RGA’s overall capitalisation levels will remain unchanged after MetLife transaction

AM Best 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). The outlook for all ratings is stable.

The rating affirmations follow MetLife's 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 capitalisation levels will remain unchanged. The ratings of MetLife are unchanged.

AM Best has viewed RGA’s ratings on a standalone basis in recent years reflecting its belief that RGA is no longer a core operation of MetLife.

Accordingly, AM Best’s view of RGA, in light of the tax-free split-off transaction, is unchanged. As RGA has been operating autonomously, AM 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 US and Canadian life reinsurance markets, complemented by continued growth from select international markets.

The ratings also recognise RGA’s sufficient risk-adjusted capitalisation, 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.

AM 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, AM 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, AM Best believes there are potential challenges inherent in raising capital as a pure stand-alone company.