Best’s News & Research Service - June 02, 2008 04:14 PM (EDT)
A.M. Best Affirms Ratings of Reinsurance Group of America, Incorporated
OLDWICK, N.J. //BestWire// - A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of RGA Reinsurance Company (RGA Re) (St. Louis, MO) and RGA Life Reinsurance Company of Canada (RGA CN) (Montreal). A.M. Best also has affirmed the ICR of “a-”and debt ratings of the existing debt securities and indicative ratings of Reinsurance Group of America, Incorporated (RGA) [NYSE: RGA] (St. Louis, MO). The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)
The rating affirmations follow MetLife, Inc.’s (MetLife) [NYSE: MET] announced tax-free split off of substantially all of its RGA common ownership interest. The transaction is structured as a tax-free split off, and RGA’s overall capitalization levels will remain unchanged. The ratings of MetLife are unchanged.
A.M Best has viewed RGA’s ratings on a stand-alone basis in recent years reflecting its belief that RGA is no longer a core operation of MetLife. Accordingly, A.M. Best’s view of RGA, in light of the tax-free split-off transaction, is unchanged. As RGA has been operating autonomously, A.M. Best believes the company’s future direction and growth objectives will not change. In addition, RGA has been a very limited user of MetLife’s corporate services and has not relied on MetLife for operational or capital support.
RGA’s ratings are based on its strong franchise position in the U.S. and Canadian life reinsurance markets, complemented by continued growth from select international markets. The ratings also recognize RGA’s sufficient risk-adjusted capitalization, profitable operations and better risk diversification resulting from international expansion. Despite strong operating fundamentals, the group has recorded fluctuations in its results due to mortality fluctuations and variations in accounting treatment of certain reinsurance transactions and statutory strain associated with new business growth. In particular, RGA experienced heightened adverse mortality experience in both the United States and United Kingdom in its first quarter 2008 results. However, over the longer term, mortality experience has proven to be in line with the company’s pricing expectations. In addition, RGA has not experienced significant asset write-downs or impairments reflecting the overall conservative nature of its invested asset portfolio.
A.M. Best views RGA’s debt servicing capabilities favorably, with cash flows supported by its profitable operations and strong life reinsurance franchise. The company’s financial leverage ratios are within the tolerance levels for the current ratings, and its liquidity position remains favorable.
Although the outlook is stable, A.M. Best believes the potential for future earnings volatility exists as the life reinsurance market remains highly competitive, along with RGA’s lack of a long-term track record outside of North America. In addition, A.M. Best believes there are potential challenges inherent in raising capital as a pure stand-alone company.
The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for RGA Reinsurance Company and RGA Life Reinsurance Company of Canada.
The ICR of “a-” has been affirmed for Reinsurance Group of America, Incorporated.
The following debt ratings have been affirmed:
Reinsurance Group of America, Incorporated-
- “a-”on $200 million 6.75% senior unsecured notes, due 2011
- “a-” on $300 million 5.625% senior unsecured notes, due 2017
- “bbb” on $400 million junior subordinated debentures, due 2065
RGA Capital Trust I-(guaranteed by Reinsurance Group of America, Inc)
- “bbb+” on $225 million 5.75% trust preferred income equity redeemable securities (PIERS), due 2051
The following indicative ratings available under shelf registration have been affirmed:
Reinsurance Group of America, Incorporated-
- “a-” on senior debt
- “bbb+” on subordinated debt
- bbb” on preferred stock
RGA Capital Trust III and IV-
- “bbb+” on trust preferred securities