Reinsurance Group of America, Incorporated (NYSE:RGA), a leading global provider of life reinsurance, reported net income for the third quarter of $76.5 million, or $1.19 per diluted share, compared to $74.0 million, or $1.17 per diluted share, in the prior-year quarter. RGA uses a non-GAAP financial measure called operating income as a basis for analyzing financial results. The definition of operating income and reconciliations to GAAP net income are provided in the following tables. Operating income increased 28 percent to $95.6 million, or $1.49 per diluted share, from $74.7 million, or $1.18 per diluted share, in the year-ago quarter. On a per share basis, operating income increased 26 percent. Third-quarter net premiums rose 14 percent, to $1,227.9 million, from $1,076.2 million a year ago. Net investment income totaled $190.5 million versus $183.4 million the year before.
For the first nine months of 2007, net income totaled $230.2 million or $3.59 per diluted share, compared to $206.7 million, or $3.29 per diluted share, in the year-ago period. Operating income totaled $262.3 million, or $4.08 per diluted share, compared to $212.2 million, or $3.38 per diluted share, in the prior-year period, a 21 percent increase on a per share basis. Consolidated net premiums were up 13 percent, to $3,561.0 million from $3,145.2 million.
A. Greig Woodring, president and chief executive officer, commented, "We reported solid earnings, with notably strong results in Canada and Asia Pacific more than offsetting slightly high claim levels in the Europe and South Africa operating segment. The U.S. segment reported pre-tax net income totaling $66.2 million for the quarter versus $84.8 million the year before. That decrease is primarily a result of a $13.8 million decrease, net of deferred acquisition costs, in the value of embedded derivatives due to the impact of widening credit spreads in the U.S. debt markets. Additionally, pre-tax net income includes $10.9 million in realized losses, primarily from the sales of investment securities as we refined duration on certain portfolios. Pre-tax operating income increased 6 percent to $89.9 million from $84.9 million the year before. Claim levels were within an expected range in the Traditional segment. Additionally, capital losses on securities sales within the funds withheld portfolios reduced net investment income within the Asset Intensive segment. Net premiums were up 7 percent to $691.9 million from $648.1 million in the prior-year quarter. On a year-to-date basis, net premiums have increased 8 percent.
"Our Canada operations reported another strong quarter on favorable mortality, with pre-tax net income of $22.8 million compared to $13.5 million a year ago. Pre-tax operating income totaled $20.3 million, up substantially from $12.1 million a year ago. Net premiums increased 20 percent to $123.7 million from $103.3 million in the prior year. On a year-to-date basis, premiums are up 17 percent. Net premiums for the third quarter of 2007 were favorably affected by currency exchange rates relative to the prior year by approximately $8.4 million, as the Canadian dollar strengthened relative to the U.S. dollar. The impact of foreign currency fluctuations favorably affected pre-tax operating income by approximately $1.9 million.
"Asia Pacific reported a good quarter as well with strong premium flow and favorable segment-wide claims experience. Pre-tax net income totaled $17.2 million compared with $20.4 million in the year-ago quarter while pre-tax operating income totaled $17.6 million compared with $20.4 million a year ago. The prior-quarter result was quite strong making for a challenging comparison. Net premiums increased 35 percent to $240.5 million from $178.5 million, with particularly strong premium flow in South Korea. Foreign currency fluctuations favorably affected net premiums and pre-tax operating income by approximately $13.6 million and $1.5 million, respectively.
"Europe and South Africa experienced slightly high claim levels. Pre-tax net income totaled $11.7 million compared to $8.8 million a year ago and pre-tax operating income totaled $12.6 million versus $8.9 million last year, a period in which we experienced unfavorable mortality. Net premiums increased 17 percent to $170.8 million. Foreign currency exchange fluctuations favorably affected reported net premiums and pre-tax operating income by approximately $11.4 million and $1.4 million, respectively, due primarily to a relatively strong British Pound and Euro.
"The Corporate and Other segment benefited by $9.4 million, pretax, primarily from the reversal of accrued interest expense associated with certain tax positions, as required under the accounting guidance commonly referred to as "FIN 48". Those tax positions were favorably resolved during the quarter. Additionally, our consolidated effective tax rate of 33.6 percent was below historical levels due to the resolution of these tax positions and various other tax accrual adjustments. We would expect our effective tax rate to return to a more normal level in the fourth quarter."
Woodring concluded, "We are pleased with the results for the quarter and the first nine months of the year. Each of our segments has performed very well on a year-to-date basis. The RGA franchise continues to be recognized as a preeminent player in the global life reinsurance market and we believe we are well positioned to take advantage of substantial growth opportunities in several international markets. Additionally, we believe we can enhance our already strong positions in the U.S. and Canadian markets through additional product offerings and increased market share."
The company also announced that its board of directors declared a regular quarterly dividend of $0.09, payable November 28 to shareholders of record as of 7 November.
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