GFS Pre-Tax Income
Strategic Execution Produces Strong Year
GFS strengthened its position as a financial solutions partner of choice in 2019, generating a record-high $659 million in pre-tax income, a 46% increase over the previous year. Earnings were broad-based, reflecting strong performance of existing blocks of business as well as new business acquired through structured transactions executed across a range of product types and markets. RGA deployed $465 million into in-force and other transactions in 2019, making it one of the company’s most active years, while maintaining a disciplined, selective approach in a highly competitive environment.
Relentless strategic execution across all product lines – including capital solutions, asset-intensive, and longevity – drives GFS’s success. Since executing its first capital-solutions transaction in 1995, RGA has become an industry leader in providing surplus relief, solvency capital relief, and structured financing to help clients meet regulatory requirements and grow their businesses. The asset-intensive line, which produced an exceptional year in 2019, provides creative solutions to reduce clients’ capital strain from, and improve their returns on, savings- and retirement-oriented products, such as fixed and variable annuities, payout annuities, and interest-sensitive life insurance. To support client products offered to pension plans and individual annuitants, GFS delivers highly tailored longevity reinsurance solutions, including longevity-only, asset-intensive longevity, tail risk, and other innovative structures.
North America Team Sets New Standard
In the U.S., a dynamic regulatory and business environment produced an active market for financial transactions in 2019. Despite increased competition, GFS successfully leveraged its strong market position to capitalize on emerging opportunities and achieve a record-high $398 million in pre-tax income, an increase of 59% over 2018. Asset-intensive business was particularly active as RGA successfully executed a number of in-force transactions and also supported clients on a flow reinsurance basis.
Following the U.S. market-first longevity swap executed by RGA in 2018, GFS continued to build out its U.S. longevity business in 2019, investing in resources and infrastructure to facilitate long-term growth. Expertise in longevity transactions globally positions RGA as a solutions leader in the U.S. pension risk transfer reinsurance marketplace. As U.S. insurers continue to support buyouts of pension liabilities, the GFS team has identified longevity as a strategic growth priority and an opportunity to bring added value to client partners.
The stable value team, which provides wrap coverage to 401(k) and other defined benefit plans in the U.S., navigated an evolving market environment to acquire $1.5 billion in new business in 2019. RGA entered the stable value business in 2012 and has since selectively increased the number of provider partners and the types of defined benefit plans covered. As of December 31, 2019, the notional amount of RGA’s stable value wrap portfolio was $13.8 billion, a 3% increase over the previous year.
For GFS in Canada, sustained momentum produced an increase in pre-tax income of 50% over 2018. As the market continued to adapt to solvency requirements under the Life Insurance Capital Adequacy Test (LICAT) regime, the team pursued opportunities to leverage RGA’s balance sheet in support of clients’ long-term growth strategies. RGA also proactively worked with clients to address their unique challenges related to upcoming changes to accounting standards (IFRS 17) and to begin to develop reinsurance solutions.
Client Focus Drives Growth in EMEA and Asia
Strong in-force performance and new business growth generated solid earnings for GFS in EMEA: Pre-tax income totaled $223 million in 2019, compared with $197 million the prior year. In the U.K., an active pension risk transfer market drove longevity business as GFS experts employed innovative solutions such as small-scheme flow structures to earn business amid intense competition. Pension risk activity accelerated on the Continent as well, particularly in the Netherlands, where RGA executed its first longevity swap. In Ireland, RGA completed its first euro-denominated asset-intensive transaction, developing new capabilities in the process and opening up a significant new market for the EMEA team. Throughout the region, GFS created capital relief structures as clients’ financial and business needs dictated, including continued activity with lapse-focused transactions in South Africa.
The GFS team in Asia enjoyed a landmark 2019 as accelerating momentum produced record highs in new business, total revenues, and net income. Maturing markets, changing regulations, and ongoing low interest rates drove insurers in Asia to seek opportunities to optimize both new and in-force business and to free up capital. Asset-intensive business remained the central pillar of GFS’s growth strategy in the region, and the team leveraged its established presence to execute a growing number of larger transactions. Continued innovation in response to client needs created new opportunities for growth. “Just in time” structures, for example, allowed clients to access capital when needed in response to changing interest rates. Overall, a strong year solidified RGA’s position as a financial solutions leader in the region.