REINSURANCE GROUP OF AMERICA INC

A discussion regarding our financial condition and results of operations for the year ended December 31, 2024, compared to the year ended December 31, 2023, and the year ended December 31, 2023, compared to the year ended December 31, 2022, are presented below.

Consolidated income before income taxes

The following table summarizes the changes in net income for the periods presented (dollars in millions, except per share data):

Year ended December 31, 2024, compared to the year ended December 31, 2023

Consolidated results

The decrease in income during 2024 was primarily the result of the following:

•During the third quarter of 2024, the Company completed its annual assumptions review resulting in a remeasurement loss, primarily driven by updated lapse assumptions in India, partially offset by favorable mortality updates in the U.S. and Canada. The 2023 annual assumptions update resulted in an immaterial gain million in the third quarter of 2023. See “Consolidated Adjusted Operating Income Before Taxes” and Note 5 – “Future Policy Benefits” for additional information.

•During the third quarter of 2024, the Company made a decision to increase its per life retention limit from $8 million to $30 million. As a result, the Company expects to recapture business previously retroceded starting in 2025. The increased retention limit and updated recapture assumption resulted in a future policy benefits remeasurement loss recognized in the third quarter of 2024. See “Consolidated Adjusted Operating Income Before Taxes” and Note 10 – “Reinsurance” for additional information.

•Non-economic loss recognized at the inception of a single premium pension risk transfer (“PRT”) transaction completed during 2024. The non-economic loss at inception is the difference between the single premium received and the valuation of the initial reserve based on interest rates prescribed by U.S. GAAP.

•An increase in investment related losses resulting from portfolio repositioning partially offset by changes in the fair value of embedded derivatives associated with modco/funds withheld treaties.

Foreign currency fluctuations can result in variances in the financial statement line items. Foreign currency fluctuations increased income before income taxes by $16 million due to the weakening of the Japanese yen and Korean won on losses incurred in Japan and Korea, and the strengthening of the British pound compared to the U.S. Dollar. Unless otherwise stated, all amounts discussed below are net of foreign currency fluctuations.

Investment related gains and losses

The increase in investment related losses, net is attributable to the following:

•During 2024 and 2023, the Company repositioned its investment portfolio to generate higher yields which led to net capital losses of $617 million and $203 million, respectively.

•Changes in the fair value of free standing derivatives increased investment related losses, net by $229 million in 2024, compared to $129 million in 2023.

•The Company incurred $76 million and $61 million of impairments and change in allowance for credit losses during the years ended December 31, 2024 and 2023, respectively.

The increase in investment related losses, net was partially offset by the following:

•Changes in the fair value of embedded derivatives associated with modco/funds withheld treaties, decreased investment related losses, net by $116 million in 2024, compared to an increase in investment related losses, net of $163 million in 2023.

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.

Market risk benefits

Represents the impact related to market risk benefits, which consist of guaranteed minimum benefits associated with the Company’s reinsurance of variable and equity-indexed annuities. The fair value changes of market risk benefits along with the changes in fair value of the freestanding derivatives (interest rate swaps, financial futures and equity options) purchased by the Company to substantially hedge the liability are reflected in revenues. The change in fair value of market risk benefits for guaranteed minimum benefits, after allowing for changes in the associated freestanding derivatives, decreased income before income taxes, by $21 million and $40 million in 2023.

Non-economic changes in insurance liabilities

Non-economic changes in insurance liabilities include the initial loss on PRT transactions, net of amortization, and changes in the fair value of embedded derivatives associated with the Company’s reinsurance of EIAs. The initial loss at inception of a PRT transaction is the difference between the single premium received and the valuation of the initial reserve based on interest rates prescribed by U.S. GAAP. During 2024 and 2023, the Company incurred non-economic losses of $127 million and $36 million, respectively.

Income taxes

The effective tax rate on a consolidated basis was 26.3% and 21.8% for 2024 and 2023, respectively. The effective tax rate for 2024 was greater than the U.S. Statutory rate of 21.0% primarily due to income in non-U.S. jurisdictions and tax expense on legal entity restructuring which were partially offset with benefits due to the release of valuation allowances in non-U.S. jurisdictions and benefits related to return to provision adjustments. See Note 14 – “Income Tax” in the Notes to Consolidated Financial Statements for additional information.

The increase in income in 2023 compared to 2022 was primarily the result of the following:

•The annual assumptions review had less of an impact in 2023 compared to 2022. See “Consolidated Adjusted Operating Income Before Taxes” and Note 5 – “Future Policy Benefits” in the Notes to Consolidated Financial Statements for additional information.

•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.

Consolidated adjusted operating income before income taxes

Non-GAAP Measure – Adjusted operating income before income taxes is not determined in accordance with U.S. GAAP. The Company principally uses adjusted operating income before income taxes in evaluating performance because the Company believes that such measure, when reviewed in conjunction with relevant U.S. GAAP measure (i.e., income before income taxes), presents a clearer picture of its operating performance and is used by the Company in the allocation of its resources. The Company believes that this non-GAAP financial measure provides investors and other third parties with a better understanding of the Company’s results of operations, financial statements and the underlying profitability drivers and trends of the Company’s businesses by excluding specified items which may not be indicative of the Company’s ongoing operating performance and may fluctuate significantly from period to period. These measures should be considered supplementary to the Company’s financial results that are presented in accordance with U.S. GAAP and should not be viewed as a substitute for U.S. GAAP measures. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way the Company calculates such measures. Consequently, the Company’s non-GAAP financial measures may not be comparable to similar measures used by other companies.

Adjusted operating income (loss) before taxes is calculated as income (loss) before income taxes excluding, as applicable:

•Substantially all of the effect of net investment related gains and losses;

•Changes in the fair value of embedded derivatives;

•Changes in the fair value of contracts that provide market risk benefits;

•Non-economic losses at contract inception for direct pension risk transfer single premium business (which are amortized into adjusted operating income within claims and other policy benefits over the estimated lives of the contracts);

•Any net gain or loss from discontinued operations;

•The cumulative effect of any accounting changes;

•The impact of certain tax related items; and

•Any other items the Company believes are not indicative of the Company’s ongoing operations.

See “Segment Accounting Policies” within Note 19 – “Segment Information” in the Notes to Consolidated Financial Statements for additional information regarding the presentation of segment results and the Company’s definition of adjusted operating income.

Reconciliation of income before taxes to adjusted operating income (loss) before taxes

The reconciliation of income (loss) before income taxes to adjusted operating income before income taxes is shown below for the periods presented (dollars in millions):

Year ended December 31, 2024, compared to the year ended December 31, 2023

The increase in adjusted operating income before income taxes in 2024 was primarily the result of the following:

•An increase in premiums due to new business growth and management in force actions during 2024.

•An increase in other income primarily attributable to higher surrender charges related to an increase in lapses on a single premium block of business

The increases in adjusted operating income were partially offset by the following:

•During the third quarter of 2024, the Company completed its annual assumptions review resulting in a loss of $58 million, primarily driven by updated lapse assumptions in India, partially offset by favorable mortality updates in the U.S. and Canada. The 2023 annual assumptions update resulted in a gain of $3 million in the third quarter of 2023. See Note 5 – “Future Policy Benefits” for additional information.

•During the third quarter of 2024, the Company made a decision to increase its per life retention limit from $8 million to $30 million. The current per life retention limit has been effective since 2008. Since then, the Company has grown significantly and further diversified its business, thus increasing the ability to absorb earnings volatility related to claims. Additionally, the recently adopted LDTI accounting standard further reduces earnings volatility related to claims. These factors led to the decision to increase the per life retention limit effective January 1, 2025. As a result, the Company expects to recapture business previously retroceded starting in 2025. The increased retention limit and updated recapture assumption resulted in a future policy benefits remeasurement loss of $136 million recognized in the third quarter of 2024. The higher per life retention limit is expected to increase profits in the future. See Note 10 – “Reinsurance” for additional information.

•An increase in other operating expenses due to higher compensation costs related to incentive compensation accruals and an increase in consulting costs related to an expansion of information technology projects.

See “Results of Operations by Segment” for additional discussion of current and prior period results of operations.

Foreign currency fluctuations can result in variances in the financial statement line items. Foreign currency fluctuations increased adjusted operating income before income taxes by $5 million primarily due to the strengthening of the British pound and weakening of the Korean won on losses incurred in Korea compared to the U.S. Dollar. 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 2024. 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 $505.4 billion during 2024 compared to $363.0 billion during 2023. Consolidated assumed life reinsurance in force increased to $3,878.7 billion as of December 31, 2024, from $3,704.1 billion as of December 31, 2023, due to new business production and changes in foreign exchange rates.

Net investment income

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 and higher yields earned on alternative and private asset classes, 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 $38.5 billion and $35.9 billion in 2024 and 2023, respectively.

•The average yield earned on investments, excluding spread related business, was 4.82% and 4.68% in 2024 and 2023, respectively. The increase in yield for the year ended December 31, 2024, compared to the prior year was attributable to higher new money rates, an increase investments in higher yielding alternative and private asset classes.

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 increase in adjusted operating income in 2023 compared to 2022 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” in the Notes to Consolidated Financial Statements for additional information.

•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.