Q4 2003 Reinsurance Group of America, Incorporated Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone, welcome to the Reinsurance Group of America fourth quarter conference call. Today's call is being recorded. At this time I would like to turn the call over to the President and Chief Executive Officer, Mr. Greig Woodring and Executive Vice President and Chief Financial Officer Mr. Jack Lay. Please go ahead, gentlemen.

JACK LAY, CHIEF FINANCIAL OFFICER, EXECUTIVE VICE PRESIDENT, REINSURANCE GROUP OF AMERICA: Okay. This is Jack. Good morning and welcome to RGA's fourth quarter 2003 conference call.

I will turn the call over to Greig Woodring our CEO in just a minute, Dave Atkinson our Chief Operating Officer is also here this morning for the call. Greig will come in on the results, then we will respond to any questions from any of the participants this morning.

As a reminder, during the call we plan to make certain statements and discuss certain subjects that will contain forward-looking information. Including among other statements relating to projections of revenue or earnings, and future financial performance and growth potential of RGA and its subsidiaries.

You are cautioned that actual results could differ materially from expected results. A list of important factors that could cause those actual results to differ materially is included in the earnings release statement issued yesterday. In addition, during the course of the call, we will make comments about our results based upon operating income, both on a pretax and after tax basis.

Under S.E.C. regulations, operating income is considered a non-GAAP financial measure. We believe this measure better reflects the ongoing profitability and underlying trends of our continuing operations because it excludes several items. Including, first,the net effect of capital gains and losses and any related impact of DAC amortization tend to be highly variable and not directly relate to the performance of our reinsurance treaties therefore we exclude those items.

Also our discontinued operations, which are no longer part of our on going business, are excluded from operating earnings, and, finally, also excluded is the change in fair value of embedded derivatives and related deferred acquisition costs and amortization for certain treaties structured on a modified co-insurance or funds withheld basis. The the fair value of embedded derivatives in these treaties fluctuates primarily due to movements in credit spreads and do not affect the interest income we earn or interest credited under the various reinsurance treaties.

This adjustment applies only to modified coinsurance or funds withheld insurance treaties in our asset intensive segment and as a result of the newly adopted B-36 accounting standard. During the quarter, this new accounting standard resulted in an after tax gain of approximately $9 million. If we own a fixed maturity security supporting the funds withheld balances, this $9 million adjustment would have been captured as part of a FAS adjustment, shareholders equity and recorded as an unrealized gain in stockholders equity.

Going forward we expect this adjustment to fluctuate each quarter since it is tied to movements and credit spreads and a significant amount of our asset intensive business is structured on a micro or funds withheld basis. Note that any such reported gains or losses are unrealized and this reporting does not affect the return expectations or cash flows over the life of those treaties.

Please refer to the tables in our press release for the reconciliations of operating income to net income. With that, I will turn it over to Greig for his comments on the fourth quarter.

GREIG WOODRING, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR, REINSURANCE GROUP OF AMERICA: Good morning, thank you for joining us. We completed the year on a solid note. We closed the Allianz transaction in the fourth quarter and successfully added over $400 million to our capital basis for a common equity offering. Additionally we finished the year with mortality results that were within our range of expectation.

On a consolidated basis, operating income for the quarter totaled $48.2 million, 28% above the fourth quarter of 2002. On a per share basis, our reported operating income for the quarter was 85 cents per diluted share. This represents the 12% increase over the prior year results of 76 cents per diluted share.

The quarter's results were affected by the fact that we closed Allianz transaction which contributed approximately $6.8 million in after-tax earnings and the offering which added a modest amount of earnings per share dilution. Having not closed the …