Rating agency A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ and issuer credit ratings (ICR) of “aa-” of RGA Reinsurance Company and RGA Life Reinsurance Company of Canada. A.M. Best also has affirmed the ICR of “a-” and the debt ratings of the existing debt securities and indicative ratings of Reinsurance Group of America Incorporated (RGA). The outlook for all ratings is stable.

A.M. Best acknowledges RGA’s strong franchise position and client retention in the North American market, which accounted for 73% of its 2008 pre-tax operating income. The company is expected to grow at the rate of 7–9% in traditional North American markets going forward.

Reinsurance Group’s international expansion also insulates it from earnings volatility. The high growth rate is further expected in international markets, with double-digit growth coming from the Asia-Pacific region. The company has maintained adequate capital levels.

Reinsurance Group maintains a favorable liquidity position, reflecting the high quality of its asset portfolio, strong asset liability management capabilities and sufficient statutory risk-adjusted capital position.

The company’s financial leverage ratios remain within tolerance levels for the current ratings. Its debt-to-capital ratio moderated to 25.4% in 2008 from 28.9% in 2007 and 26.6% in 2006. Moreover, it has favorable debt servicing capabilities, with cash flows supported by profitable operations.

On the negative side, the rating agency also takes into account the foreign exchange exposures of the company due to its substantial international presence. For 2008, approximately 43% of the revenues, 31.9% of net premium written and $151.2 million of income from continuing operation was derived from the company’s international operations.

Reinsurance Group of America has however been negatively affected by the global economic crisis witnessed by the volatility in its operating results. Prior to the release of third quarter financial results on Oct. 26, we maintain a Neutral recommendation on the shares.
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