Fitch Affirms Reinsurance Group of America’s Ratings; Outlook Stable

CHICAGO--(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 is Stable. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

RGA's ratings reflect its strong market position as the largest provider of individual and group life reinsurance in North America and as one of the leading life and health reinsurers in the world; solid long-term financial performance and earnings; adequate risk adjusted capitalization; and ample liquidity. Offsetting these positives are the rapid growth of an asset intensive business; the company's increased financial leverage; and RGA Reinsurance's reliance on captives to finance excess statutory reserve requirements.

Fitch views RGA's run-rate profitability as generally good and in line with rating expectations. During 2014, the company reported net operating income of $638 million, corresponding with a return on equity of approximately 12%. However, Fitch anticipates that growth in profitability over the medium term will be constrained by competitive challenges in the company's core U.S. traditional business, higher mortality and morbidity in select markets, and ongoing low interest rates.

Fitch is also concerned about 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 risk 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, newer business, including long-term care, longevity risk 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 newer business as potentially riskier.

Fitch is monitoring asset growth because of the concern that contraction in RGA's core U.S. traditional market will cause it to look for growth in riskier asset-intensive businesses and increase its exposure to interest rate risk. Asset leverage (GAAP assets in relation to adjusted equity) was 8x as of year-end 2014.

Fitch views RGA's financial leverage as at the high end of its median guidelines for the current rating. The financial leverage ratio was approximately 30% at year-end 2014. The company's total financing and commitments ratio of 1.1x is also considered high. Fitch believes, however, that the group's ability to service its debt remains sound. GAAP operating earnings-based interest coverage was 8.2x in 2014.

Fitch believes RGA's liquidity at the holding company level is strong. The holding company has committed to maintain cash and liquid assets of approximately $300 million. At year-end 2014, the holding company had $623 million in cash and invested assets, or almost 5x projected 2015 interest expense. The next upcoming debt maturity is in 2017.

Fitch views the statutory capitalization of RGA Reinsurance as adequate, although the company relies on affiliated captive reinsurance to maintain target capital levels. RGA Reinsurance's reported risk-based capital (RBC) ratio was 366% at year-end 2014.

RGA uses affiliated captive reinsurers primarily to manage the excess statutory reserves associated primarily with its term-life book of business. Fitch views RGA's above-average reliance on captive reinsurance as a unique risk, given the current regulatory scrutiny of captive arrangements used by life insurers. A change in the regulatory approach to affiliated reserve financing arrangements could have a negative impact on RGA's financial flexibility and capital management strategies.

RATING SENSITIVITIES

Key rating triggers that could result in a downgrade include:

--A decline in GAAP earnings as evidenced by deterioration in GAAP interest coverage to below 7x;

--RBC of RGA Reinsurance drops well below 325% on a sustained basis;

--Holding company financial leverage above 30%;

--Total financing and commitments (TFC) ratio maintained materially 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 maintained in the 15% range;

--A TFC ratio of 0.6x or below on a sustained basis;

--GAAP interest coverage of 10x or more;

--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+';

--4.70% senior notes due in 2023 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 OTHER THAN THROUGH THE MEDIUM OF ITS PUBLIC DISCLOSURE.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (September 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983639

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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON 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 WEBSITE.

Fitch Ratings

Primary Analyst

Tana M. Higman, +1-312-368-3122

Director

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Douglas L. Meyer, CFA, +1-312-368-2061

Managing Director

or

Committee Chairperson

Brian C. Schneider, +1-312-606-2321

Senior Director

or

Media Relations

Alyssa Castelli, +1-212-908-0540 (New York)

[email protected]

Elizabeth Fogerty, +1-212-908-0526 (New York)

[email protected]

Source: Fitch Ratings