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Rating Action:

MOODY'S RATES REINSURANCE GROUP OF AMERICA, INC.'S JUNIOR SUBORDINATED NOTES AT Baa3

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 debt.

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, 2005.

Moody's Insurance Financial Strength Ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations.

Visit our website at www.moodys.com/insurance.

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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