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Rating Action:

Moody’s affirms RGA’s ratings; outlook to negative

05 May 2020

New York , May 5, 2020 – Moody's Investors Service, ("Moody's") has affirmed the ratings of Reinsurance Group of America, Incorporated (senior unsecured rating at Baa1, NYSE: RGA) and the A1 insurance financial strength (IFS) ratings of RGA's US insurance subsidiary, RGA Reinsurance Company (RGA Re). Moody's has changed the rating outlook to negative from stable reflecting concerns about the potential for significant losses arising from the coronavirus pandemic that could lower profitability and capitalization.

The rating action is in response to Moody's assessment of the possible effects of the coronavirus on RGA's credit profile. The coronavirus-related economic downturn is creating a severe and extensive credit shock across many sectors, regions and markets. The reinsurance industry – and RGA - has been one of the sectors affected by the shock resulting in a slowdown in business activity, as well as asset volatility and an expected increase in insurance claims. We regard the coronavirus pandemic as a social risk under our ESG framework, given the substantial implications for public health and safety.

Please refer to the complete list of affected ratings at the end of this press release.

RATINGS RATIONALE

Moody's said the ratings affirmations on RGA and its US insurance subsidiary, RGA Re is based on the company's strong brand and market reputation and significant operating scale driven by its leading market position with expertise in life reinsurance including mortality, morbidity, and longevity risk transfer, group (re)insurance, and inforce management solutions including structured insurance transactions. The rating agency added that RGA's ratings assume that the company will maintain a strong market position in the US, profitably grow its businesses in a measured manner, and limit its reliance on captives to support growth.

The negative outlook reflects uncertainty surrounding the impact on RGA's credit profile as the coronavirus progresses given the potential for higher mortality claims in the company's key markets. The spread of the coronavirus pandemic results in increased mortality risk, with significantly higher death rates in older age groups, and thus the potential for elevated mortality claims against life insurers. The largest concentration of reinsured mortality risk for RGA is in the United States and – to a lesser extent – Canada and the United Kingdom. Moody's expects the mortality rate within insured populations to be lower than for the general population due to a mix of factors, including the generally younger age of insureds, socio-economic characteristics, and the effectiveness of medical underwriting in moderating the number of insureds with significant underlying health conditions, who tend to be more susceptible to coronavirus.

Because RGA, like many reinsurers, has a substantial concentration in mortality risk, it could be subject to earnings and capital pressure in the event of an acceleration of the pandemic on the insurable population. Moody's has applied various scenarios to the company's global life reinsurance inforce, with a base case ranging from a 2% infection rate at the low end to 10% infection rate at the upper-end, with an average fatality rate of 1% across the population. These base case scenarios should be manageable for RGA, but earnings will decline and capitalization will be pressured as infection and mortality rates increase. Higher infection and mortality rates would pressure capital and ratings, although they are considered a remote possibility based on the current trajectory of the pandemic and the current success of containment measures. Ultimately, the total deaths in RGA's respective markets including the US will depend on the infection rate of the insurable population and the corresponding death rates at different ages.

Moody's will consider the performance of the business, level of reserves and capital in the US and the respective affiliates, RGA's concentration of older age inforce, credit fundamentals in its investment portfolio, and the many variables in determining the ultimate numbers of death claims on the insured population. Moody's believes the ultra-low interest rates, bear market, and coronavirus-driven restrictions on movement of the population will stress most aspects of life reinsurers' financials, including those of RGA. These factors impact new business, capital adequacy, and the investment portfolio's performance.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Given the negative outlook, there is limited upward pressure on RGA's ratings. A combination of the following drivers could return RGA's outlook to stable: (1) a lower probability for significant underwriting losses on the insurable population and more certainty of the pandemic's trajectory; (2) consolidated GAAP return on capital (ROC) consistently above 6% (ex AOCI); (3) NAIC RBC ratio of RGA Re above 350% (company action level) and well capitalized offshore captive entities; and (4) financial leverage below 25%.

Moody's added that given the significant capital volatility associated with the company's exposure to pandemic risk a downgrade of RGA's ratings could result from the following factors: (1) consistently worse-than-expected mortality experience or a worsening of the current pandemic progression causing a loss in GAAP capital of more than 10%; (2) GAAP ROC consistently below 6% (ex AOCI) ; (3) RBC ratio of RGA Re below 325% (CAL) and/or deterioration of capitalization of offshore captives; (4) financial leverage consistently above 30%, earnings interest coverage below 7x; or (5) if a collateral call on RGA due to a stress scenario (at the holding company) exceeds 35% of GAAP equity (ex AOCI).

AFFECTED RATINGS:

The following ratings have been affirmed:

Reinsurance Group of America, Incorporated: senior unsecured shelf at (P)Baa1; subordinated shelf at (P)Baa2; junior subordinated shelf at (P)Baa2; preferred stock shelf at (P)Baa3; non-cumulative preferred stock shelf at (P)Baa3; senior unsecured debt at Baa1; junior subordinated debt at Baa3(hyb); subordinated debt at Baa2 (hyb);

RGA Capital Trust III: preferred stock shelf at (P)Baa2;

RGA Capital Trust IV: preferred stock shelf at (P)Baa2.

RGA Capital Trust I: preferred stock at Baa2(hyb);

RGA Reinsurance Company: insurance financial strength at A1;

RGA Global Funding: senior secured medium term note program at (P)A1.

Outlook Actions:

..Issuer: Reinsurance Group of America, Incorporated:

....Outlook, Negative from Stable

..Issuer: RGA Capital Trust III

....Outlook, Negative from Stable

..Issuer: RGA Capital Trust IV

....Outlook, Negative from Stable

..Issuer: RGA Capital Trust I

....Outlook, Negative from Stable

..Issuer: RGA Reinsurance Company

....Outlook, Negative from Stable

..Issuer: RGA Global Funding

....Outlook, Negative from Stable

Reinsurance Group of America, Incorporated, headquartered in Chesterfield, Missouri, reported total assets of approximately $76.7 billion and shareholders' equity of $11.6 billion as of December 31, 2020.

The principal methodology used in these ratings was Reinsurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187551 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bob Garofalo
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

© 2020 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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