REINSURANCE GROUP OF AMERICA INC

Discussions regarding our financial condition and results of operations for the year ended December 31, 2023, compared to the year ended December 31, 2022, and the year ended December 31, 2022, compared to the year ended December 31, 2021, are presented below.

The following table summarizes the changes in net income for the periods presented.

The increase in income in 2023 was primarily the result of the following:

•During 2023, the Company updated its assumptions which resulted in a future policy benefits remeasurement gain of $3 million compared to a future policy benefits remeasurement loss of $242 million in 2022. See Note 5 – “Future Policy Benefits” for additional information.

•An increase in net investment income attributable to an increase in the average invested asset base and higher interest rates on new investments.

•Favorable claims experience in the U.S. and Latin America and Asia Traditional segment during 2023 and future policy benefits remeasurement gains. The unfavorable experience in the prior period, included in future policy benefits remeasurement (gains) losses, was primarily attributable to higher than expected claims as a result of COVID-19 incurred in the first quarter of 2022.

Foreign currency fluctuations can result in variances in the financial statement line items. Foreign currency fluctuations decreased income before taxes by $15 million due to the weakening of certain foreign currencies compared to the U.S. Dollar, primarily, the Canadian Dollar and the Japanese Yen. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations.

Premiums and business growth

The increase in premiums was primarily due to single premium pension risk transfer (“PRT”) transactions completed during the year during 2023. The PRT single premiums received were offset by an increase in reserves. The remaining increase in premiums is primarily due to organic growth on existing treaties and new business production, measured by the face amount of reinsurance in force, of $363.0 billion during 2023 compared to $408.9 billion during 2022. Consolidated assumed life reinsurance in force increased to $3,704.1 billion as of December 31, 2023, from $3,400.7 billion as of December 31, 2022, due to new business production and changes in foreign exchange rates.

Net investment income and investment related gains and losses

The increase in net investment income is primarily attributable to an increase in the average invested asset base and higher risk-free rates earned on new investments, partially offset by a decrease in variable investment income associated with joint venture and limited partnership investments:

•The average invested assets at amortized cost, excluding spread related business, totaled $35.9 billion and $34.4 billion in 2023 and 2022, respectively.

•The average yield earned on investments, excluding spread related business, was 4.68% and 4.69% in 2023 and 2022, respectively. Investment yield remained relatively consistent the prior year, primarily due to decreased variable income from limited partnerships and real estate joint ventures, offset by the increase in risk-free interest rates.

The average yield will vary from year to year depending on several variables, including the prevailing risk-fee interest rate and credit spread environment, prepayment fees and make-whole premiums, changes in the mix of the underlying investments and cash and cash equivalents balances. Variable investment income from joint ventures and limited partnerships will also vary from year to year and is highly dependent on the timing of dividends and distributions on certain investments. Investment income is allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support segment operations.

The decrease in investment related gains (losses), net is attributable to the following:

•Changes in the fair value of free standing derivatives decreased investment related gains (losses), net by $129 million in 2023, compared to $166 million in 2022.

•Changes in the fair value of embedded derivatives associated with modco/funds withheld treaties, decreased investment related gains (losses) by $163 million in 2023, compared to $173 million in 2022.

•The Company incurred $61 million and $39 million of impairments and change in allowance for credit loss during the years ended December 31, 2023 and 2022, respectively.

•See the Investment section within Management Discussion and Analysis, Note 11 – “Investments” and Note 12 – “Derivative Instruments” in the Notes to Consolidated Financial Statements for additional information on the changes in allowance for credit losses, impairment losses and derivatives.

The effective tax rate on a consolidated basis was 21.8% and 27.3% for 2023 and 2022, respectively. The effective tax rate for 2023 was greater than the U.S. Statutory rate of 21.0% primarily due to income earned in jurisdictions with tax rates higher than the U.S. and changes to the valuation allowance which were partially offset with benefits from foreign tax credits and return to provision adjustments. The Company continues to record a valuation allowance on certain deferred taxes related to unrealized losses on the Company’s fixed maturity portfolio and considered the need for a valuation allowance on the remaining deferred tax asset associated with the fixed maturity securities. However, based on the ability to carryback and carryforward tax capital losses and the Company’s ability and intention to hold available for sale fixed maturity securities showing an unrealized loss until recovery, as described in Note 11 – “Investments” the Company determined it is more likely than not to realize the remaining deferred tax asset. See Note 14 – “Income Tax” in the Notes to Consolidated Financial Statements for additional information.

The decrease in income in 2022 compared to 2021 was primarily the result of the following:

•Changes in the fair value of derivative instruments, excluding embedded derivatives, included in investment related gains (losses), net. For the year ended December 31, 2022, the fair value of these instruments decreased by $301 million, compared to an increase of $90 million in 2022.

•$204 million, pre-tax, of net realized losses, included in investment related gains (losses), net associated with portfolio repositioning and higher interest rates compared to $234 million of net realized gains recognized in the prior year.

•The investment related losses were offset by a decrease in mortality claims as a result of lower COVID-19 claims and favorable non-COVID-19 experience in 2022.

Impact of certain derivatives and market risk benefits

The Company recognizes in consolidated income any changes in the fair value of embedded derivatives on modco or funds withheld treaties and equity index annuities (“EIAs”). In addition, the Company recognizes the changes in fair value of market risk benefits associated with guaranteed minimum benefit riders in market risk benefits remeasurement gains (losses). The Company utilizes freestanding derivatives to minimize the income statement volatility due to changes in the fair value of market risk benefits associated with guaranteed minimum benefit riders. The following table presents the effect of embedded derivatives, market risk benefits and related freestanding derivatives on income before income taxes for the periods indicated (dollars in millions):