September 28, 1999
New York, NY

RGA Escapes General American's Problems
Jack B. Lay, Executive Vice President

Reinsurance Group of America Inc. has so far escaped the problems associated with the financial failure of its parent company, General American Mutual Holding Co., the company's chief executive officer said.

RGA, a life reinsurer that is 53% owned by General American, said it has lost very little new business since General American volunteered to go under the Missouri Insurance Department's supervision when its financial strength ratings fell and it defaulted on at least $4 billion in funding agreements with institutional investors (BestWeek, Aug. 16, 1999).

RGA reinsured about 25% of the funding agreements.

"We've been making quotes, even winning treaties, throughout all this turmoil over the last few weeks," said RGA CEO Greig Woodring, speaking at a CIBC life insurance conference co-sponsored by A.M. Best Co.

RGA is the second-largest North American life reinsurer, holding 10.5% of the market share, according to the Society of Actuaries. For 1998, the company had net premiums written of $1.8 billion, and capital and surplus of $373.8 million, according to A.M. Best data.

RGA said that Metropolitan Life Insurance Co.'s plan to buy General American for $1.2 billion has helped customers to remain confident in the company, despite the lower financial ratings it has because of General American's problems. For example, A.M. Best Co. downgraded its rating of RGA to B++ from A+ and placed it under review with negative implications

As long as the MetLife purchase remains on schedule, RGA doesn't expect many problems, Woodring said. The sale is expected to close in December. "If it gets beyond that, it gets more and more tenuous and we could get less and less business," Woodring said.

Unlike property/casualty reinsurance, life reinsurance doesn't revolve around renewal cycles, but generally remains in place until policies are paid. Because of that, General American's problems would only affect new business. "Life reinsurance premiums persist year after year. We simply add on layers," Woodring said.

"Any lost business is a slight aberration," said Jack Lay, RGA's chief financial officer. "Our clients have been amazingly loyal. We can escape from this, if not unscathed, then with very little lost opportunity."

Lay said RGA will continue to operate independently after MetLife buys General American. In turn, RGA expects its business to improve. "We will end the year with a much stronger parent," he said. "MetLife is a marquee name."

Woodring, meanwhile, said the life-reinsurance industry as a whole should grow quickly over the next several years as life insurers shed mortality risk while becoming more focused. That business, he said, can include business written 20 or 30 year ago, just as easily as business written this year, he said.

Still, there is plenty of business to chase. According to the Society of Actuaries, only about 18% of $16.2 trillion of life insurance in force was reinsured in 1998. However, the amount of in-force life insurance has more than doubled since 1994 to $2.9 trillion, compared to $1.4 trillion. Woodring said that about half of all new business is reinsured.

Several factors have been driving the growth, Woodring said. First, life insurers see themselves as asset gatherers and managers. "Mortality is becoming a smaller and smaller piece of their balance sheet," he said. As a result, insurers keep the assets, but pass on the risk.

Also, reinsurers have been helping mutual companies develop closed blocks of business to help stabilize earnings as they prepare to become publicly traded. "There's no magic here; someone has to take a one-time hit, but they project a better image going forward, as they dump business that would yield low returns on equity," Woodring said.

Nontraditional products have also been driving growth for RGA and other life reinsurers. Those include setting up captives for agency groups, venturing into corporate and bank-owned life insurance, financial reinsurance, and financial engineering which helps companies use capital more effectively.

RGA trades as "RGA" on the New York Stock Exchange.