Executives at Reinsurance Group of America Inc. said they are unhappy with the recent performance of part of the company’s employer group disability excess reinsurance business and its group health care excess reinsurance business.
RGA executives talked about the performance of the units last week, during a conference call with securities analysts.
The Chesterfield, Missouri-based reinsurer held the call to go over earnings for the second quarter.
Todd Larson, RGA’s chief financial officer, and Anna Manning, RGA’s president, said they saw a higher incidence of claims at the group disability excess operation, and some reopened group disability claims.
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Larson said the group disability excess reinsurance treaties, or contracts, give RGA the ability to increases prices every year.
“We have been repricing, and we’ll continue to reprice, this business, as appropriate,” Larson said.
A reinsurer can write quota share reinsurance, or reinsurance set up in such a way that the reinsurer shares a fixed percentage of the direct insurer’s premiums and claims.
When a reinsurer writes excess reinsurance, the reinsurer agrees to pay the direct insurer after claims exceed a minimum level, until the claims reach a specified maximum level.
Manning said that, in the group health sector, RGA has been having trouble with health excess reinsurance. She said the concerns involve the performance of major medical coverage that’s subject to Affordable Care Act underwriting and benefits rules.
“We’ve taken what we think of as a measured approach to supporting some of these ACA-related businesses and Medicaid expansion businesses,” Manning said. “Our approach has been to limit our exposure to this business toa small portion of our total U.S. group business. There is volatility there, as I’m sure you’re well aware, around that business.”
Some of that volatility has now shown up in RGA’s own results, Manning said.
“We’re certainly going through a very detailed repricing effort,” Manning said. “We may lose some of that business.”
But RGA would rather focus on bottom-line earnings than simply make sales for the sake making sales, Manning said.
RGA’s Group Business
RGA agreed to acquire a large U.S. and Canadian group life, accident and health reinsurance business from ReliaStar, a unit of ING Groep N.V., in October 2009, as ING was wrestling with the effects of the Great Recession.
RGA did not say at the time what, if anything, it was paying for the business, but it said it expected to deploy about $115 million of its own capital to support the unit. RGA said it expected to take on about 90 Minneapolis-based ReliaStar employees.
Larson said the business includes a life and accident reinsurance operation, a special risk operation, and a health care quota share operation as well as the disability and health excess businesses.
“The U.S. group business, overall since we acquired it back in 2010, has been a good business for us,” Larson said.
RGA is reporting $204 million in net income for the second quarter on $2.6 billion in revenue, compared with $232 million in net income on $2.5 billion in revenue for the second quarter of 2017.
More information about the company’s earnings, including a link to a recording of the earnings call, is available here.
— Read Life Reinsurer Is Going Out for Business, on ThinkAdvisor.