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28 Nov 2005
MOODY'S RATES REINSURANCE GROUP OF AMERICA, INC.'S JUNIOR SUBORDINATED NOTES AT Baa3
Approximately $400 million of securities affected
New York, November 28, 2005 -- Moody's Investors Service has assigned a Baa3 debt rating to Reinsurance
Group of America, Inc.'s (NYSE:RGA) $400
million issue of junior subordinated notes. The notes will have
a 60 year final maturity and will be offered in two fixed rate tranches
-- the first will be callable after five years, and
the second callable after ten years. After the call periods,
the coupons on both debentures will become floating rate. If the
debentures are called or redeemed, RGA intends to replace the notes
with another security that has equal or greater equity content.
Moody's said that it rated these debentures at Baa3, one notch
below the company's other subordinated debt (Baa2) because these
debentures are subordinated to all other securities except preferred stock.
In the event of bankruptcy, loss severity on these debentures is
expected to be greater than that of the company's existing subordinated
Coupon payments are deferrable at the option of RGA and certain covenants
of the notes require mandatory suspension of coupons if certain financial
tests are met and not cured within 6 months. The tests for mandatory
suspension consist of 1) the NAIC risk based capital ratio (RBC) below
175% of Company Action Level for key life insurance companies or;
2) (a) negative GAAP net income for the trailing four quarter period and,
(b) equity decline of at least 10% over the most recent eight quarter
period and, (c) insufficient increase of equity within the next
two quarter periods to an equity level that would have avoided a failure
of the second test (i.e. 2b.).
In the event a financial test is met and there is a mandatory interest
deferral, RGA must, after one year, use commercially
reasonable efforts to settle coupons through the sale of common stock.
After a one year grace period, and subject to a market disruption
event, the company is obligated to attempt to common share settle
on every payment date. If that is not possible, then the
claim could build to a cash claim in bankruptcy, ranking equally
with the junior subordinated debentures, of up to 25% of
the principal amount. If a mandatory deferral event continues beyond
25% of total principal, any further deferred distribution
payments will be forgiven in the event of bankruptcy. In case of
liquidation, the notes rank junior to all other creditors,
but senior to preferred stockholders and common stock shareholders.
Because of the equity-like features contained in the notes,
the rating agency stated that the debentures will receive "Basket D" analytic
treatment on Moody's Hybrid Debt-Equity Continuum, and will
be counted as 75% equity and 25% debt for financial leverage
calculations. The interest payments will be taken as presented
under GAAP and incorporated into the fixed charge coverage ratio.
Moody's said that the main contributing equity-like features of
the debentures include the following: a) a degree of permanence
through the notes' stated 60 year maturity and capital replacement
language; b) the requirement to suspend ongoing cash coupon payments
through the action of mandatory deferral triggers described above and;
c) loss absorption as a result of the debenture's junior position
in the group's capital structure.
Moody's stated that it expects RGA to use $100 million of
the proceeds to pre-fund senior notes maturing in April 2006,
$100 million to repurchase common stock, and the balance
for general corporate purposes, including capital injections to
fund growth at the operating subsidiaries. Because the rating agency
expects that the portion of the proceeds used to pre-fund the notes
maturing April 2006 will be invested in highly liquid, high-grade,
short-term securities between the time of issuance and the April
2006 maturity date, it stated that it will analytically adjust year-end
financial leverage to exclude that portion of the issuance.
Moody's stated that RGA's rating reflects the company's strong market
position in the North American life reinsurance industry, its status
as a key player in facultative reinsurance and its expertise in managing
mortality risk as demonstrated by the company's performance in its
core domestic operations. According to the rating agency,
RGA has increased its domestic market share by successfully integrating
a block of business it acquired from Allianz in 2003. In addition,
Moody's noted that RGA has opportunities for international expansion in
selected markets, although the rating agency added that growth in
international and non-traditional businesses presents additional
monitoring, regulatory, political and structuring risks.
According to the rating agency, RGA's strengths are somewhat offset
by the relatively higher volatility in reinsurance results. Moody's
also noted that RGA Reinsurance Company has had low statutory earnings,
partly driven by statutory strain related to growth. The rating
agency added that it is concerned that the pace of continued mortality
improvements could slow, and commented that domestic growth could
also slow, given the current high level of new life insurance business
being reinsured. In addition, Moody's noted that RGA has
exposure to catastrophic risks and terrorist events.
Moody's last rating action on RGA was on July 14, 2005 when
the rating agency confirmed the credit ratings of RGA and its subsidiary,
RGA Reinsurance Company. That rating action concluded a review
with direction uncertain that had been begun on January 31, 2005.
RGA, headquartered in Chesterfield, Mo., reported
total assets of about $15.4 billion and shareholders' equity
of approximately $2.5 billion as of September 30,
Moody's Insurance Financial Strength Ratings are opinions of the ability
of insurance companies to repay punctually senior policyholder claims
Visit our website at www.moodys.com/insurance.
Financial Institutions Group
Moody's Investors Service
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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