthia J. CrossonDirector
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Fitch, Inc.
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or
Secondary AnalystTana M. HigmanDirector
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or
Committee ChairpersonBrian C. SchneiderSenior Director
+1-312-606-2321
or
Media Relations:Brian Bertsch, +1-212-908-0549 (New York)
[email protected]

Source: Fitch Ratings