REINSURANCE GROUP OF AMERICA INC

U.S. and Latin America Operations

The U.S. and Latin America operations consist of two major segments: Traditional and Financial Solutions. The Traditional segment primarily specializes in the reinsurance of individual mortality-risk, health and long-term care and to a lesser extent, group reinsurance. The Financial Solutions segment consists of Asset-Intensive and Capital Solutions. Asset-Intensive within the Financial Solutions segment includes coinsurance of annuities, corporate-owned life insurance policies, pension risk transfer (“PRT”) group annuity contracts and, to a lesser extent, fee-based synthetic guaranteed investment contracts, which include investment-only, stable value contracts. Capital Solutions within the Financial Solutions segment primarily involves assisting ceding companies in meeting applicable regulatory requirements by enhancing the ceding companies’ financial strength and regulatory surplus position through relatively low risk reinsurance and other transactions. Typically, these transactions do not qualify as reinsurance under GAAP, due to the low-risk nature of the transactions, therefore only the related net fees are reflected in other revenues on the consolidated statements of income.

The following table summarizes income before income taxes for the Company’s U.S. and Latin America operations for the periods presented:

The increase in income before income taxes in 2023 was primarily the result of a decrease in remeasurement losses due to assumption updates and favorable claims experience in 2023 as compared to the prior year in U.S. Traditional lines of business, partially offset by a recapture fee earned on a terminated Capital Solutions transaction in 2022.

The decrease in income before income taxes in 2022 was primarily driven by higher investment related losses and a decrease in the fair value of the embedded derivatives associated with modco/funds withheld treaties within Financial Solutions and unfavorable impacts from assumption updates in the U.S. Traditional lines of business, partially offset by favorable claims experience in 2022 as compared to 2021.

(1) Includes Claims and other policy benefits and Future policy benefits remeasurements (gains) losses

The increase in income before income taxes in 2023 for the U.S. and Latin America Traditional segment was primarily due to organic growth on existing treaties as well as new business treaties, a decrease in remeasurement losses due to assumption updates in 2023 as compared to the prior year and improved claims experience across all lines of business in 2023, driven in large part by a significant reduction in COVID-19 claims compared to 2022, partially offset by lower variable investment income in the current period.

•The increase in net premiums was primarily due to organic growth on existing treaties as well as new business. The segment added new life business production, measured by face amount of reinsurance in force, of $154.3 billion and $145.9 billion during 2023 and 2022, respectively. Also contributing to the increase in net premiums was the recapture of a retrocession treaty, effective April 1, 2023, which resulted in a reduction in ceded premium in the current year.

•The decrease in net investment income was primarily due to a decrease in variable investment income, partially offset by higher yields.

•The decrease in future policy benefits remeasurement losses in 2023 was attributable to a remeasurement loss in the amount of $17 million as a result of updating the assumptions used to measure the liability for future policy benefits compared to a remeasurement loss of $170 million in 2022 from assumption updates, and favorable claims experience relative to the prior year. The favorable claims experience was primarily in the U.S. Individual Life business and, in large part, related to reduced COVID-19 claims in 2023.

•The decrease in policy acquisition costs and other insurance expenses as a percentage of net premiums was less than 1% and primarily due to varying allowance levels within coinsurance type arrangements and the mix of new business between coinsurance versus yearly renewable term.

The increase in income before income taxes in 2022 for the U.S. and Latin America Traditional segment was primarily due to organic growth on existing treaties as well as new business and favorable claims experience in 2022 relative to period year, primarily in the U.S. Individual Life business in large part, related to COVID-19 claims, partially offset by unfavorable impacts from assumption updates in 2022 as compared to 2021.

The increase in income before income taxes in 2023 for the U.S. and Latin America Financial Solutions segment was primarily due to the change in the fair value of embedded derivatives and market risk benefits remeasurement gains (losses), net of the change in the fair value of the associated free standing derivatives, and higher net investment income due to increases in interest rates in Asset-Intensive, partially offset by a decrease in Capital Solutions associated with a recapture fee earned on a terminated transaction in 2022.

The increase in premiums was primarily due to single premium pension risk transfer (“PRT”) transactions completed in 2023, which are offset by an associated increase in reserves.

The book value of the invested asset base supporting asset-intensive transactions decreased to $20.9 billion as of December 31, 2023, from $23.8 billion as of December 31, 2022.

•The decrease in the asset base was primarily due to $2.4 billion of net run off in existing in force transactions and $2.6 billion associated with an in force retrocession transaction, partially offset by $2.1 billion from new transactions.

•As of December 31, 2023 and 2022, $3.7 billion and $4.2 billion, respectively, of the invested assets were funds withheld at interest, of which greater than 90% was associated with two clients.

Capital Solutions

The decrease in income before income taxes for the U.S. and Latin America Capital Solutions line of business was primarily due to a non-recurring recapture fee earned on a terminated transaction in 2022. Fees earned from this business can vary significantly depending on the size of the transaction and the timing of their completion and therefore can fluctuate from period to period.

As of December 31, 2023 and 2022, the amount of reinsurance assumed in Capital Solutions transactions, as measured by pre-tax statutory surplus, risk based capital and other financial structures was $25.5 billion and $25.7 billion, respectively.

Asset-Intensive

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 indexed annuities (“EIAs”). In addition, the Company recognizes the changes in fair value of market risk benefits associated with guaranteed minimum benefit riders. 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.

Income from the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modco or funds withheld basis, embedded derivatives associated with the Company’s reinsurance of EIAs and changes in the fair value of market risk benefits associated with guaranteed minimum benefit riders. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value of assets and liabilities.

The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives and market risk benefits for the periods presented. Revenues before certain derivatives, benefits and expenses before certain derivatives, and income before income taxes and certain derivatives, should not be viewed as substitutes for GAAP revenues, GAAP benefits and expenses, and GAAP income before income taxes.

Embedded Derivatives– Modco/Funds Withheld Treaties– Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis. The Company’s utilization of a credit valuation adjustment did not have a material effect on the change in fair value of these embedded derivatives for the years ended December 31, 2023 and 2022.

The change in fair value of the embedded derivatives related to modco/funds withheld treaties decreased income before income taxes by $167 million in 2023, which was primarily driven by the impact of lower risk-free interest rates on funds withheld liability balances. The decrease in fair value in 2022 was primarily driven by the impact of higher risk-free interest rates and widening credit spreads on funds withheld receivable balances.

Market Risk Benefits– Represents the impact related to market risk benefits, which consist of guaranteed minimum benefits associated with the Company’s reinsurance of certain annuity products including the associated free standing derivatives (interest rate swaps, financial futures and equity options), purchased by the Company to economically hedge the market risk benefit. The change in fair value of the market risk benefits, net of the changes in the associated free standing derivatives, decreased income before income taxes by $40 million in 2023. The decrease in income for 2023 was primarily due to increasing interest rates. The decrease in income for 2022 was attributable to a change in the benchmark rate to the secured overnight financing rate and increasing interest rates.

Equity-Indexed Annuities– Represents changes in the liability for equity-indexed annuities in excess of changes in account value. The change in fair value of embedded derivative liabilities associated with equity-indexed annuities increased income before income taxes by $6 million in 2023 and $53 million in 2022, primarily due to an increase in interest rates which had the impact of lowering the fair value of the liability.

Discussion and analysis before certain derivatives and market risk benefits

The changes in derivatives and market risk benefits discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including benchmark rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and market risk benefits as the primary factors that drive profitability of the underlying treaties are investment income, fee income (included in other revenues) and interest credited.

•Income before income taxes and certain derivatives and market risk benefits increased by $49 million in 2023, primarily due to higher investment income and higher investment related gains (losses), net in coinsurance and funds withheld portfolios due to increases in interest rates.

•Revenue before certain derivatives and market risk benefits increased by $1,568 million in 2023, primarily due to PRT single premiums and higher investment income due to an increase in interest rates. PRT premiums are offset by a corresponding increase in future policy benefits.

•Benefits and expenses before certain derivatives and market risk benefits increased by $1,519 million in 2023, primarily due to the establishment of liabilities for future policy benefits associated with PRT transactions, which was offset by a corresponding increase in premiums, for a net loss impact of $42 million related to the 2023 PRT transaction.

The decrease in income before income taxes in 2022 for the U.S. and Latin America Financial Solutions segment was primarily due to lower investment related gains (losses), net primarily due to a decrease in the fair value of embedded derivatives related to modco/funds withheld treaties and higher net investment related losses in coinsurance portfolios, partially offset by a recapture fee earned on a termination transaction on Capital Solutions business in 2022.