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Reinsurance Group of America Reports Third-Quarter Results

Reinsurance Group of America, Incorporated (NYSE: RGA), a leading global provider of life reinsurance, reported third-quarter net income of $227.6 million, or $3.47 per diluted share, compared with $198.7 million, or $3.07 per diluted share, in the prior-year quarter. Adjusted operating income* totaled $226.0 million, or $3.44 per diluted share, compared with $159.4 million, or $2.46 per diluted share, the year before. Net foreign currency fluctuations had a favorable effect of $0.02 per diluted share on net income and on adjusted operating income. Book value per share at September 30 was $125.79 including AOCI, and $100.54 excluding AOCI*.

Consolidated net premiums totaled $2.5 billion, up 11 percent from last year’s third quarter, with favorable net foreign currency effects of approximately $18.3 million. Excluding spread-based businesses and the value of associated derivatives, investment income rose 16 percent over year-ago levels, reflecting a 7 percent increase in average invested assets. Variable investment income was strong this quarter compared to the year-ago quarter and the second quarter of this year. The average investment yield, excluding spread businesses, was up 38 basis points from the third quarter of 2016 to 4.81 percent, reflecting the strong variable investment income. The average investment yield was 21 basis points higher than the second-quarter yield due primarily to a higher level of variable investment income. The effective tax rate was approximately 33 percent on pre-tax GAAP income and pre-tax adjusted operating income for the third quarter, within an expected range of 33 to 34 percent.

Anna Manning, president and chief executive officer, commented, “This was an exceptionally good quarter, as bottom-line results were particularly strong and our top line remained vibrant. Furthermore, diversity of earnings sources, inherent to our global model, continues to be an important contributor to our success.

“A highlight of the quarter was the strong performance of the U.S. segment, driven primarily by very favorable individual mortality experience and above-average variable investment income. Earnings in our U.S. Traditional business segment reached a record level.

“We closed a number of smaller in-force and other transactions during the quarter, and we remain optimistic about the pipeline. We ended the quarter with an excess capital position of approximately $1.0 billion, after repurchasing approximately 209,000 shares for $26.9 million.

“Looking forward, we are well positioned in our markets, we have a proven strategy, and we are confident about our ability to continue to deliver attractive financial returns.”

SEGMENT RESULTS

U.S. and Latin America

Traditional

The U.S. and Latin America Traditional segment reported pre-tax income of $160.5 million, compared with $77.1 million in the third quarter of 2016. Pre-tax adjusted operating income totaled $162.0 million for the quarter, compared with $80.5 million in last year’s third quarter. Results for the current quarter reflected very favorable mortality experience and above-average variable investment income.

Traditional net premiums increased 4 percent from last year’s third quarter to $1,327.2 million.

Financial Solutions

The Asset-Intensive business reported pre-tax income of $67.1 million compared with $88.7 million last year. Third-quarter pre-tax adjusted operating income improved to $72.6 million from $58.7 million last year, attributable to favorable experience on payout annuities and above-average variable investment income.

The Financial Reinsurance business reported pre-tax income and pre-tax adjusted operating income of $22.0 million, up from $14.0 million the year before due to strong, recent new business volumes.

Canada

Traditional

The Canada Traditional segment reported pre-tax income of $28.8 million, compared with $34.3 million the year before. Pre-tax adjusted operating income totaled $27.4 million, compared with $30.6 million in the third quarter of 2016. Mortality experience in the current quarter was moderately unfavorable while the year-ago quarter was in line with expectations. Foreign currency exchange rates had a favorable effect of $1.5 million on pre-tax income and $1.4 million on pre-tax adjusted operating income.

Reported net premiums totaled $225.8 million for the quarter, down from $231.2 million in the year-ago period due to the continued effects of an expected reduction in creditor business. Net foreign currency fluctuations had a favorable effect of $9.0 million on net premiums.

Financial Solutions

The Canada Financial Solutions business segment, which consists of longevity and fee-based transactions, reported third-quarter pre-tax income and pre-tax adjusted operating income of $4.5 million, compared with $1.2 million a year ago, attributable mainly to favorable longevity experience. Net foreign currency fluctuations favorably affected pre-tax income and pre-tax adjusted operating income by $0.2 million.

Europe, Middle East and Africa (EMEA)

Traditional

The EMEA Traditional segment reported pre-tax income and pre-tax adjusted operating income of $15.4 million, compared with $8.5 million in last year’s third quarter. The current-period results were slightly above expectations while the previous period reflected unfavorable underwriting experience. Net foreign currency fluctuations favorably affected pre-tax income and pre-tax adjusted operating income by $0.7 million.

Reported net premiums increased 25 percent from the prior-year period to $344.2 million, due to new business across the segment and growth of existing treaties. Foreign currency exchange rates favorably affected net premiums by $7.3 million.

Financial Solutions

The EMEA Financial Solutions business segment includes longevity, asset-intensive and fee-based transactions. Pre-tax income totaled $31.0 million, compared with $43.8 million in the year-ago period. Pre-tax adjusted operating income totaled $29.7 million, compared with $33.9 million the year before. Current-period results reflected favorable longevity experience, compared with favorable experience in both asset-intensive and longevity in the prior-year period. Net foreign currency fluctuations favorably affected pre-tax income and pre-tax adjusted operating income by $0.1 million.

Asia Pacific

Traditional

The Asia Pacific Traditional segment reported pre-tax income and pre-tax adjusted operating income of $26.6 million, compared with $19.8 million in the prior-year period. Results in Asia for the current year period were slightly below expectations, and Australia had a modest loss. The year-ago period results reflected favorable experience in Asia and unfavorable results in Australia. Net foreign currency fluctuations had an adverse effect of $1.0 million on pre-tax income and pre-tax adjusted operating income.

Reported net premiums rose 33 percent to $536.9 million, with strong growth across Asia, primarily from new and existing treaties in Hong Kong and Southeast Asia. Foreign currency exchange rates had a favorable effect of $1.0 million on net premiums.

Financial Solutions

The Asia Pacific Financial Solutions business segment includes asset-intensive and fee-based transactions. Pre-tax losses totaled $0.2 million, compared with pre-tax income of $7.5 million in the prior-year period. Pre-tax adjusted operating losses totaled $0.2 million, compared with pre-tax adjusted operating income of $2.3 million in the prior-year quarter. Current-period results reflected losses in line with expectations from a treaty that is in runoff. Net foreign currency fluctuations had a favorable effect of $0.1 million on pre-tax losses and $0.2 million on pre-tax adjusted operating losses.

Corporate and Other

The Corporate and Other segment’s pre-tax loss totaled $15.4 million, compared with a pre-tax loss of $7.3 million the year before. Pre-tax adjusted operating losses were $21.7 million, relatively in line with expectations, versus year-ago pre-tax adjusted operating losses of $19.0 million.

Dividend Declaration

The board of directors declared a regular dividend of $0.50, payable November 28 to shareholders of record as of November 7.

Earnings Conference Call

A conference call to discuss third-quarter results will begin at 11 a.m. Eastern Time on Friday, October 27. Interested parties may access the call by dialing 877-545-1402 (domestic) or 719-325-4904 (international). The access code is 2443753. A live audio webcast of the conference call will be available on the Company’s Investor Relations website at www.rgare.com. A replay of the conference call will be available at the same address for 90 days following the conference call. A telephonic replay also will be available through Saturday, November 4, at 888-203-1112 (domestic) or 719-457-0820 (international), access code 2443753.

The Company has posted to its website a Quarterly Financial Supplement that includes financial information for all segments as well as information on its investment portfolio. Additionally, the Company posts periodic reports, press releases and other useful information on its Investor Relations website.

Use of Non-GAAP Financial Measures

RGA uses a non-GAAP financial measure called adjusted operating income as a basis for analyzing financial results. Beginning with the announcement of first-quarter 2017 results, the Company modified the labeling of its non-GAAP measure “operating income” to “adjusted operating income.” This measure also serves as a basis for establishing target levels and awards under RGA’s management incentive programs. Management believes that adjusted operating income, on a pre-tax and after-tax basis, better measures the ongoing profitability and underlying trends of the Company’s continuing operations, primarily because that measure excludes substantially all of the effect of net investment related gains and losses, as well as changes in the fair value of certain embedded derivatives and related deferred acquisition costs. These items can be volatile, primarily due to the credit market and interest rate environment, and are not necessarily indicative of the performance of the Company’s underlying businesses. Additionally, adjusted operating income excludes any net gain or loss from discontinued operations, the cumulative effect of any accounting changes, and other items that management believes are not indicative of the Company’s ongoing operations. The definition of adjusted operating income can vary by company and is not considered a substitute for GAAP net income.

Book value per share excluding the impact of AOCI is a non-GAAP financial measure that management believes is important in evaluating the balance sheet in order to ignore the effects of unrealized amounts primarily associated with mark-to-market adjustments on investments and foreign currency translation.

Adjusted operating income per diluted share is a non-GAAP financial measure calculated as adjusted operating income divided by weighted average diluted shares outstanding. Adjusted operating return on equity is a non-GAAP financial measure calculated as adjusted operating income divided by average shareholders’ equity excluding AOCI. Similar to adjusted operating income, management believes these non-GAAP financial measures better reflect the ongoing profitability and underlying trends of the Company’s continuing operations, they also serve as a basis for establishing target levels and awards under RGA’s management incentive programs.

Reconciliations from GAAP net income, book value per share, net income per diluted share and average stockholders’ equity are provided in the following tables. Additional financial information can be found in the Quarterly Financial Supplement on RGA’s Investor Relations website at www.rgare.com in the “Financial Information” section.

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