A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of RGA Reinsurance Company (RGA Re) (St. Louis) and RGA Life Reinsurance Company of Canada (RGA CN) (Montreal, Canada).
A.M. Best has also affirmed the ICR of “a-“and the debt ratings of Reinsurance Group of America, Inc’s (RGA) existing debt securities and indicative ratings under RGA’s shelf registration. The outlook for all ratings has been revised to negative from stable.
The affirmation of the financial strength rating reflects RGA Re and RGA CN’s very strong franchise in the North American life reinsurance market, core competency in life insurance underwriting and adequate risk-adjusted capitalization.
Despite strong operating fundamentals and profitable operations, A.M. Best has revised the rating outlook on the three entities to negative due primarily to concerns about weakened operating performance.
Operating results have been hurt by a significant increase in death claims in both the United States and the United Kingdom, resulting in a sharp reduction in 2005 earnings as compared to the same period last year.
In addition, RGA posted additional reserves of $24 million related to its discontinued Argentine business, bringing total reserve charges for this book of business to $69 million over the past four years. Reduced earnings from the U.S. and U.K. operations were partially offset by continued favorable results from its Canadian and Asian business segments.
Although RGA has historically benefited from its 51.9% ownership by MetLife Inc., A.M. Best believes the reduced returns and uncertainty with respect to future financial performance may reduce MetLife’s commitment to RGA over the medium term, therefore raising uncertainty regarding its future ownership.
Due to its growth strategy, RGA Re has achieved increases in revenue while continuing to increase market share in North America, United Kingdom, Europe and Asia. RGA Re has grown both organically and by acquisition, including the life reinsurance business of Allianz Life Insurance Company of North America (Allianz Life).
A.M. Best views RGA’s debt servicing capabilities favorably, with cash flows supported by profitable operations coming from its strong franchise in the North American life reinsurance market.
Furthermore, RGA maintains a strong liquidity position, enhanced by a high quality asset portfolio and adequate statutory risk-adjusted capital position. However, A.M. Best notes that in recent periods the trend of certain GAAP balance sheet quality measures has declined.
Although mortality experience may be cyclical, the outlook for the near to medium term is negative, as A.M. Best continues to monitor RGA’s progress regarding mortality development and earnings growth.
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