RGA boss says Q1 results 'below expectation' as COVID-19 bites; Moody's goes negative

Reinsurance Group of America (RGA) chief executive Anna Manning says the company's first quarter 2020 results were "below expectations" due to the impact of COVID-19 and the turmoil in the financial markets.

Ratings agency Moody's has revised the outlook of RGA to 'negative' from 'stable' reflecting concerns about the potential for significant losses arising from the coronavirus pandemic that could lower profitability and capitalisation.

The reinsurer swung to a first quarter net loss of $88 million, compared with net income of $170 million in the prior-year quarter. RGA's consolidated net premiums totaled $2.8 billion, up 3 percent from last year’s first quarter, with adverse net foreign currency effects of $33 million. Premium growth was negatively influenced by foreign currency and some slowdown of growth in Asia due to the pandemic.

Majority of its business segments, except traditional segments in Canada and EMEA, US Group, and Asia financial solutions business, reported a loss, while the Australia business produced a modest profit.

The reinsurer's Asia Pacific traditional segment was negatively affected by some catch-up in reporting of morbidity claims.

The US individual mortality business saw elevated claims, attributable to an above-average frequency of claims. The company believes some of these additional claims may have been COVID-19 related.

Moody's stated the negative outlook reflects uncertainty surrounding the impact on RGA's credit profile as the coronavirus progresses given the potential for higher mortality claims in the company's key markets. RGA has a substantial concentration in mortality risk, it could be subject to earnings and capital pressure in the event of an acceleration of the pandemic on the insurable population. The largest concentration of reinsured mortality risk for RGA is in the US and to a lesser extent in Canada and the UK. According to Moody's base case scenarios, RGA's earnings will decline and capitalisation will be pressured as infection and mortality rates increase.

Manning, president and chief executive officer, said: “Our operating results were below our expectations, reflecting the impact of the COVID-19 virus and the turmoil in the financial markets. The net loss was primarily due to the movement in embedded derivatives, which reflected the disruption in the financial markets and the impact on credit spreads."

She added: “Despite the challenging environment, we continue to support our clients, and we executed on a number of in-force transactions, deploying $55 million of capital during the quarter. We repurchased $153 million in stock earlier in the quarter. We ended the quarter with an excess capital position of approximately $700 million.

“COVID-19 and its related effects will present challenges in terms of the potential for higher claims and increased investment credit losses. While it is premature to accurately predict the ultimate impact of this virus on RGA, we believe that we can manage through the environment, given our strong balance sheet, excess capital, ample liquidity, and an investment portfolio that is defensively positioned.”