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Reinsurance Group of America 10-K 2010
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
     
þ   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2009
     
o   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of registrant as specified in its charter)
     
Missouri   43-1627032
(State or other jurisdiction   (I.R.S. Employer
of incorporation or organization)   Identification No.)
     
1370 Timberlake Manor Parkway, Chesterfield, Missouri   63017
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (636) 736-7000
Securities registered pursuant to Section 12(b) of the Act:
     
    Name of each exchange
Title of each class   on which registered
Common Stock, par value $0.01
  New York Stock Exchange
Trust Preferred Income Equity Redeemable
   
Securities (PIERS sm) Units
  New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o  Non-accelerated filer o  Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company. Yes o No þ
The aggregate market value of the stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock on June 30, 2009, as reported on the New York Stock Exchange was approximately $2.5 billion.
As of January 29, 2010, 72,995,993 shares of the registrant’s common stock were outstanding.
 
 

 


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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Definitive Proxy Statement in connection with the 2010 Annual Meeting of Shareholders (“the Proxy Statement”) which will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant’s fiscal year ended December 31, 2009, are incorporated by reference in Part III of this Form 10-K.

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REINSURANCE GROUP OF AMERICA, INCORPORATED
Form 10-K
YEAR ENDED DECEMBER 31, 2009
INDEX
         
Item   Page
Number
  of this Form
Part I
 
       
    4  
    16  
    29  
    29  
    29  
    30  
 
       
Part II
 
       
    30  
    31  
    33  
    81  
    81  
    139  
    139  
    141  
 
       
Part III
 
       
    141  
    142  
    142  
    143  
    143  
 
       
Part IV
 
       
    143  
 EX-21.1
 EX-23.1
 EX-24.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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Item 1. BUSINESS
A. Overview
     Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The consolidated financial statements herein include the assets, liabilities, and results of operations of RGA, RGA Reinsurance Company (“RGA Reinsurance”), Reinsurance Company of Missouri, Incorporated (“RCM”), RGA Reinsurance Company (Barbados) Ltd. (“RGA Barbados”), RGA Americas Reinsurance Company, Ltd. (“RGA Americas”), RGA Life Reinsurance Company of Canada (“RGA Canada”), RGA Reinsurance Company of Australia, Limited (“RGA Australia”), RGA Reinsurance UK Limited (“RGA UK”) and RGA Atlantic Reinsurance Company, Ltd. (“RGA Atlantic”) as well as several other subsidiaries subject to an ownership position of greater than fifty percent (collectively, the “Company”).
     The Company is primarily engaged in traditional individual and group life, annuity, critical illness and financial reinsurance. RGA and its predecessor, the Reinsurance Division of General American, a Missouri life insurance company, have been engaged in the business of life reinsurance since 1973. The Company’s more established operations in the U.S. and Canada contributed approximately 68.7% of its consolidated net premiums during 2009. In 1994, the Company began expanding into international markets and now has subsidiaries, branch operations, or representative offices in Australia, Barbados, Bermuda, China, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, South Africa, South Korea, Spain, Taiwan and the United Kingdom (“UK”). RGA is considered to be one of the leading life reinsurers in the North American market based on premiums and the amount of life reinsurance in force. As of December 31, 2009, the Company had approximately $2.3 trillion of life reinsurance in force and $25.2 billion in consolidated assets.
     Reinsurance is an arrangement under which an insurance company, the “reinsurer,” agrees to indemnify another insurance company, the “ceding company,” for all or a portion of the insurance risks underwritten by the ceding company. Reinsurance is designed to (i) reduce the net liability on individual risks, thereby enabling the ceding company to increase the volume of business it can underwrite, as well as increase the maximum risk it can underwrite on a single life or risk; (ii) stabilize operating results by leveling fluctuations in the ceding company’s loss experience; (iii) assist the ceding company in meeting applicable regulatory requirements; and (iv) enhance the ceding company’s financial strength and surplus position.
     Life reinsurance primarily refers to reinsurance of individual or group-issued term life insurance policies, whole life insurance policies, universal life insurance policies, and joint and last survivor insurance policies. Asset-intensive reinsurance primarily refers to reinsurance of annuities and corporate-owned life insurance. Critical illness reinsurance provides a benefit in the event of the diagnosis of a pre-defined critical illness. Financial reinsurance primarily involves assisting ceding companies in meeting applicable regulatory requirements while enhancing the ceding companies’ financial strength and regulatory surplus position. Financial reinsurance transactions do not qualify as reinsurance under accounting principles generally accepted in the United States of America (“GAAP”). Due to the low risk nature of financial reinsurance transactions they are reported based on deposit accounting guidelines. Ceding companies typically contract with more than one reinsurance company to reinsure their business.
     Reinsurance may be written on an indemnity or an assumption basis; however, the Company has not entered into any assumption reinsurance contracts. Indemnity reinsurance does not discharge a ceding company from liability to the policyholder. A ceding company is required to pay the full amount of its insurance obligations regardless of whether it is entitled or able to receive payments from its reinsurers. In the case of assumption reinsurance, the ceding company is discharged from liability to the policyholder, with such liability passed directly to the reinsurer. Reinsurers also may purchase reinsurance, known as retrocession reinsurance, to cover their risk exposure. Reinsurance companies enter into retrocession agreements for reasons similar to those that drive primary insurers to purchase reinsurance.
     Reinsurance generally is written on a facultative or automatic treaty basis. Facultative reinsurance is individually underwritten by the reinsurer for each policy to be reinsured, with the pricing and other terms established at the time the policy is underwritten based upon rates negotiated in advance. Facultative reinsurance normally is purchased by insurance companies for medically impaired lives, unusual risks, or liabilities in excess of the binding limits specified in their automatic reinsurance treaties.
     An automatic reinsurance treaty provides that the ceding company will cede risks to a reinsurer on specified blocks of policies where the underlying policies meet the ceding company’s underwriting criteria. In contrast to facultative reinsurance, the reinsurer does not approve each individual policy being reinsured. Automatic reinsurance treaties generally provide that the reinsurer will be liable for a portion of the risk associated with the specified policies written by the ceding company. Automatic reinsurance treaties specify the ceding company’s binding limit, which is the maximum amount of risk

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on a given life that can be ceded automatically and that the reinsurer must accept. The binding limit may be stated either as a multiple of the ceding company’s retention or as a stated dollar amount.
     Facultative and automatic reinsurance may be written as yearly renewable term, coinsurance, or modified coinsurance. Under a yearly renewable term treaty, the reinsurer assumes only the mortality or morbidity risk. Under a coinsurance arrangement, depending upon the terms of the contract, the reinsurer may share in the risk of loss due to mortality or morbidity, lapses, and the investment risk, if any, inherent in the underlying policy. Modified coinsurance and coinsurance with funds withheld differs from coinsurance in that the assets supporting the reserves are retained by the ceding company while the risk is transferred to the reinsurer.
     Generally, the amount of life reinsurance ceded under facultative and automatic reinsurance agreements is stated on an excess or a quota share basis. Reinsurance on an excess basis covers amounts in excess of an agreed-upon retention limit. Retention limits vary by ceding company and also may vary by age and underwriting classification of the insured, product, and other factors. Under quota share reinsurance, the ceding company states its retention in terms of a fixed percentage of the risk that will be retained, with the remainder up to the maximum binding limit to be ceded to one or more reinsurers.
     Reinsurance agreements, whether facultative or automatic, may provide for recapture rights, which permit the ceding company to reassume all or a portion of the risk formerly ceded to the reinsurer after an agreed-upon period of time (generally 10 years) or in some cases due to changes in the financial condition or ratings of the reinsurer. Recapture of business previously ceded does not affect premiums ceded prior to the recapture of such business, but would reduce premiums in subsequent periods. The potential adverse effects of recapture rights are mitigated by the following factors: (i) recapture rights vary by treaty and the risk of recapture is a factor that is considered when pricing a reinsurance agreement; (ii) ceding companies generally may exercise their recapture rights only to the extent they have increased their retention limits for the reinsured policies; and (iii) ceding companies generally must recapture all of the policies eligible for recapture under the agreement in a particular year if any are recaptured, which prevents a ceding company from recapturing only the most profitable policies. In addition, when a ceding company increases its retention and recaptures reinsured policies, the reinsurer releases the reserves it maintained to support the recaptured portion of the policies.
     Reinsurers may place assets in trust to satisfy collateral requirements for certain treaties. As of December 31, 2009, the Company held securities in trust for this purpose with amortized costs of $1,022.4 million and $1,755.6 million for the benefit of certain subsidiaries and third-party reinsurance treaties, respectively. Under certain conditions, RGA may be obligated to move reinsurance from one RGA subsidiary to another RGA subsidiary or make payments under a given treaty. These conditions include change in control or ratings of the subsidiary, insolvency, nonperformance under a treaty, or loss of the reinsurance license of such subsidiary. If RGA is ever required to perform under these obligations, the risk to the consolidated company under the reinsurance treaties would not change; however, additional capital may be required due to the change in jurisdiction of the subsidiary reinsuring the business and may create a strain on liquidity.
     During 2006, RGA’s subsidiary, Timberlake Financial, L.L.C. (“Timberlake Financial”), issued $850.0 million of Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance. Proceeds from the notes and the Company’s direct investment in Timberlake Financial were deposited into a series of trust accounts as collateral and are not available to satisfy the general obligations of the Company. As of December 31, 2009, the Company held assets in trust and in custody of $876.7 million for this purpose, which is not included above. See Note 16 — “Collateral Finance Facility” in the Notes to Consolidated Financial Statements for additional information on the Timberlake Financial notes.
     Some treaties give the ceding company the right to force the reinsurer to place assets in trust for the ceding company’s benefit to provide collateral for statutory reserve credits taken by the ceding company, in the event of a downgrade of the reinsurer’s ratings to specified levels, generally non-investment grade levels, or if minimum levels of financial condition are not maintained. As of December 31, 2009, the Company had approximately $1,059.3 million in statutory reserves associated with these types of treaties. Assets placed in trust continue to be owned by the Company, but their use is restricted based on the terms of the trust agreement.
B. Corporate Structure
     RGA is an insurance holding company, the principal assets of which consist of the common stock of RCM, RGA Barbados, RGA Americas, RGA Canada, RGA UK and RGA Atlantic as well as investments in several other wholly-owned subsidiaries. Potential sources of funds for RGA to make stockholder dividend distributions and to fund debt service obligations are dividends paid to RGA by its operating subsidiaries, securities maintained in its investment portfolio, and proceeds from securities offerings and borrowings. RCM’s primary sources of funds are dividend distributions paid by RGA

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Reinsurance Company, whose principal source of funds is derived from current operations. Dividends paid by the Company’s reinsurance subsidiaries are subject to regulatory restrictions of the respective governing bodies where each reinsurance subsidiary is domiciled.
     The Company has five main geographic-based operational segments: U.S., Canada, Europe & South Africa, Asia Pacific and Corporate and Other. These operating segments write reinsurance business that is wholly or partially retained in one or more of the Company’s reinsurance subsidiaries. See “Segments” for more information concerning the Company’s operating segments.
Intercorporate Relationships
     On September 12, 2008 (“the Divestiture Date”), the Company’s majority shareholder, General American Life Insurance Company (“General American”), disposed of its majority ownership in the Company. General American is a wholly-owned subsidiary of MetLife, Inc. (“MetLife”), a New York-based insurance and financial services holding company. Prior to the Divestiture Date, General American and MetLife provided certain administrative services to RGA and RGA Reinsurance. Such services included risk management and corporate travel. The cost of these services for the years ended December 31, 2008 and 2007 was approximately $1.8 million (through the Divestiture Date) and $2.8 million, respectively, included in other expenses. Management does not believe that the various amounts charged for these services would have been materially different if they had been incurred from an unrelated third party.
     RGA Reinsurance also has a product license and service agreement with MetLife. Under this agreement, RGA has licensed the use of its electronic underwriting product to MetLife and provides internet hosting services, installation and modification services for the product. The Company recorded revenue under the agreement for the years ended December 31, 2008 and 2007 of approximately $0.6 million (through the Divestiture Date) and $0.6 million, respectively.
     The Company also had arms-length direct policies and reinsurance agreements with MetLife and certain of its subsidiaries. These direct policies and reinsurance agreements with MetLife and certain of its subsidiaries continue to be in place after the Divestiture Date. The Company reflected net premiums from these agreements of approximately $163.5 million (through the Divestiture Date) and $250.9 million in 2008 and 2007, respectively. The premiums reflect the net of business assumed from and ceded to MetLife and its subsidiaries. The pre-tax income, excluding investment income allocated to support the business, was approximately $15.8 million (through the Divestiture Date) and $16.0 million in 2008 and 2007, respectively.
Ratings
     Insurer financial strength ratings, sometimes referred to as claims paying ratings, represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. The Company’s insurer financial strength ratings and credit ratings as of the date of this filing are listed in the table below for each rating agency that meets with the Company’s management on a regular basis:
             
        Moody’s    
    A.M. Best   Investors   Standard &
  Company (1)   Service (2)   Poor’s (3)
Insurer Financial Strength Ratings
           
RGA Reinsurance Company
  A+   A1   AA-
RGA Life Reinsurance Company of Canada
  A+   Not Rated   AA-
RGA International Reinsurance Company
  Not Rated   Not Rated   AA-
RGA Global Reinsurance Company
  Not Rated   Not Rated   AA-
Credit Ratings
           
Reinsurance Group of America, Incorporated:
           
Senior Unsecured
  a-   Baa1   A-
Junior Subordinated Debentures
  bbb   Baa3   BBB-
RGA Capital Trust I (Preferred Securities)
  bbb   Baa2   BBB
Timberlake Financial Floating Rate Insured Notes
  Not Rated   Not Rated   BBB
 
(1)   An A.M. Best Company (“A.M. Best”) insurer financial strength rating of “A+ (superior)” is the second highest out of fifteen possible ratings and is assigned to companies that have, in A.M. Best’s opinion, a superior ability to meet their ongoing obligations to policyholders. Financial strength ratings range from “A++ (superior)” to “F (in liquidation)”.

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    A credit rating of “a-” is in the “strong” category and is the seventh highest rating out of twenty-two possible ratings. A credit rating of “bbb” is in the “adequate” category and is the ninth highest rating.
 
(2)   A Moody’s Investors Service (“Moody’s”) insurer financial strength rating of “A1” (good) is the fifth highest rating out of twenty-one possible ratings and indicates that Moody’s believes the insurance company offers good financial security; however, elements may be present which suggest a susceptibility to impairment sometime in the future.
 
    Moody’s credit ratings of “Baa1”, “Baa2” and “Baa3” are in the “medium-grade” category and represent the eighth, ninth and tenth highest ratings, respectively, out of twenty-two possible ratings. According to Moody’s, obligations with these ratings are subject to moderate credit risk.
 
(3)   A Standard & Poor’s (“S&P”) insurer financial strength rating of “AA-” (very strong) is the fourth highest rating out of twenty-one possible ratings. According to S&P’s rating scale, a rating of “AA-” means that, in S&P’s opinion, the insurer has very strong financial security characteristics.
 
    S&P credit ratings of “A-” (strong), “BBB” (good) and “BBB-” (good) represent the seventh, ninth, and tenth highest ratings, respectively, out of twenty-two possible ratings. According to S&P, an obligation rated “A-” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment of the obligation is still strong. According to S&P, an obligation rated “BBB” or “BBB-” exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
     The ability to write reinsurance partially depends on an insurer’s financial condition and its financial strength ratings. These ratings are based on an insurance company’s ability to pay policyholder obligations and are not directed toward the protection of investors. Each of the Company’s credit ratings is considered investment grade. RGA’s ability to raise capital and the cost of that capital is influenced by, among other things, its credit ratings. A security rating is not a recommendation to buy, sell or hold securities. It is subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating.
     A ratings downgrade of RGA or one of its reinsurance subsidiaries could adversely affect the Company’s ability to compete. See Item 1A — “Risk Factors” for more on the potential effects of a ratings downgrade.
Regulation
     RGA Reinsurance, Parkway Reinsurance Company (“Parkway Re”) and RCM; Timberlake Reinsurance Company II (“Timberlake Re”); RGA Canada; General American Argentina Seguros de Vida, S.A. (“GA Argentina”); RGA Barbados, RGA Americas, RGA Atlantic and RGA Worldwide Reinsurance Company, Ltd. (“RGA Worldwide”); RGA Global Reinsurance Company, Ltd. (“RGA Global”); RGA Australia; RGA International Reinsurance Company (“RGA International”); RGA Reinsurance Company of South Africa, Limited (“RGA South Africa”); and RGA UK are regulated by authorities in Missouri, South Carolina, Canada, Argentina, Barbados, Bermuda, Australia, Ireland, South Africa, and the United Kingdom, respectively. RGA Reinsurance, RGA Global and RGA International are also subject to regulations in the other jurisdictions in which it is licensed or authorized to do business. Insurance laws and regulations, among other things, establish minimum capital requirements and limit the amount of dividends, distributions, and intercompany payments affiliates can make without prior regulatory approval. Additionally, insurance laws and regulations impose restrictions on the amounts and type of investments that insurance companies may hold.
     General
     The insurance laws and regulations, as well as the level of supervisory authority that may be exercised by the various insurance departments, vary by jurisdiction, but generally grant broad powers to supervisory agencies or regulators to examine and supervise insurance companies and insurance holding companies with respect to every significant aspect of the conduct of the insurance business, including approval or modification of contractual arrangements. These laws and regulations generally require insurance companies to meet certain solvency standards and asset tests, to maintain minimum standards of business conduct, and to file certain reports with regulatory authorities, including information concerning their capital structure, ownership, and financial condition, and subject insurers to potential assessments for amounts paid by guarantee funds.
     The Company’s reinsurance subsidiaries are required to file statutory financial statements in each jurisdiction in which they are licensed and may be subject to periodic examinations by the insurance regulators of the jurisdictions in which

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each is licensed, authorized, or accredited. To date, none of the regulator’s reports related to the Company’s periodic examinations have contained material adverse findings.
     Although some of the rates and policy terms of U.S. direct insurance agreements are regulated by state insurance departments, the rates, policy terms, and conditions of reinsurance agreements generally are not subject to regulation by any regulatory authority. However, the National Association of Insurance Commissioners (“NAIC”) Model Law on Credit for Reinsurance, which has been adopted in most states, imposes certain requirements for an insurer to take reserve credit for risk ceded to a reinsurer. Generally, the reinsurer is required to be licensed or accredited in the insurer’s state of domicile, or security must be posted for reserves transferred to the reinsurer in the form of letters of credit or assets placed in trust. The NAIC Life and Health Reinsurance Agreements Model Regulation, which has been passed in most states, imposes additional requirements for insurers to claim reserve credit for reinsurance ceded (excluding yearly renewable term reinsurance and non-proportional reinsurance). These requirements include bona fide risk transfer, an insolvency clause, written agreements, and filing of reinsurance agreements involving in force business, among other things.
     The Valuation of Life Insurance Policies Model Regulation, commonly referred to as Regulation XXX, was implemented in the U.S. for various types of life insurance business beginning January 1, 2000. Regulation XXX significantly increased the level of reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level premium term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. In situations where primary insurers have reinsured business to reinsurers that are unlicensed and unaccredited in the U.S., the reinsurer must provide collateral equal to its reinsurance reserves in order for the ceding company to receive statutory financial statement credit. Reinsurers have historically utilized letters of credit for the benefit of the ceding company, or have placed assets in trust for the benefit of the ceding company, or have used other structures as the primary forms of collateral. The increasing nature of the statutory reserves under Regulation XXX will likely require increased levels of collateral from reinsurers in the future to the extent the reinsurer remains unlicensed and unaccredited in the U.S.
     In order to manage the effect of Regulation XXX on its statutory financial statements, RGA Reinsurance has retroceded a majority of Regulation XXX reserves to unaffiliated and affiliated unlicensed reinsurers. RGA Reinsurance’s statutory capital may be significantly reduced if the unaffiliated or affiliated reinsurer is unable to provide the required collateral to support RGA Reinsurance’s statutory reserve credits and RGA Reinsurance cannot find an alternative source for the collateral.
     RGA Reinsurance, Parkway Re and RCM prepare statutory financial statements in conformity with accounting practices prescribed or permitted by the State of Missouri. Timberlake Re prepares statutory financial statements in conformity with accounting practices prescribed or permitted by the State of South Carolina. Both states require domestic insurance companies to prepare their statutory financial statements in accordance with the NAIC Accounting Practices and Procedures manual subject to any deviations prescribed or permitted by each state’s insurance commissioner. The Company’s non-U.S. subsidiaries are subject to the regulations and reporting requirements of their respective countries of domicile.
     Capital Requirements
     Risk-Based Capital (“RBC”) guidelines promulgated by the NAIC are applicable to RGA Reinsurance and RCM, and identify minimum capital requirements based upon business levels and asset mix. RGA Reinsurance and RCM maintain capital levels in excess of the amounts required by the applicable guidelines. Regulations in international jurisdictions also require certain minimum capital levels, and subject the companies operating there to oversight by the applicable regulatory bodies. The Company’s operations meet the minimum capital requirements in their respective jurisdictions. The Company cannot predict the effect that any proposed or future legislation or rule making in the countries in which it operates may have on the financial condition or operations of the Company or its subsidiaries.
     Insurance Holding Company Regulations
     RGA Reinsurance, RCM and Parkway Re are subject to regulation under the insurance and insurance holding company statutes of Missouri. The Missouri insurance holding company laws and regulations generally require insurance and reinsurance subsidiaries of insurance holding companies to register and file with the Missouri Department of Insurance, Financial Institutions and Professional Registration (“MDI”), certain reports describing, among other information, their capital structure, ownership, financial condition, certain intercompany transactions, and general business operations. The Missouri insurance holding company statutes and regulations also require prior approval of, or in certain circumstances, prior notice to the MDI of certain material intercompany transfers of assets, as well as certain transactions between insurance companies, their parent companies and affiliates.

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     Under Missouri insurance laws and regulations, unless (i) certain filings are made with the MDI, (ii) certain requirements are met, including a public hearing, and (iii) approval or exemption is granted by the Director of the MDI, no person may acquire any voting security or security convertible into a voting security of an insurance holding company, such as RGA, which controls a Missouri insurance company, or merge with such an insurance holding company, if as a result of such transaction such person would “control” the insurance holding company. “Control” is presumed to exist under Missouri law if a person directly or indirectly owns or controls 10% or more of the voting securities of another person.
     In addition to RGA Reinsurance, RCM and Parkway Re, other insurance subsidiaries of RGA are subject to various regulations in their respective jurisdictions.
     Restrictions on Dividends and Distributions
     Current Missouri law, applicable to RCM, and its wholly-owned subsidiary, RGA Reinsurance, permits the payment of dividends or distributions which, together with dividends or distributions paid during the preceding twelve months, do not exceed the greater of (i) 10% of statutory capital and surplus as of the preceding December 31, or (ii) statutory net gain from operations for the preceding calendar year. Any proposed dividend in excess of this amount is considered an “extraordinary dividend” and may not be paid until it has been approved, or a 30-day waiting period has passed during which it has not been disapproved, by the Director of the MDI. Additionally, dividends may be paid only to the extent the insurer has unassigned surplus (as opposed to contributed surplus). Pursuant to these restrictions, RCM’s and RGA Reinsurance’s allowable dividends without prior approval for 2010 are approximately $141.3 million and $146.6 million, respectively. Any dividends paid by RGA Reinsurance would be paid to RCM, which in turn has the ability to pay dividends to RGA. The MDI allows RCM to pay a dividend to RGA to the extent RCM received the dividend from RGA Reinsurance, without limitation related to the level of unassigned surplus. Historically, RGA has not relied upon dividends from its subsidiaries to fund its obligations. However, the regulatory limitations described here could limit the Company’s financial flexibility in the future should it choose to or need to use subsidiary dividends as a funding source for its obligations.
     In contrast to current Missouri law, the NAIC Model Insurance Holding Company Act (the “Model Act”) defines an extraordinary dividend as a dividend or distribution which, together with dividends or distributions paid during the preceding twelve months, exceeds the lesser of (i) 10% of statutory capital and surplus as of the preceding December 31, or (ii) statutory net gain from operations for the preceding calendar year. The Company is unable to predict whether, when, or in what form Missouri will enact a new measure for extraordinary dividends.
     Missouri insurance laws and regulations also require that the statutory surplus of RCM and RGA Reinsurance following any dividend or distribution be reasonable in relation to its outstanding liabilities and adequate to meet its financial needs. The Director of the MDI may call for a rescission of the payment of a dividend or distribution by RGA Reinsurance or RCM that would cause its statutory surplus to be inadequate under the standards of the Missouri insurance regulations.
     Pursuant to the South Carolina Director of Insurance, Timberlake Re may declare dividends after June 15, 2012 subject to a minimum Total Adjusted Capital threshold, as defined by the NAIC’s RBC regulation. Timberlake Re may pay dividends in accordance with any filed request to make such payments if the South Carolina Director of Insurance has approved such request. Dividend payments from other subsidiaries are subject to the regulations in the country of domicile.
     Default or Liquidation
     In the event that RGA defaults on any of its debt or other obligations, or becomes the subject of bankruptcy, liquidation, or reorganization proceedings, the creditors and stockholders of RGA will have no right to proceed against the assets of any of the subsidiaries of RGA. If any of RGA’s reinsurance subsidiaries were to be liquidated or dissolved, the liquidation or dissolution would be conducted in accordance with the rules and regulations of the appropriate governing body in the state or country of the subsidiary’s formation. The creditors of any such reinsurance company, including, without limitation, holders of its reinsurance agreements and state guaranty associations (if applicable), would be entitled to payment in full from such assets before RGA, as a direct or indirect stockholder, would be entitled to receive any distributions or other payments from the remaining assets of the liquidated or dissolved subsidiary.
     Federal Regulation
     Discussions continue in the Congress of the United States concerning the future of the McCarran-Ferguson Act, which exempts the “business of insurance” from most federal laws, including anti-trust laws, to the extent such business is subject to state regulation. Judicial decisions narrowing the definition of what constitutes the “business of insurance” and repeal or modification of the McCarran-Ferguson Act may limit the ability of the Company, and RGA Reinsurance in particular, to share information with respect to matters such as rate setting, underwriting, and claims management. Likewise, discussions continue in the Congress of the United States concerning potential future regulation of insurance and reinsurance

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at the Federal level. It is not possible to predict the effect of such decisions or changes in the law on the operation of the Company.
     Environmental Considerations
     Federal, state and local environmental laws and regulations apply to the Company’s ownership and operation of real property. Inherent in owning and operating real property are the risk of hidden environmental liabilities and the costs of any required clean-up. Under the laws of certain states, contamination of a property may give rise to a lien on the property to secure recovery of the costs of clean-up. In several states, this lien has priority over the lien of an existing mortgage against such property. In addition, in some states and under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), the Company may be liable, in certain circumstances, as an “owner” or “operator,” for costs of cleaning-up releases or threatened releases of hazardous substances at a property mortgaged to it. The Company also risks environmental liability when it forecloses on a property mortgaged to it, although Federal legislation provides for a safe harbor from CERCLA liability for secured lenders that foreclose and sell the mortgaged real estate, provided that certain requirements are met. However, there are circumstances in which actions taken could still expose the Company to CERCLA liability. Application of various other federal and state environmental laws could also result in the imposition of liability on the Company for costs associated with environmental hazards.
     The Company routinely conducts environmental assessments prior to taking title to real estate through foreclosure on real estate collateralizing mortgages that it holds. Although unexpected environmental liabilities can always arise, the Company seeks to minimize this risk by undertaking these environmental assessments and complying with its internal procedures, and as a result, the Company believes that any costs associated with compliance with environmental laws and regulations or any clean-up of properties would not have a material adverse effect on the Company’s results of operations.
Underwriting
     Facultative. The Company has developed underwriting policies, procedures and standards with the objective of controlling the quality of business written as well as its pricing. The Company’s underwriting process emphasizes close collaboration between its underwriting, actuarial, and operations departments. Management periodically updates these underwriting policies, procedures, and standards to account for changing industry conditions, market developments, and changes occurring in the field of medical technology. These policies, procedures, and standards are documented in electronic underwriting manuals made available to all the Company’s underwriters. The Company regularly performs both internal and external reviews of its underwriters and underwriting process.
     The Company’s management determines whether to accept facultative reinsurance business on a prospective insured by reviewing the application, medical information and all underwriting requirements based on age and the face amount of the application. An assessment of medical and financial history follows with decisions based on underwriting knowledge, manual review and consultation with the Company’s medical directors as necessary. Many facultative applications involve individuals with multiple medical impairments, such as heart disease, high blood pressure, and diabetes, which require a complex underwriting/mortality assessment. To assist its underwriters in making these assessments, the Company employs 13 full-time medical directors as well as 17 medical consultants.
     Automatic. The Company’s management determines whether to write automatic reinsurance business by considering many factors, including the types of risks to be covered; the ceding company’s retention limit and binding authority, product, and pricing assumptions; and the ceding company’s underwriting standards, financial strength and distribution systems. For automatic business, the Company ensures that the underwriting standards, procedures and guidelines of its ceding companies are priced appropriately and consistent with the Company’s expectations. To this end, the Company conducts periodic reviews of the ceding companies’ underwriting and claims personnel and procedures.
Operations
     Generally, the Company’s life business has been obtained directly, rather than through brokers. The Company has an experienced sales and marketing staff that works to provide responsive service and maintain existing relationships.
     The Company’s administration, auditing, valuation and accounting departments are responsible for treaty compliance auditing, financial analysis of results, generation of internal management reports, and periodic audits of administrative practices and records. A significant effort is focused on periodic audits of administrative and underwriting practices, records, and treaty compliance of reinsurance clients.
     The Company’s claims departments review and verify reinsurance claims, obtain the information necessary to evaluate claims, and arrange for timely claims payments. Claims are subjected to a detailed review process to ensure that the

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risk was properly ceded, the claim complies with the contract provisions, and the ceding company is current in the payment of reinsurance premiums to the Company. In addition, the claims departments monitor both specific claims and the overall claims handling procedures of ceding companies.
Competition
     Reinsurers compete on the basis of many factors, including financial strength, pricing and other terms and conditions of reinsurance agreements, reputation, service, and experience in the types of business underwritten. The U.S. and Canadian life reinsurance markets are served by numerous international and domestic reinsurance companies. The Company believes that its primary competitors in the North American life reinsurance market are currently the following, or their affiliates: Transamerica Occidental Life Insurance Company, a subsidiary of Aegon N.V., Swiss Re Life, Munich Reinsurance Company and Generali Re. However, within the reinsurance industry, this can change from year to year. The Company believes that its major competitors in the international life reinsurance markets are Swiss Re Life and Health Ltd., General Re, Munich Reinsurance Company, Hannover Reinsurance, and SCOR Global Reinsurance.
Employees
     As of December 31, 2009, the Company had 1,367 employees located throughout the world. None of these employees are represented by a labor union.
C. Segments
     The Company obtains substantially all of its revenues through reinsurance agreements that cover a portfolio of life insurance products, including term life, credit life, universal life, whole life, group life, joint and last survivor insurance, critical illness, as well as annuities and financial reinsurance. Generally, the Company, through various subsidiaries, has provided reinsurance for mortality, morbidity, and lapse risks associated with such products. With respect to asset-intensive products, the Company has also provided reinsurance for investment-related risks.
     The following table sets forth the Company’s premiums attributable to each of its segments for the periods indicated on both a gross assumed basis and net of premiums ceded to third parties:
Gross and Net Premiums by Segment
(in millions)
                                                 
    Year Ended December 31,
    2009   2008   2007
    Amount   %   Amount   %   Amount   %
Gross Premiums:
                                               
U.S.
  $ 3,513.9       56.3     $ 3,305.2       56.6     $ 3,073.8       57.2  
Canada
    882.9       14.1       751.2       12.9       675.7       12.6  
Europe & South Africa
    810.9       13.0       747.9       12.8       719.6       13.4  
Asia Pacific
    1,027.8       16.5       1,027.9       17.6       898.2       16.7  
Corporate and Other
    8.7       0.1       6.8       0.1       3.7       0.1  
     
Total
  $ 6,244.2       100.0     $ 5,839.0       100.0     $ 5,371.0       100.0  
     
 
                                               
Net Premiums:
                                               
U.S.
  $ 3,320.7       58.0     $ 3,099.6       58.0     $ 2,874.8       58.6  
Canada
    614.9       10.7       534.3       10.0       487.1       9.9  
Europe & South Africa
    782.0       13.7       707.8       13.2       678.6       13.8  
Asia Pacific
    998.9       17.4       1,000.8       18.7       864.5       17.6  
Corporate and Other
    8.7       0.2       6.8       0.1       4.0       0.1  
     
Total
  $ 5,725.2       100.0     $ 5,349.3       100.0     $ 4,909.0       100.0  
     
 
                                               

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     The following table sets forth selected information concerning assumed life reinsurance business in force by segment for the indicated periods. (The term “in force” refers to insurance policy face amounts or net amounts at risk.)
Reinsurance Business In Force by Segment
(in billions)
                                                 
    As of December 31,
    2009   2008   2007
    Amount   %   Amount   %   Amount   %
U.S.
  $ 1,290.5       55.5     $ 1,274.5       60.5     $ 1,232.3       58.1  
Canada
    276.8       11.9       209.5       9.9       217.7       10.3  
Europe & South Africa
    408.9       17.6       325.2       15.4       380.4       17.9  
Asia Pacific
    348.9       15.0       298.9       14.2       289.5       13.7  
     
Total
  $ 2,325.1       100.0     $ 2,108.1       100.0     $ 2,119.9       100.0  
     
     Reinsurance business in force reflects the addition or acquisition of new life reinsurance business, offset by terminations (e.g., voluntary surrenders of underlying life insurance policies, lapses of underlying policies, deaths of insureds, and the exercise of recapture options), changes in foreign exchange, and any other changes in the amount of insurance in force. As a result of terminations and other changes, assumed in force amounts at risk of $104.0 billion, $316.8 billion, and $123.9 billion were released in 2009, 2008 and 2007, respectively.
     The following table sets forth selected information concerning assumed new business volume by segment for the indicated periods. (The term “volume” refers to insurance policy face amounts or net amounts at risk.)
New Business Volume by Segment
(in billions)
                                                 
    Year Ended December 31,
    2009   2008   2007
    Amount   %   Amount   %   Amount   %
U.S.
  $ 135.0       42.1     $ 134.4       44.1     $ 164.2       54.3  
Canada
    43.9       13.7       51.2       16.8       46.8       15.5  
Europe & South Africa
    121.1       37.7       87.5       28.7       61.3       20.3  
Asia Pacific
    21.0       6.5       31.9       10.4       30.1       9.9  
     
Total
  $ 321.0       100.0     $ 305.0       100.0     $ 302.4       100.0  
     
     Additional information regarding the operations of the Company’s segments and geographic operations is contained in Note 17 — “Segment Information” in the Notes to Consolidated Financial Statements.
U.S. Operations
     The U.S. operations represented 58.0%, 58.0% and 58.6% of the Company’s net premiums in 2009, 2008 and 2007, respectively. The U.S. operations market traditional life reinsurance, reinsurance of asset-intensive products and financial reinsurance, primarily to large U.S. life insurance companies.
Traditional Reinsurance
     The U.S. Traditional sub-segment provides life reinsurance to domestic clients for a variety of life products through yearly renewable term agreements, coinsurance, and modified coinsurance. This business has been accepted under many different rate scales, with rates often tailored to suit the underlying product and the needs of the ceding company. Premiums typically vary for smokers and non-smokers, males and females, and may include a preferred underwriting class discount. Reinsurance premiums are paid in accordance with the treaty, regardless of the premium mode for the underlying primary insurance. This business is made up of facultative and automatic treaty business.
     Automatic business, including financial reinsurance treaties, is generated pursuant to treaties which generally require that the underlying policies meet the ceding company’s underwriting criteria, although a number of such policies may be rated substandard. In contrast to facultative reinsurance, reinsurers do not engage in underwriting assessments of each risk assumed through an automatic treaty.
     Because the Company does not apply its underwriting standards to each policy ceded to it under automatic treaties, the U.S. operations generally require ceding companies to keep a portion of the business written on an automatic basis,

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thereby increasing the ceding companies’ incentives to underwrite risks with due care and, when appropriate, to contest claims diligently.
     The U.S. facultative reinsurance operation involves the assessment of the risks inherent in (i) multiple impairments, such as heart disease, high blood pressure, and diabetes; (ii) cases involving large policy face amounts; and (iii) financial risk cases, i.e., cases involving policies disproportionately large in relation to the financial characteristics of the proposed insured. The U.S. operations’ marketing efforts have focused on developing facultative relationships with client companies because management believes facultative reinsurance represents a substantial segment of the reinsurance activity of many large insurance companies and also serves as an effective means of expanding the U.S. operations’ automatic business. In 2009, 2008 and 2007, approximately 19.3%, 19.5%, and 19.9%, respectively, of the U.S. gross premiums were written on a facultative basis. The U.S. operations have emphasized personalized service and prompt response to requests for facultative risk assessment.
     Only a portion of approved facultative applications ultimately result in reinsurance. This is because applicants for impaired risk policies often submit applications to several primary insurers, which in turn seek facultative reinsurance from several reinsurers. Ultimately, only one insurance company and one reinsurer are likely to obtain the business. The Company tracks the percentage of declined and placed facultative applications on a client-by-client basis and generally works with clients to seek to maintain such percentages at levels deemed acceptable. Because the Company applies its underwriting standards to each application submitted to it facultatively, it generally does not require ceding companies to retain a portion of the underlying risk when business is written on a facultative basis.
     In addition, several of the Company’s U.S. clients have purchased life insurance policies insuring the lives of their executives. These policies have generally been issued to fund deferred compensation plans and have been reinsured with the Company. The Company’s consolidated balance sheets included interest-sensitive contract reserves of $1.2 billion and $1.1 billion as of December 31, 2009 and 2008, respectively, and policy loans of $1.1 billion as of both December 31, 2009 and 2008, associated with this business.
Asset-Intensive Reinsurance
     Asset-intensive reinsurance primarily concentrates on the investment risk within underlying annuities and corporate-owned life insurance policies. Most of these agreements are coinsurance, coinsurance funds withheld, or modified coinsurance of primarily investment risk such that the Company recognizes profits or losses primarily from the spread between the investment earnings and the interest credited on the underlying annuity contract liabilities. Reinsurance of such business was reflected in interest-sensitive contract liabilities of approximately $6.3 billion and $6.5 billion as of December 31, 2009 and 2008, respectively.
     Annuities are normally limited by the size of the deposit from any single depositor. The Company also reinsures certain variable annuity products that contain guaranteed minimum death or living benefits. Corporate-owned life insurance normally involves a large number of insureds associated with each deposit, and the Company’s underwriting guidelines limit the size of any single deposit. The individual policies associated with any single deposit are typically issued within pre-set guaranteed issue parameters. A significant amount of this business is written on a modified coinsurance or coinsurance with funds withheld basis. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments” and Note 4 — “Investments” in the Notes to Consolidated Financial Statements for additional information.
     The Company primarily targets highly-rated, financially secure companies as clients for asset-intensive business. These companies may wish to limit their own exposure to certain products. Ongoing asset/liability analysis is required for the management of asset-intensive business. The Company performs this analysis internally, in conjunction with asset/liability analysis performed by the ceding companies.
Financial Reinsurance
     The Company’s U.S. Financial Reinsurance sub-segment assists ceding companies in meeting applicable regulatory requirements while enhancing the ceding companies’ financial strength and regulatory surplus position. The Company commits cash or assumes regulatory insurance liabilities from the ceding companies. Generally, such amounts are offset by receivables from ceding companies that are repaid by the future profits from the reinsured block of business. The Company structures its financial reinsurance transactions so that the projected future profits of the underlying reinsured business significantly exceed the amount of regulatory surplus provided to the ceding company.
     The Company primarily targets highly-rated insurance companies for financial reinsurance due to the credit risk associated with this business. A careful analysis is performed before providing any regulatory surplus enhancement to the ceding company. This analysis is intended to ensure that the Company understands the risks of the underlying insurance

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product and that the transaction has a high likelihood of being repaid through the future profits of the underlying business. If the future profits of the business are not sufficient to repay the Company or if the ceding company becomes financially distressed and is unable to make payments under the treaty, the Company may incur losses. A staff of actuaries and accountants tracks experience for each treaty on a quarterly basis in comparison to expected models. This sub-segment also retrocedes most of its financial reinsurance business to other insurance companies to alleviate the strain on regulatory surplus created by this business.
Customer Base
     The U.S. reinsurance operation markets life reinsurance primarily to the largest U.S. life insurance companies. The Company estimates that approximately 86 of the top 100 U.S. life insurance companies, based on premiums, are clients. These treaties generally are terminable by either party on 90 days written notice, but only with respect to future new business. Existing business generally is not terminable, unless the underlying policies terminate or are recaptured. In 2009, the U.S. reinsurance operation’s largest client generated approximately $573.0 million or 16.3% of U.S. operations gross premiums. In addition, 62 other clients each generated annual gross premiums of $5.0 million or more, and the aggregate gross premiums from these clients represented approximately 80.3% of U.S. operations gross premiums. For the purpose of this disclosure, companies that are within the same insurance holding company structure are combined.
Canada Operations
     The Canada operations represented 10.7%, 10.0%, and 9.9% of the Company’s net premiums in 2009, 2008 and 2007, respectively. In 2009, the Canadian life operations assumed $43.9 billion in new business, predominately representing recurring new business, as opposed to in force transactions. Approximately 84.5% of the 2009 recurring new business was written on an automatic basis.
     The Company operates in Canada primarily through RGA Canada, a wholly-owned subsidiary. RGA Canada is a leading life reinsurer in Canada, based on new individual life insurance production, assisting clients with capital management and mortality and morbidity risk management and is primarily engaged in traditional individual life reinsurance, as well as creditor, critical illness, and group life and health reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance.
     Clients include most of the life insurers in Canada, although the number of life insurers is much smaller compared to the U.S. During 2009, the three largest clients represented $334.5 million, or 37.9%, of gross premiums. Three other clients individually represented more than 5% of Canada’s gross premiums. Together, these three clients represented 18.4% of Canada’s gross premiums.
     As of December 31, 2009, RGA Canada had two offices and maintained a staff of 104 people at the Montreal office and 19 people at the office in Toronto. RGA Canada employs its own underwriting, actuarial, claims, pricing, accounting, systems, marketing and administrative staff.
Europe & South Africa Operations
     The Europe & South Africa operations represented 13.7%, 13.2%, and 13.8% of the Company’s net premiums in 2009, 2008 and 2007, respectively. This segment primarily provides life reinsurance to clients located in France, Germany, India, Italy, Mexico, the Netherlands, Poland, South Africa, Spain and the UK. The principal types of business have been reinsurance of life products through yearly renewable term and coinsurance agreements, the reinsurance of critical illness coverage that provides a benefit in the event of the diagnosis of a pre-defined critical illness and to a lesser extent, the reinsurance of longevity risk related to payout annuities. The reinsurance agreements of critical illness coverage may be either facultative or automatic agreements. Premiums earned from critical illness coverage represented 26.2% of the total gross premiums for this segment in 2009. The segment’s five largest clients, all part of the Company’s UK operations, generated approximately $400.8 million, or 49.4%, of the segment’s gross premiums in 2009.
     During 2000, RGA established a UK regulated reinsurer and began operating in the UK, where an increasing number of insurers were ceding the mortality and accelerated critical illness risks of individual life products on a quota share basis and reinsuring the longevity risk related to payout annuities and reinsurance of bulk annuities and individually underwritten impaired life annuities. During the years since, RGA has grown its UK operations significantly and is now recognized as an established participant in this market with significant market share. The reinsurers present in the market include the large global companies with which the Company also competes in other markets. In 2009, the UK operations generated approximately 69.8% of the segment’s gross premiums.

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     In 1998, the Company established RGA South Africa, with offices in Cape Town and Johannesburg, to provide life reinsurance in South Africa. In South Africa, the Company’s subsidiary has managed to establish a substantial position in the individual facultative market, through excellent service and competitive pricing, and has gained an increasing share in the automatic market. Life reinsurance is also provided on group cases. The Company is concentrating on the life insurance market.
     In Spain, the Company has business relationships with more than 50 companies covering both individual and group life business; in 2007 this operation became a branch. A representative office was opened in 1998 in Mexico City to directly assist clients in this market. In 2002, RGA opened an office in India which markets life reinsurance support on individual and group business. During 2006, RGA opened a representative office in Poland to directly assist clients in the central and eastern European market; in 2009 this operation became a branch. During 2007, RGA opened a branch office in France and a representative office in Italy to directly assist clients in those markets; in 2009 the Italy operation became a branch. In 2008, RGA opened a branch office in Germany to directly assist clients in the region. During 2009, RGA opened a representative office in the Netherlands to directly assist clients in this market.
     RGA’s subsidiaries in the UK and South Africa employ their own underwriting, actuarial, claims, pricing, accounting, marketing, and administration staff with additional support provided by the Company’s corporate staff in the U.S. Divisional management through RGA International Corporation (Nova Scotia ULC), based in Toronto, also provides services for these and other international markets. As of December 31, 2009, this segment employed 77 people in Toronto, 79 people in the UK, 63 people in South Africa, 68 people in mainland Europe and Ireland, 12 people in Mexico, 43 people in India and 52 people in St. Louis.
Asia Pacific Operations
     The Asia Pacific operations represented 17.4%, 18.7%, and 17.6% of the Company’s net premiums in 2009, 2008 and 2007, respectively. The Company has a presence in the Asia Pacific region with licensed branch offices and/or representative offices in Hong Kong, Japan, South Korea, Taiwan, New Zealand, Labuan (Malaysia) and China. The Company also established a reinsurance subsidiary in Australia in January 1996.
     During 2009, the 10 largest clients, six in Australia, two in Korea and two in Japan, generated approximately $582.4 million, or 56.7% of the total gross premiums for the Asia Pacific operations. The Australian business, as a whole, generated approximately $452.7 million, or 44.0% of the total gross premiums for the Asia Pacific operations in 2009.
     The principal types of reinsurance for this segment include life, critical illness, disability income, superannuation, and non-traditional reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and in addition, offer life and disability insurance coverage. Reinsurance agreements may be either facultative or automatic agreements covering primarily individual risks and in some markets, group risks.
     Within the Asia Pacific segment, as of December 31, 2009, 35 people were on staff in the Hong Kong office, 57 people were on staff in the Japan office, 17 people were on staff in the Taiwan office, 30 people were on staff in the South Korean office, six people were on staff in the Beijing office, one person was on staff in the New Zealand office, 50 people were on staff in the International Division Sydney office, 10 were on staff at the St. Louis office, and RGA Australian Holdings maintained a staff of 75. The Hong Kong, Japan, Taiwan, Beijing and South Korea offices provide full reinsurance services and are supported by the Company’s U.S. and International Division Sydney office. RGA Australia employs its own underwriting, actuarial, claims, pricing, accounting, systems, marketing, and administration service with additional support provided by the Company’s U.S. and International Division Sydney office.
Corporate and Other
     Corporate and Other operations include investment income from invested assets not allocated to support segment operations and undeployed proceeds from the Company’s capital raising efforts, in addition to unallocated investment related gains or losses. Corporate expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance expenses line item, unallocated overhead and executive costs, and interest expense related to debt and the $225.0 million of 5.75% Company-obligated mandatorily redeemable trust preferred securities. Additionally, Corporate and Other includes results from, among others, RGA Technology Partners, Inc. (“RTP”), a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry and the investment income and expense associated with the Company’s collateral finance facility. Effective January 1, 2009, due to immateriality, the discontinued accident and health operations were included in the results of the Corporate and Other segment. More information about the Company’s discontinued accident and health division may be found in Note 21 —

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“Discontinued Operations” in the Notes to Consolidated Financial Statements. In the fourth quarter of 2009, the Company wrote off its remaining interest in its direct insurance operations in Argentina, recording a $3.0 million investment-related loss. This loss was in addition to the Company’s recognition of a $10.5 million foreign currency translation loss in 2007 related to the pending sale.
D. Financial Information About Foreign Operations
     The Company’s foreign operations are primarily in Canada, the Asia Pacific region, and Europe & South Africa. Revenue, income (loss) before income taxes, which include investment related gains (losses), interest expense, depreciation and amortization, and identifiable assets attributable to these geographic regions are identified in Note 17 — “Segment Information” in the Notes to Consolidated Financial Statements. Although there are risks inherent to foreign operations, such as currency fluctuations and restrictions on the movement of funds, as described in Item 1A — “Risk Factors”, the Company’s financial position and results of operations have not been materially adversely affected thereby to date.
E. Available Information
     Copies of the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge through the Company’s website (www.rgare.com) as soon as reasonably practicable after the Company electronically files such reports with the Securities and Exchange Commission (www.sec.gov). Information provided on such websites does not constitute part of this Annual Report on Form 10-K.
Item 1A. RISK FACTORS
     In the Risk Factors below, we refer to the Company as “we,” “us,” or “our”. Investing in our securities involves certain risks. Any of the following risks could materially adversely affect our business, results of operations, or financial condition and could result in a loss of your investment.
Risks Related to Our Business
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, access to capital and cost of capital.
     The capital and credit markets have experienced varying degrees of volatility and disruption. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers.
     We need liquidity to pay our operating expenses, interest on our debt and dividends on our capital stock and to replace certain maturing liabilities. Without sufficient liquidity, we will be forced to curtail our operations, and our business will suffer. The principal sources of our liquidity are reinsurance premiums under reinsurance treaties and cash flow from our investment portfolio and other assets. Sources of liquidity in normal markets also include proceeds from the issuance of a variety of short- and long-term instruments, including medium- and long-term debt, junior subordinated debt securities, capital securities and common stock.
     In the event current resources do not satisfy our needs, we may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of our long- or short-term financial prospects if we incur large investment losses or if the level of our business activity decreased due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. Our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
     Disruptions, uncertainty or volatility in the capital and credit markets may also limit our access to capital required to operate our business, most significantly our reinsurance operations. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; generate fee income and market-related revenue to meet liquidity needs; and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue shorter tenor securities than we prefer, or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. At various points during the past twelve months, our credit spreads widened considerably. Further, our ability to finance our statutory reserve requirements is limited in the current marketplace. If capacity continues to be limited for a prolonged period of time, our ability to obtain new funding for such purposes may be hindered and, as a result, it may limit or adversely affect our ability to write additional business in a cost-

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effective manner. Our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the financial markets.
Difficult conditions in the global capital markets and the economy generally may materially adversely affect our business and results of operations.
     Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the United States and elsewhere around the world. Fixed income markets experienced a period of extreme volatility, which negatively affected market liquidity conditions. Fixed income instruments experienced decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default. Many fixed income securities became less liquid and more difficult to value and sell. Domestic and international equity markets also experienced heightened volatility and turmoil, with issuers (such as us) that have exposure to the mortgage and credit markets particularly affected. These events and the continuing market upheavals may have an adverse effect on us, in part because we have a large investment portfolio and are also dependent upon customer behavior. Our revenues may decline in such circumstances and our profit margins may erode. In addition, in the event of extreme prolonged market events, such as the global credit crisis, we could incur significant investment-related losses. Even in the absence of a market downturn, we are exposed to substantial risk of loss due to market volatility.
The liquidity and value of some of our investments has significantly diminished as volatility has increased.
     We hold certain investments that may lack liquidity, such as privately placed fixed maturity securities; mortgage loans; policy loans; and equity real estate. Even some of our very high quality assets have been more illiquid as a result of the recent challenging market conditions.
     If we require significant amounts of cash on short notice in excess of normal cash requirements or are required to post or return collateral in connection with our investment portfolio, derivatives transactions or securities lending activities, we may have difficulty selling these investments in a timely manner, be forced to sell them for less than we otherwise would have been able to realize, or both.
The impairment of other financial institutions could adversely affect us.
     We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, insurance companies, commercial banks, investment banks, investment funds and other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty. In addition, with respect to secured and other transactions that provide for us to hold collateral posted by the counterparty, our credit risk may be exacerbated when the collateral we hold cannot be liquidated at prices sufficient to recover the full amount of our exposure. We also have exposure to these financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. There can be no assurance that any such losses or impairments to the carrying value of these assets would not materially and adversely affect our business and results of operations.
Our requirements to post collateral or make payments related to declines in market value of specified assets may expose us to counterparty risk and adversely affect our liquidity.
     Some of our transactions with financial and other institutions specify the circumstances under which the parties are required to post collateral. The amount of collateral we may be required to post under these agreements may increase under certain circumstances, which could adversely affect our liquidity. In addition, under the terms of some of our transactions we may be required to make payment to our counterparties related to any decline in the market value of the specified assets.
Defaults on our mortgage loans and volatility in performance may adversely affect our profitability.
     Our mortgage loans face default risk and are principally collateralized by commercial properties. Mortgage loans are stated on our balance sheet at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, and are net of valuation allowances. We establish valuation allowances for estimated impairments as of the balance sheet date. Such valuation allowances are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate, the value of the loan’s collateral if the loan is in the process of foreclosure or otherwise collateral dependent, or the loan’s market value if the loan is being sold. At December 31, 2009, we had valuation allowances of $5.8 million related to our mortgage loans. The performance of our mortgage loan investments, however, may fluctuate in the future. An increase in the default rate of our mortgage loan investments could have a material adverse effect on our results of operations and financial condition.

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     Further, any geographic or sector concentration of our mortgage loans may have adverse effects on our investment portfolios and consequently on our consolidated results of operations or financial condition. While we seek to mitigate this risk by having a broadly diversified portfolio, events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on the investment portfolios to the extent that the portfolios are concentrated. Moreover, our ability to sell assets relating to such particular groups of related assets may be limited if other market participants are seeking to sell at the same time.
Our investments are reflected within the consolidated financial statements utilizing different accounting bases and accordingly we may not have recognized differences, which may be significant, between cost and fair value in our consolidated financial statements.
     Our principal investments are in fixed maturity and equity securities, short-term investments, mortgage loans, policy loans, funds withheld at interest and other invested assets. The carrying value of such investments is as follows:
    Fixed maturity and equity securities are classified as available-for-sale and are reported at their estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of accumulated other comprehensive income or loss, net of related deferred acquisition costs and deferred income taxes.
 
    Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at amortized cost, which approximates fair value.
 
    Mortgage and policy loans are stated at unpaid principal balance. Additionally, mortgage loans are adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances.
 
    Funds withheld at interest represent amounts contractually withheld by ceding companies in accordance with reinsurance agreements. The value of the assets withheld and interest income are recorded in accordance with specific treaty terms.
 
    We primarily use the cost method of accounting for investments in real estate joint ventures and other limited partnership interests since we have a minor equity investment and virtually no influence over the joint ventures or the partnership’s operations. These investments are reflected in other invested assets on the balance sheet.
     Investments not carried at fair value in our consolidated financial statements — principally, mortgage loans, policy loans, real estate joint ventures, and other limited partnerships — may have fair values which are substantially higher or lower than the carrying value reflected in our consolidated financial statements. Each of such asset classes is regularly evaluated for impairment under the accounting guidance appropriate to the respective asset class.
Our valuation of fixed maturity and equity securities and derivatives include methodologies, estimations and assumptions which are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our results of operations or financial condition.
     Fixed maturity, equity securities and short-term investments which are reported at fair value on the consolidated balance sheet represent the majority of our total cash and invested assets. We have categorized these securities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable market inputs (Levels 1 and 2) and unobservable market inputs (Level 3).
     The determination of fair values in the absence of quoted market prices is based on: (i) valuation methodologies; (ii) securities we deem to be comparable; and (iii) assumptions deemed appropriate given the circumstances. The fair value estimates are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Factors considered in estimating fair value include: coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, credit rating, industry sector of the issuer, and quoted market prices of comparable securities. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.
     During periods of market disruption including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain of our securities, for example alternative residential mortgage

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loan (“Alt-A”) securities and sub-prime mortgage-backed securities, if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, more securities may fall to Level 3 and thus require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation methods which are more sophisticated or require greater estimation thereby resulting in values which may be less than the value at which the investments may be ultimately sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within our consolidated financial statements and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on our results of operations or financial condition.
     The reported value of our relatively illiquid types of investments, our investments in the asset classes described in the paragraph above and, at times, our high quality, generally liquid asset classes, do not necessarily reflect the lowest current market price for the asset. If we were forced to sell certain of our assets in the current market, there can be no assurance that we will be able to sell them for the prices at which we have recorded them and we may be forced to sell them at significantly lower prices.
The determination of the amount of allowances and impairments taken on our investments is highly subjective and could materially impact our results of operations or financial position.
     The determination of the amount of allowances and impairments vary by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. There can be no assurance that our management has accurately assessed the level of impairments taken, allowances reflected in our financial statements and potential impact on regulatory capital. Furthermore, additional impairments may need to be taken or allowances provided for in the future. Historical trends may not be indicative of future impairments or allowances.
     For example, the cost of our fixed maturity and equity securities is adjusted for impairments in value deemed to be other-than-temporary in the period in which the determination is made. The assessment of whether impairments have occurred is based on management’s case-by-case evaluation of the underlying reasons for the decline in fair value. Our management considers a wide range of factors about the security issuer and uses their best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations in the impairment evaluation process include, but are not limited to:
    the length of time and the extent to which the market value has been below cost or amortized cost;
 
    the potential for impairments of securities when the issuer is experiencing significant financial difficulties;
 
    the potential for impairments in an entire industry sector or sub-sector;
 
    the potential for impairments in certain economically depressed geographic locations;
 
    the potential for impairments of securities where the issuer, series of issuers or industry has suffered a catastrophic type of loss or has exhausted natural resources;
 
    for fixed maturity securities, whether or not we have the intent to sell, or more likely than not, would be required to sell the security before the recovery of its value to an amount equal to or greater than cost or amortized cost;
 
    for equity securities, our ability and intent to hold the security for a period of time sufficient to allow for the recovery of its value to an almost equal to or greater than cost or amortized cost;
 
    unfavorable changes in forecasted cash flows on mortgage-backed and asset-backed securities; and
 
    other subjective factors, including concentrations and information obtained from regulators and rating agencies.
Defaults, downgrades or other events impairing the value of our fixed maturity securities portfolio may reduce our earnings.
     We are subject to the risk that the issuers, or guarantors, of fixed maturity securities we own may default on principal and interest payments they owe us. At December 31, 2009, the fixed maturity securities of $11.8 billion in our investment portfolio represented 59.6% of our total cash and invested assets. The occurrence of a major economic downturn (such as the current downturn in the economy), acts of corporate malfeasance, widening risk spreads, or other events that adversely affect the issuers or guarantors of these securities could cause the value of our fixed maturity securities portfolio and our net income to decline and the default rate of the fixed maturity securities in our investment portfolio to increase. A ratings downgrade affecting issuers or guarantors of particular securities, or similar trends that could worsen the credit quality

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of issuers, such as the corporate issuers of securities in our investment portfolio, could also have a similar effect. With economic uncertainty, credit quality of issuers or guarantors could be adversely affected. Any event reducing the value of these securities other than on a temporary basis could have a material adverse effect on our business, results of operations and financial condition.
A downgrade in our ratings or in the ratings of our reinsurance subsidiaries could adversely affect our ability to compete.
     Ratings are an important factor in our competitive position. Rating organizations periodically review the financial performance and condition of insurers, including our reinsurance subsidiaries. These ratings are based on an insurance company’s ability to pay its obligations and are not directed toward the protection of investors. Rating organizations assign ratings based upon several factors. While most of the factors considered relate to the rated company, some of the factors relate to general economic conditions and circumstances outside the rated company’s control. The various rating agencies periodically review and evaluate our capital adequacy in accordance with their established guidelines and capital models. In order to maintain our existing ratings, we may commit from time to time to manage our capital at levels commensurate with such guidelines and models. If our capital levels are insufficient to fulfill any such commitments, we could be required to reduce our risk profile by, for example, retroceding some of our business or by raising additional capital by issuing debt, hybrid, or equity securities. Any such actions could have a material adverse impact on our earnings or materially dilute our shareholders’ equity ownership interests.
     Any downgrade in the ratings of our reinsurance subsidiaries could adversely affect their ability to sell products, retain existing business, and compete for attractive acquisition opportunities. Ratings are subject to revision or withdrawal at any time by the assigning rating organization. A rating is not a recommendation to buy, sell or hold securities, and each rating should be evaluated independently of any other rating. We believe that the rating agencies consider the ratings of a parent company when assigning a rating to a subsidiary of that company. The ability of our subsidiaries to write reinsurance partially depends on their financial condition and is influenced by their ratings. In addition, a significant downgrade in the rating or outlook of RGA, among other factors, could adversely affect our ability to raise and then contribute capital to our subsidiaries for the purpose of facilitating their operations and growth. A significant downgrade could increase our own cost of capital. For example, the facility fee and interest rate for our credit facilities are based on our senior long-term debt ratings. A decrease in those ratings could result in an increase in costs for the credit facilities. Also, if there is a downgrade in the rating of RGA, some of our reinsurance contracts would require us to post collateral to secure our obligations under these reinsurance contracts. Accordingly, we believe a ratings downgrade of RGA, or of our affiliates, could have a negative effect on our ability to conduct business.
     We cannot assure you that actions taken by our ratings agencies would not result in a material adverse effect on our business and results of operations. In addition, it is unclear what effect, if any, a ratings change would have on the price of our securities in the secondary market.
We make assumptions when pricing our products relating to mortality, morbidity, lapsation and expenses, and significant deviations in experience could negatively affect our financial results.
     Our reinsurance contracts expose us to mortality risk, which is the risk that the level of death claims may differ from that which we assumed in pricing our life, critical illness and annuity reinsurance contracts. Some of our reinsurance contracts expose us to morbidity risk, which is the risk that an insured person will become critically ill or disabled. Our risk analysis and underwriting processes are designed with the objective of controlling the quality of the business and establishing appropriate pricing for the risks we assume. Among other things, these processes rely heavily on our underwriting, our analysis of mortality and morbidity trends, lapse rates, expenses and our understanding of medical impairments and their effect on mortality or morbidity.
     We expect mortality, morbidity and lapse experience to fluctuate somewhat from period to period, but believe they should remain fairly constant over the long term. Mortality, morbidity or lapse experience that is less favorable than the mortality, morbidity or lapse rates that we used in pricing a reinsurance agreement will negatively affect our net income because the premiums we receive for the risks we assume may not be sufficient to cover the claims and profit margin. Furthermore, even if the total benefits paid over the life of the contract do not exceed the expected amount, unexpected increases in the incidence of deaths or illness can cause us to pay more benefits in a given reporting period than expected, adversely affecting our net income in any particular reporting period. Likewise, adverse experience could impair our ability to offset certain unamortized deferred acquisition costs and adversely affect our net income in any particular reporting period.

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RGA is an insurance holding company, and our ability to pay principal, interest and/or dividends on securities is limited.
     RGA is an insurance holding company, with our principal assets consisting of the stock of our reinsurance company subsidiaries, and substantially all of our income is derived from those subsidiaries. Our ability to pay principal and interest on any debt securities or dividends on any preferred or common stock depends in part on the ability of our reinsurance company subsidiaries, our principal sources of cash flow, to declare and distribute dividends or to advance money to RGA. We are not permitted to pay common stock dividends or make payments of interest or principal on securities which rank equal or junior to our subordinated debentures, until we pay any accrued and unpaid interest on our subordinated debentures. Our reinsurance company subsidiaries are subject to various statutory and regulatory restrictions, applicable to insurance companies generally, that limit the amount of cash dividends, loans and advances that those subsidiaries may pay to us. Covenants contained in some of our debt agreements and regulations relating to capital requirements affecting some of our more significant subsidiaries also restrict the ability of certain subsidiaries to pay dividends and other distributions and make loans to us. In addition, we cannot assure you that more stringent dividend restrictions will not be adopted, as discussed below under "— Our reinsurance subsidiaries are highly regulated, and changes in these regulations could negatively affect our business.”
     As a result of our insurance holding company structure, in the event of the insolvency, liquidation, reorganization, dissolution or other winding-up of one of our reinsurance subsidiaries, all creditors of that subsidiary would be entitled to payment in full out of the assets of such subsidiary before we, as shareholder, would be entitled to any payment. Our subsidiaries would have to pay their direct creditors in full before our creditors, including holders of any class of common stock, preferred stock or debt securities of RGA, could receive any payment from the assets of such subsidiaries.
If our investment strategy is unsuccessful, we could suffer losses.
     The success of our investment strategy is crucial to the success of our business. In particular, we structure our investments to match our anticipated liabilities under reinsurance treaties to the extent we believe necessary. If our calculations with respect to these reinsurance liabilities are incorrect, or if we improperly structure our investments to match such liabilities, we could be forced to liquidate investments prior to maturity at a significant loss.
     Our investment guidelines also permit us to invest up to 10% of our investment portfolio in non-investment grade fixed maturity securities. While any investment carries some risk, the risks associated with lower-rated securities are greater than the risks associated with investment grade securities. The risk of loss of principal or interest through default is greater because lower-rated securities are usually unsecured and are often subordinated to an issuer’s other obligations. Additionally, the issuers of these securities frequently have high debt levels and are thus more sensitive to difficult economic conditions, individual corporate developments and rising interest rates which could impair an issuer’s capacity or willingness to meet its financial commitment on such lower-rated securities. As a result, the market price of these securities may be quite volatile, and the risk of loss is greater.
     The success of any investment activity is affected by general economic conditions, which may adversely affect the markets for interest-rate-sensitive securities and equity securities, including the level and volatility of interest rates and the extent and timing of investor participation in such markets. Unexpected volatility or illiquidity in the markets in which we directly or indirectly hold positions could adversely affect us.
Interest rate fluctuations could negatively affect the income we derive from the difference between the interest rates we earn on our investments and interest we pay under our reinsurance contracts.
     Significant changes in interest rates expose reinsurance companies to the risk of reduced investment income or actual losses based on the difference between the interest rates earned on investments and the credited interest rates paid on outstanding reinsurance contracts. Both rising and declining interest rates can negatively affect the income we derive from these interest rate spreads. During periods of rising interest rates, we may be contractually obligated to increase the crediting rates on our reinsurance contracts that have cash values. However, we may not have the ability to immediately acquire investments with interest rates sufficient to offset the increased crediting rates on our reinsurance contracts. During periods of falling interest rates, our investment earnings will be lower because new investments in fixed maturity securities will likely bear lower interest rates. We may not be able to fully offset the decline in investment earnings with lower crediting rates on underlying annuity products related to certain of our reinsurance contracts. While we develop and maintain asset/liability management programs and procedures designed to reduce the volatility of our income when interest rates are rising or falling, we cannot assure you that changes in interest rates will not affect our interest rate spreads.

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     Changes in interest rates may also affect our business in other ways. Lower interest rates may result in lower sales of certain insurance and investment products of our customers, which would reduce the demand for our reinsurance of these products.
The availability and cost of collateral, including letters of credit, asset trusts and other credit facilities, could adversely affect our operations and financial condition.
     Regulatory reserve requirements in various jurisdictions in which we operate may be significantly higher than the reserves required under GAAP. Accordingly, we reinsure, or retrocede, business to affiliated and unaffiliated reinsurers to reduce the amount of regulatory reserves and capital we are required to hold in certain jurisdictions. A regulation in the United States, commonly referred to as Regulation XXX, requires a relatively high level of regulatory, or statutory, reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. The degree to which these reserves will increase and the ultimate level of reserves will depend upon the mix of our business and future production levels in the United States. Based on the assumed rate of growth in our current business plan, and the increasing level of regulatory reserves associated with some of this business, we expect the amount of required regulatory reserves to grow significantly.
     In order to reduce the effect of Regulation XXX, our principal U.S. operating subsidiary, RGA Reinsurance, has retroceded Regulation XXX-related reserves to affiliated and unaffiliated reinsurers. Additionally, some of our reinsurance subsidiaries in other jurisdictions enter into various reinsurance arrangements with affiliated and unaffiliated reinsurers from time to time in order to reduce their statutory capital and reserve requirements. As a general matter, for us to reduce regulatory reserves on business that we retrocede, the affiliated or unaffiliated reinsurer must provide an equal amount of collateral. Such collateral may be provided through a capital markets securitization, in the form of a letter of credit from a commercial bank or through the placement of assets in trust for our benefit.
     In connection with these reserve requirements, we face the following risks:
    The availability of collateral and the related cost of such collateral in the future could affect the type and volume of business we reinsure and could increase our costs.
 
    We may need to raise additional capital to support higher regulatory reserves, which could increase our overall cost of capital.
 
    If we, or our retrocessionaires, are unable to obtain or provide sufficient collateral to support our statutory ceded reserves, we may be required to increase regulatory reserves. In turn, this reserve increase could significantly reduce our statutory capital levels and adversely affect our ability to satisfy required regulatory capital levels that apply to us, unless we are able to raise additional capital to contribute to our operating subsidiaries.
 
    Because term life insurance is a particularly price-sensitive product, any increase in insurance premiums charged on these products by life insurance companies, in order to compensate them for the increased statutory reserve requirements or higher costs of insurance they face, may result in a significant loss of volume in their life insurance operations, which could, in turn, adversely affect our life reinsurance operations.
     We cannot assure you that we will be able to implement actions to mitigate the effect of increasing regulatory reserve requirements.
We could be forced to sell investments at a loss to cover policyholder withdrawals, recaptures of reinsurance treaties or other events.
     Some of the products offered by our insurance company customers allow policyholders and contract holders to withdraw their funds under defined circumstances. Our reinsurance subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities under reinsurance treaties with these customers. While our reinsurance subsidiaries own a significant amount of liquid assets, a portion of their assets are relatively illiquid. Unanticipated withdrawal or surrender activity could, under some circumstances, require our reinsurance subsidiaries to dispose of assets on unfavorable terms, which could have an adverse effect on us. Reinsurance agreements may provide for recapture rights on the part of our insurance company customers. Recapture rights permit these customers to reassume all or a portion of the risk formerly ceded to us after an agreed upon time, usually ten years, subject to various conditions.
     Recapture of business previously ceded does not affect premiums ceded prior to the recapture, but may result in immediate payments to our insurance company customers and a charge for costs that we deferred when we acquired the

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business but are unable to recover upon recapture. Under some circumstances, payments to our insurance company customers could require our reinsurance subsidiaries to dispose of assets on unfavorable terms.
Changes in the equity markets, interest rates and/or volatility affects the profitability of variable annuities with guaranteed living benefits that we reinsure; therefore, such changes may have a material adverse effect on our business and profitability.
     We reinsure variable annuity products that include guaranteed minimum living benefits. These include guaranteed minimum withdrawal benefits (“GMWB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum income benefits (“GMIB”). The amount of reserves related to these benefits is based on their fair value and is affected by changes in equity markets, interest rates and volatility. Accordingly, strong equity markets, increases in interest rates and decreases in volatility will generally decrease the fair value of the liabilities underlying the benefits.
     Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing the amount of reserves that we must carry. Such an increase in reserves would result in a charge to our earnings in the quarter in which we increase our reserves. We maintain a customized dynamic hedge program that is designed to mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits. However, the hedge positions may not be effective to exactly offset the changes in the carrying value of the guarantees due to, among other things, the time lag between changes in their values and corresponding changes in the hedge positions, high levels of volatility in the equity markets and derivatives markets, extreme swings in interest rates, contract holder behavior different than expected, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on our net income, financial condition or liquidity.
We are exposed to foreign currency risk.
     We are a multi-national company with operations in numerous countries and, as a result, are exposed to foreign currency risk to the extent that exchange rates of foreign currencies are subject to adverse change over time. The U.S. dollar value of our net investments in foreign operations, our foreign currency transaction settlements and the periodic conversion of the foreign-denominated earnings to U.S. dollars (our reporting currency) are each subject to adverse foreign exchange rate movements. Approximately 38% of our revenues and 32% of our fixed maturity securities available for sale were denominated in currencies other than the U.S. dollar as of and for the year ended December 31, 2009.
We depend on the performance of others, and their failure to perform in a satisfactory manner would negatively affect us.
     In the normal course of business, we seek to limit our exposure to losses from our reinsurance contracts by ceding a portion of the reinsurance to other insurance enterprises or retrocessionaires. We cannot assure you that these insurance enterprises or retrocessionaires will be able to fulfill their obligations to us. As of December 31, 2009, the retrocession pool members participating in our excess retention pool that have been reviewed by A.M. Best Company, were rated “A-”, the fourth highest rating out of fifteen possible ratings, or better. We are also subject to the risk that our clients will be unable to fulfill their obligations to us under our reinsurance agreements with them.
     We rely upon our insurance company clients to provide timely, accurate information. We may experience volatility in our earnings as a result of erroneous or untimely reporting from our clients. We work closely with our clients and monitor their reporting to minimize this risk. We also rely on original underwriting decisions made by our clients. We cannot assure you that these processes or those of our clients will adequately control business quality or establish appropriate pricing.
     For some reinsurance agreements, the ceding company withholds and legally owns and manages assets equal to the net statutory reserves, and we reflect these assets as funds withheld at interest on our balance sheet. In the event that a ceding company were to become insolvent, we would need to assert a claim on the assets supporting our reserve liabilities. We attempt to mitigate our risk of loss by offsetting amounts for claims or allowances that we owe the ceding company with amounts that the ceding company owes to us. We are subject to the investment performance on the withheld assets, although we do not directly control them. We help to set, and monitor compliance with, the investment guidelines followed by these ceding companies. However, to the extent that such investment guidelines are not appropriate, or to the extent that the ceding companies do not adhere to such guidelines, our risk of loss could increase, which could materially adversely affect our financial condition and results of operations. During 2009, interest earned on funds withheld represented 5.4% of our consolidated revenues. Funds withheld at interest totaled $4.9 billion at December 31, 2009 and $4.5 billion as of December 31, 2008.

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     We use the services of third-party investment managers to manage certain assets where our investment management expertise is limited. We rely on these investment managers to provide investment advice and execute investment transactions that are within our investment policy guidelines. Poor performance on the part of our outside investment managers could negatively affect our financial performance.
     As with all financial services companies, our ability to conduct business depends on consumer confidence in the industry and our financial strength. Actions of competitors, and financial difficulties of other companies in the industry, and related adverse publicity, could undermine consumer confidence and harm our reputation.
Natural and man-made disasters, catastrophes, and events, including the threat of terrorist attacks, epidemics and pandemics, may adversely affect our business and results of operations.
     Natural disasters and terrorist attacks, as well as epidemics and pandemics, can adversely affect our business and results of operations because they accelerate mortality and morbidity risk. Terrorist attacks on the United States and in other parts of the world and the threat of future attacks could have a negative effect on our business.
     We believe our reinsurance programs are sufficient to reasonably limit our net losses for individual life claims relating to potential future natural disasters and terrorist attacks. However, the consequences of further natural disasters, terrorist attacks, armed conflicts, epidemics and pandemics are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business.
We operate in a competitive industry which could adversely affect our market share.
     The reinsurance industry is highly competitive, and we encounter significant competition in all lines of business from other reinsurance companies, as well as competition from other providers of financial services. Our competitors vary by geographic market. We believe our primary competitors in the North American life reinsurance market are currently the following, or their affiliates: Transamerica Occidental Life Insurance Company, a subsidiary of Aegon, N.V., Swiss Re Life, Munich Reinsurance Company and Generali Re. We believe our primary competitors in the international life reinsurance markets are Swiss Re Life and Health Ltd., General Re, Munich Reinsurance Company, Hannover Reinsurance and SCOR Global Reinsurance. Many of our competitors have greater financial resources than we do. Our ability to compete depends on, among other things, our ability to maintain strong financial strength ratings from rating agencies, pricing and other terms and conditions of reinsurance agreements, and our reputation, service, and experience in the types of business that we underwrite. However, competition from other reinsurers could adversely affect our competitive position.
     Our target market is generally large life insurers. We compete based on the strength of our underwriting operations, insights on mortality trends based on our large book of business, and responsive service. We believe our quick response time to client requests for individual underwriting quotes and our underwriting expertise are important elements to our strategy and lead to other business opportunities with our clients. Our business will be adversely affected if we are unable to maintain these competitive advantages or if our international strategy is not successful.
Tax law changes or a prolonged economic downturn could reduce the demand for insurance products, which could adversely affect our business.
     Under the Internal Revenue Code, income tax payable by policyholders on investment earnings is deferred during the accumulation period of some life insurance and annuity products. To the extent that the Internal Revenue Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies would be adversely affected with respect to their ability to sell such products, and, depending on grandfathering provisions, by the surrenders of existing annuity contracts and life insurance policies. In addition, life insurance products are often used to fund estate tax obligations. Congress has adopted legislation to eliminate the estate tax. Under this legislation, our U.S. life insurance company customers could face reduced demand for some of their life insurance products, which in turn could negatively affect our reinsurance business. Further, the Obama Administration has proposed certain changes to individual income tax rates, changes to the taxation of our international operations and rules applicable to certain policies. We cannot predict what future tax initiatives may be proposed and enacted that could affect us.

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     Changes in tax laws, Treasury and other regulations promulgated thereunder, or interpretations of such laws or regulations could increase our corporate taxes. The Obama Administration has proposed corporate tax changes. Changes in corporate tax rates could affect the value of deferred tax assets and deferred tax liabilities. Furthermore, the value of deferred tax assets could be affected by future earnings levels.
     We cannot predict whether any tax legislation impacting corporate taxes or insurance products will be enacted, what the specific terms of any such legislation will be or whether, if at all, any legislation would have a material adverse effect on our financial condition and results of operations.
     In addition, a general economic downturn or a downturn in the equity and other capital markets could adversely affect the market for many annuity and life insurance products. Because we obtain substantially all of our revenues through reinsurance arrangements that cover a portfolio of life insurance products, as well as annuities, our business would be harmed if the market for annuities or life insurance was adversely affected. In addition, the market for annuity reinsurance products is currently not well developed, and we cannot assure you that such market will develop in the future.
Our reinsurance subsidiaries are highly regulated, and changes in these regulations could negatively affect our business.
     Our reinsurance subsidiaries are subject to government regulation in each of the jurisdictions in which they are licensed or authorized to do business. Governmental agencies have broad administrative power to regulate many aspects of the insurance business, which may include premium rates, marketing practices, advertising, policy forms, and capital adequacy. These agencies are concerned primarily with the protection of policyholders rather than shareholders or holders of debt securities. Moreover, insurance laws and regulations, among other things, establish minimum capital requirements and limit the amount of dividends, tax distributions, and other payments our reinsurance subsidiaries can make without prior regulatory approval, and impose restrictions on the amount and type of investments we may hold. The State of Missouri also regulates RGA as an insurance holding company.
     Recently, insurance regulators have increased their scrutiny of the insurance regulatory framework in the United States and some state legislatures have considered or enacted laws that alter, and in many cases increase, state authority to regulate insurance holding companies and insurance companies. In light of recent legislative developments, the National Association of Insurance Commissioners, or “NAIC”, and state insurance regulators have begun re-examining existing laws and regulations, specifically focusing on insurance company investments and solvency issues, guidelines imposing minimum capital requirements based on business levels and asset mix, interpretations of existing laws, the development of new laws, the implementation of non-statutory guidelines, and the definition of extraordinary dividends, including a more stringent standard for allowance of extraordinary dividends. We are unable to predict whether, when or in what form the State of Missouri will enact a new measure for extraordinary dividends, and we cannot assure you that more stringent restrictions will not be adopted from time to time in other jurisdictions in which our reinsurance subsidiaries are domiciled, which could, under certain circumstances, significantly reduce dividends or other amounts payable to us by our subsidiaries unless they obtain approval from insurance regulatory authorities. We cannot predict the effect that any NAIC recommendations or proposed or future legislation or rule-making in the United States or elsewhere may have on our financial condition or operations.
Acquisitions and significant transactions involve varying degrees of risk that could affect our profitability.
     We have made, and may in the future make, strategic acquisitions, either of selected blocks of business or other companies. Acquisitions may expose us to operational challenges and various risks, including:
    the ability to integrate the acquired business operations and data with our systems;
 
    the availability of funding sufficient to meet increased capital needs;
 
    the ability to fund cash flow shortages that may occur if anticipated revenues are not realized or are delayed, whether by general economic or market conditions or unforeseen internal difficulties; and
 
    the possibility that the value of investments acquired in an acquisition, may be lower than expected or may diminish due to credit defaults or changes in interest rates and that liabilities assumed may be greater than expected (due to, among other factors, less favorable than expected mortality or morbidity experience).
     A failure to successfully manage the operational challenges and risks associated with or resulting from significant transactions, including acquisitions, could adversely affect our financial condition or results of operations.

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Our international operations involve inherent risks.
     In 2009, approximately 31.1% of our net premiums and $135.9 million of income from continuing operations before income taxes came from our operations in Europe & South Africa and Asia Pacific. One of our strategies is to grow these international operations. International operations subject us to various inherent risks. In addition to the regulatory and foreign currency risks identified above, other risks include the following:
    managing the growth of these operations effectively, particularly given the recent rates of growth;
 
    changes in mortality and morbidity experience and the supply and demand for our products that are specific to these markets and that may be difficult to anticipate;
 
    political and economic instability in the regions of the world where we operate;
 
    uncertainty arising out of foreign government sovereignty over our international operations; and
 
    potentially uncertain or adverse tax consequences, including the repatriation of earnings from our non-U.S. subsidiaries.
     We cannot assure you that we will be able to manage these risks effectively or that they will not have an adverse effect on our business, financial condition or results of operations.
Our risk management policies and procedures could leave us exposed to unidentified or unanticipated risk, which could negatively affect our business or result in losses.
     Our risk management policies and procedures to identify, monitor, and manage both internal and external risks may not predict future exposures, which could be different or significantly greater than expected. These identified risks may not be the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may adversely affect our business, financial condition and/or operating results.
Unanticipated events in our disaster recovery systems and management continuity planning could impair our ability to conduct business.
     In the event of a disaster such as a natural catastrophe, an industrial accident, a blackout, a computer virus, a terrorist attack or war, unanticipated problems with our disaster recovery systems could have a material adverse impact on our ability to conduct business and on our results of operations and financial position, particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data. We depend heavily upon computer systems to provide reliable service, data and reports. Despite our implementation of a variety of security measures, our servers could be subject to physical and electronic break-ins, and similar disruptions from unauthorized tampering with our computer systems. In addition, in the event that a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct business could be severely compromised. These interruptions also may interfere with our clients’ ability to provide data and other information and our employees’ ability to perform their job responsibilities.
Risks Related to Ownership of Our Common Stock
We may not pay dividends on our common stock.
     Our shareholders may not receive future dividends. Historically, we have paid quarterly dividends ranging from $0.027 per share in 1993 to $0.09 per share in 2009. All future payments of dividends, however, are at the discretion of our board of directors and will depend on our earnings, capital requirements, insurance regulatory conditions, operating conditions, and such other factors as our board of directors may deem relevant. The amount of dividends that we can pay will depend in part on the operations of our reinsurance subsidiaries. Under certain circumstances, we may be contractually prohibited from paying dividends on our common stock due to restrictions in certain debt and trust preferred securities.
RGA’s anti-takeover provisions may delay or prevent a change in control of RGA, which could adversely affect the price of our common stock.
     Certain provisions in our articles of incorporation and bylaws, as well as Missouri law, may delay or prevent a change of control of RGA, which could adversely affect the price of our common stock. Our articles of incorporation and bylaws contain some provisions that may make the acquisition of control of RGA without the approval of our board of directors more difficult, including provisions relating to the nomination, election and removal of directors, the structure of the board of directors and limitations on actions by our shareholders. In addition, Missouri law also imposes some restrictions on mergers and other business combinations between RGA and holders of 20% or more of our outstanding common stock.

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     Furthermore, our articles of incorporation are intended to limit stock ownership of RGA stock (other than shares acquired through the divestiture by MetLife or other exempted transactions) to less than 5% of the value of the aggregate outstanding shares of RGA stock during the restriction period. We have also adopted a Section 382 shareholder rights plan designed to deter shareholders from becoming a “5-percent shareholder” (as defined by Section 382 of the Internal Revenue Code and the related Treasury regulations) without the approval of our board of directors.
     These provisions may have unintended anti-takeover effects. These provisions of our articles of incorporation and bylaws and Missouri law may delay or prevent a change in control of RGA, which could adversely affect the price of our common stock.
Applicable insurance laws may make it difficult to effect a change of control of RGA.
     Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commission of the state where the domestic insurer is domiciled. Missouri insurance laws and regulations provide that no person may acquire control of us, and thus indirect control of our Missouri reinsurance subsidiaries, including RGA Reinsurance, unless:
    such person has provided certain required information to the Missouri Department of Insurance; and
 
    such acquisition is approved by the Director of Insurance of the State of Missouri, whom we refer to as the Missouri Director of Insurance, after a public hearing.
     Under Missouri insurance laws and regulations, any person acquiring 10% or more of the outstanding voting securities of a corporation, such as our common stock, is presumed to have acquired control of that corporation and its subsidiaries.
     Canadian federal insurance laws and regulations provide that no person may directly or indirectly acquire “control” of or a “significant interest” in our Canadian insurance subsidiary, RGA Canada, unless:
    such person has provided information, material and evidence to the Canadian Superintendent of Financial Institutions as required by him, and
 
    such acquisition is approved by the Canadian Minister of Finance.
     For this purpose, “significant interest” means the direct or indirect beneficial ownership by a person, or group of persons acting in concert, of shares representing 10% or more of a given class, and “control” of an insurance company exists when:
    a person, or group of persons acting in concert, beneficially owns or controls an entity that beneficially owns securities, such as our common stock, representing more than 50% of the votes entitled to be cast for the election of directors and such votes are sufficient to elect a majority of the directors of the insurance company, or
 
    a person has any direct or indirect influence that would result in control in fact of an insurance company.
     Prior to granting approval of an application to directly or indirectly acquire control of a domestic or foreign insurer, an insurance regulator may consider such factors as the financial strength of the applicant, the integrity of the applicant’s board of directors and executive officers, the applicant’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control.
Future stock sales, including sales by any selling shareholders, may dilute the value or affect the price of our common stock.
     Our board of directors has the authority, without action or vote of the shareholders, to issue any or all authorized but unissued shares of our common stock, including securities convertible into or exchangeable for our common stock and authorized but unissued shares under our stock option and other equity compensation plans. In the future, we may issue such additional securities, through public or private offerings, in order to raise additional capital. Any such issuance will dilute the percentage ownership of shareholders and may dilute the per share projected earnings or book value of the common stock. In addition, option holders may exercise their options at any time when we would otherwise be able to obtain additional equity capital on more favorable terms.
     MetLife retained an approximate 4.1% interest in RGA through the retention of 3,000,000 shares of common stock, and agreed that it will sell, exchange or otherwise dispose of its remaining recently acquired stock by September 12, 2013. Any disposition by MetLife of its remaining shares of common stock could result in a substantial amount of RGA equity securities entering the market, which may adversely affect the price of such common stock.

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The price of our common stock may fluctuate significantly.
     The overall market and the price of our common stock may continue to fluctuate as a result of many factors in addition to those discussed in the preceding risk factors. These factors, some or all of which are beyond our control, include:
    actual or anticipated fluctuations in our operating results;
 
    changes in expectations as to our future financial performance or changes in financial estimates of securities analysts;
 
    success of our operating and growth strategies;
 
    investor anticipation of strategic and technological threats, whether or not warranted by actual events;
 
    operating and stock price performance of other comparable companies; and
 
    realization of any of the risks described in these risk factors or those set forth in any subsequent Annual Report on Form 10-K or Quarterly Reports on Form 10-Q.
     In addition, the stock market has historically experienced volatility that often has been unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.
The acquisition restrictions contained in our articles of incorporation and our Section 382 shareholder rights plan, which are intended to help preserve RGA and its subsidiaries’ net operating losses (“NOLs”) and other tax attributes, may not be effective or may have unintended negative effects.
     We have recognized and may continue to recognize substantial NOLs, and other tax attributes, for U.S. federal income tax purposes. Under the Internal Revenue Code, we may “carry forward” these NOLs, in certain circumstances to offset any current and future taxable income and thus reduce our federal income tax liability, subject to certain requirements and restrictions. To the extent that the NOLs do not otherwise become limited, we believe that we will be able to carry forward a substantial amount of NOLs and, therefore, these NOLs are a substantial asset to RGA. However, if RGA and its subsidiaries experience an “ownership change,” as defined in Section 382 of the Internal Revenue Code and related Treasury regulations, their ability to use the NOLs could be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which consequently could significantly impair the value of that asset.
     To reduce the likelihood of an ownership change, in light of MetLife’s recent divestiture of most of its RGA stock, we have established acquisition restrictions in our articles of incorporation and our board of directors adopted a Section 382 shareholder rights plan. The Section 382 shareholder rights plan is designed to protect shareholder value by attempting to protect against a limitation on the ability of RGA and its subsidiaries to use their existing NOLs and other tax attributes. The acquisition restrictions in our articles of incorporation are also intended to restrict certain acquisitions of RGA stock to help preserve the ability of RGA and its subsidiaries to utilize their NOLs and other tax attributes by avoiding the limitations imposed by Section 382 of the Internal Revenue Code and the related Treasury regulations. The acquisition restrictions and the Section 382 shareholder rights plan are generally designed to restrict or deter direct and indirect acquisitions of RGA stock if such acquisition would result in an RGA shareholder becoming a 5-percent shareholder or increase the percentage ownership of RGA stock that is treated as owned by an existing 5-percent shareholder.
     Although the acquisition restrictions and the Section 382 shareholder rights plan are intended to reduce the likelihood of an ownership change that could adversely affect RGA and its subsidiaries, we can give no assurance that such restrictions would prevent all transfers that could result in such an ownership change. In particular, we have been advised by our counsel that, absent a court determination, there can be no assurance that the acquisition restrictions will be enforceable against all of the RGA shareholders, and that they may be subject to challenge on equitable grounds. In particular, it is possible that the acquisition restrictions may not be enforceable against the RGA shareholders who voted against or abstained from voting on the restrictions at our recent special meeting of shareholders or who do not have notice of the restrictions at the time when they subsequently acquire their shares.
     Under certain circumstances, our board of directors may determine it is in the best interest of RGA and its shareholders to exempt certain 5-percent shareholders from the operation of the Section 382 shareholder rights plan, in light of the provisions of the recapitalization and distribution agreement. Accordingly, our board of directors may determine that it is in the best interest of the Company not to enforce the Section 382 shareholder rights plan.
     The acquisition restrictions and Section 382 shareholder rights plan also require any person attempting to become a holder of 5% or more (by value) of RGA stock, as determined under the Internal Revenue Code, to seek the approval of our board of directors. This may have an unintended “anti-takeover” effect because our board of directors may be able to prevent any future takeover. Similarly, any limits on the amount of stock that a shareholder may own could have the effect of making

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it more difficult for shareholders to replace current management. Additionally, because the acquisition restrictions and Section 382 shareholder rights plan have the effect of restricting a shareholder’s ability to dispose of or acquire RGA stock, the liquidity and market value of RGA stock might suffer. The acquisition restrictions and the Section 382 shareholder rights plan will remain in effect for the “restriction period,” which is until the earlier of (a) September 13, 2011, or (b) such other date as our board of directors in good faith determines they are no longer in the best interests of RGA and its shareholders. The acquisition restrictions may be waived by our board of directors. Shareholders are advised to monitor carefully their ownership of RGA stock and consult their own legal advisors and/or RGA to determine whether their ownership of RGA stock approaches the proscribed level.
The occurrence of various events may adversely affect the ability of RGA and its subsidiaries to fully utilize NOLs and other tax attributes.
     RGA and its subsidiaries have a substantial amount of NOLs and other tax attributes, for U.S. federal income tax purposes, that are available both currently and in the future to offset taxable income and gains. Events outside of our control may cause RGA (and, consequently, its subsidiaries) to experience an “ownership change” under Section 382 of the Internal Revenue Code and the related Treasury regulations, and limit the ability of RGA and its subsidiaries to utilize fully such NOLs and other tax attributes. Moreover, the MetLife split-off increased the likelihood of RGA experiencing such an ownership change.
     In general, an ownership change occurs when, as of any testing date, the percentage of stock of a corporation owned by one or more “5-percent shareholders,” as defined in the Internal Revenue Code and the related Treasury regulations, has increased by more than 50 percentage points over the lowest percentage of stock of the corporation owned by such shareholders at any time during the three-year period preceding such date. In general, persons who own 5% or more (by value) of a corporation’s stock are 5-percent shareholders, and all other persons who own less than 5% (by value) of a corporation’s stock are treated, together, as a single, public group 5-percent shareholder, regardless of whether they own an aggregate of 5% or more (by value) of a corporation’s stock. If a corporation experiences an ownership change, it is generally subject to an annual limitation, which limits its ability to use its NOLs and other tax attributes to an amount equal to the equity value of the corporation multiplied by the federal long-term tax-exempt rate.
     If we were to experience an ownership change, we could potentially have in the future higher U.S. federal income tax liabilities than we would otherwise have had and it may also result in certain other adverse consequences to RGA. In this connection, we have adopted the Section 382 shareholder rights plan and the acquisition restrictions set forth in Article Fourteen to our articles of incorporation, in order to reduce the likelihood that RGA and its subsidiaries will experience an ownership change under Section 382 of the Internal Revenue Code. There can be no assurance, however, that these efforts will prevent the MetLife split-off, together with certain other transactions involving our stock, from causing us to experience an ownership change and the adverse consequences that may arise therefrom, as described above under “— The acquisition restrictions contained in our articles of incorporation and our Section 382 shareholder rights plan, which are intended to help preserve RGA and its subsidiaries’ NOLs and other tax attributes, may not be effective or may have unintended negative effects.”
Item 1B. UNRESOLVED STAFF COMMENTS
     The Company has no unresolved staff comments from the Securities and Exchange Commission.
Item 2. PROPERTIES
     The Company leases its headquarters facility in Chesterfield, Missouri, which consists of approximately 185,501 square feet. In addition, the Company leases approximately 262,446 square feet of office space in 26 locations throughout the U.S., Canada, Europe, South Africa, and the Asia Pacific region.
     Most of the Company’s leases in the U.S. and other countries have lease terms of three to five years, although some leases have terms of up to 10 years. As provided in Note 12 — “Lease Commitments” in the Notes to Consolidated Financial Statements, the rental expense on operating leases for office space and equipment totaled $13.9 million for 2009.
     The Company believes its facilities have been generally well maintained and are in good operating condition. The Company believes the facilities are sufficient for its current and projected future requirements.
Item 3. LEGAL PROCEEDINGS
     The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified

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that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated. However, if such material litigation did arise, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s consolidated financial position and/or net income in a particular reporting period.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     There were no matters that were submitted to a vote of security holders during the fourth quarter of 2009.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
     Information about the market price of the Company’s common equity, dividends and related stockholder matters is contained in Item 8 under the caption “Quarterly Data (Unaudited)” and in Item 1 under the caption Regulation — “Restrictions on Dividends and Distributions”. Additionally, insurance companies are subject to statutory regulations that restrict the payment of dividends. See Item 1 under the caption Regulation — “Restrictions on Dividends and Distributions”. See Item 8, Note 3 — “Stock Transactions” in the Notes to Consolidated Financial Statements for information regarding board approved stock repurchase plans.
     The following table summarizes information regarding securities authorized for issuance under equity compensation plans:
                         
    Number of securities to be           Number of securities
    issued upon exercise of   Weighted-average exercise   remaining available for
    outstanding options, warrants   price of outstanding options,   future issuance under equity
Plan category   and rights   warrants and rights   compensation plans
Equity compensation plans approved by security holders
    3,794,553   (1)   $ 39.96   (2) (3)     1,733,826   (4)
Equity compensation plans not approved by security holders
                 
Total
    3,794,553   (1)   $ 39.96   (2) (3)     1,733,826  (4)
 
(1)   Includes the number of securities to be issued upon exercises under the following plans: Flexible Stock Plan — 3,739,605; Flexible Stock Plan for Directors — 17,250; and Phantom Stock Plan for Directors — 37,698.
 
(2)   Does not include 556,216 performance contingent units outstanding under the Flexible Stock Plan or 37,698 phantom units outstanding under the Phantom Stock Plan for Directors because those securities do not have an exercise price (i.e. a unit is a hypothetical share of Company common stock with a value equal to the fair market value of the common stock).
 
(3)   Reflects the blended weighted-average exercise price of outstanding options under the Flexible Stock Plan ($40.01) and Flexible Stock Plan for Directors ($30.66).
 
(4)   Includes the number of securities remaining available for future issuance under the following plans: Flexible Stock Plan — 1,625,200; Flexible Stock Plan for Directors - 90,653; and Phantom Stock Plan for Directors — 17,973
Set forth below is a graph for the Company’s common stock for the period beginning December 31, 2004 and ending December 31, 2009. The graph compares the cumulative total return on the Company’s common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the cumulative total return of companies in the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Insurance (Life/Health) Index. The indices are included for comparative purposes only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of the Company’s common stock, and are not intended to forecast or be indicative of future performance of the common stock.

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(LINE GRAPH)
                                                 
    Cumulative Total Return
    12/04   12/05   12/06   12/07   12/08   12/09
Reinsurance Group of America, Incorporated
    100.00       99.37       116.72       110.66       90.95       102.19  
S & P 500
    100.00       104.91       121.48       128.16       80.74       102.11  
S & P Life & Health Insurance
    100.00       122.51       142.74       158.45       81.89       94.64  
Copyright ® 2010, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Item 6. SELECTED FINANCIAL DATA
     The selected financial data presented for, and as of the end of, each of the years in the five-year period ended December 31, 2009, have been prepared in accordance with accounting principles generally accepted in the United States of America. All amounts shown are in millions, except per share and operating data. The following data should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements appearing in Part II Item 8 and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in Part II Item 7.

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Selected Consolidated Financial and Operating Data
(in millions, except per share and operating data)
                                         
As of or For the Years Ended December 31,   2009     2008     2007     2006     2005  
Income Statement Data
                                       
Revenues:
                                       
Net premiums
  $ 5,725.2     $ 5,349.3     $ 4,909.0     $ 4,346.0     $ 3,866.8  
Investment income, net of related expenses
    1,122.5       871.3       907.9       779.7       639.2  
Investment related gains (losses), net:
                                       
Other-than-temporary impairments on fixed maturity securities
    (128.8 )     (113.3 )     (7.5 )     (1.1 )     (0.5 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
    16.0                          
Other investment related gains (losses), net
    146.9       (533.9 )     (171.2 )     3.6       21.5  
 
                             
Total investment related gains (losses), net
    34.1       (647.2 )     (178.7 )     2.5       21.0  
Other revenues
    185.0       107.8       80.2       65.5       57.7  
 
                             
Total revenues
    7,066.8       5,681.2       5,718.4       5,193.7       4,584.7  
 
                                       
Benefits and expenses:
                                       
Claims and other policy benefits
    4,819.4       4,461.9       3,984.0       3,488.4       3,187.9  
Interest credited
    323.7       233.2       246.1       244.8       208.4  
Policy acquisition costs and other insurance expenses
    958.3       357.9       647.8       716.3       636.3  
Other operating expenses
    294.9       242.9       236.7       204.4       154.4  
Interest expense
    69.9       76.2       76.9       62.0       41.4  
Collateral finance facility expense (1)
    8.3       28.7       52.0       26.4        
 
                             
Total benefits and expenses
    6,474.5       5,400.8       5,243.5       4,742.3       4,228.4  
 
                             
 
                                       
Income from continuing operations before income taxes
    592.3       280.4       474.9       451.4       356.3  
 
                                       
Provision for income taxes
    185.2       92.6       166.6       158.1       120.7  
 
                             
 
                                       
Income from continuing operations
    407.1       187.8       308.3       293.3       235.6  
 
                                       
Loss from discontinued accident and health operations, net of income taxes
          (11.0 )     (14.5 )     (5.1 )     (11.4 )
 
                             
Net income
  $ 407.1     $ 176.8     $ 293.8     $ 288.2     $ 224.2  
 
                             
 
                                       
Basic Earnings Per Share
                                       
Continuing operations
  $ 5.59     $ 2.94     $ 4.98     $ 4.79     $ 3.77  
Discontinued operations
          (0.17 )     (0.23 )     (0.08 )     (0.19 )
 
                             
Net income
  $ 5.59     $ 2.77     $ 4.75     $ 4.71     $ 3.58  
 
                                       
Diluted Earnings Per Share
                                       
Continuing operations
  $ 5.55     $ 2.88     $ 4.80     $ 4.65     $ 3.70  
Discontinued operations
          (0.17 )     (0.23 )     (0.08 )     (0.18 )
 
                             
Net income
  $ 5.55     $ 2.71     $ 4.57     $ 4.57     $ 3.52  
 
                                       
Weighted average diluted shares, in thousands
    73,327       65,271       64,231       63,062       63,724  
 
                                       
Dividends per share on common stock
  $ 0.36     $ 0.36     $ 0.36     $ 0.36     $ 0.36  
 
                                       
Balance Sheet Data
                                       
Total investments
  $ 19,224.1     $ 15,610.7     $ 16,397.7     $ 14,612.9     $ 12,331.5  
Total assets
    25,249.5       21,658.8       21,598.0       19,036.8       16,193.9  
Policy liabilities
    17,643.6       16,045.5       15,045.5       13,354.5       11,726.3  
Long-term debt
    1,216.1       918.2       896.1       676.2       674.4  
Collateral finance facility (1)
    850.0       850.0       850.4       850.4        
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company
    159.2       159.0       158.9       158.7       158.6  
Total stockholders’ equity
    3,867.9       2,616.8       3,189.8       2,815.4       2,527.5  
Total stockholders’ equity per share
  $ 52.99     $ 36.03     $ 51.42     $ 45.85     $ 41.38  
 
                                       
Operating Data (in billions)
                                       
Assumed ordinary life reinsurance in force
  $ 2,325.1     $ 2,108.1     $ 2,119.9     $ 1,941.4     $ 1,713.2  
Assumed new business production
    321.0       305.0       302.4       374.6       364.4  
 
(1)   During 2006, the Company’s subsidiary, Timberlake Financial, issued $850.0 million floating rate insured notes. See Note 16 — “Collateral Finance Facility” in the Notes to Consolidated Financial Statements for additional information.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking and Cautionary Statements
     This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.
     Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate and operate reinsurance business that the Company acquires, (22) regulatory action that may be taken by state Departments of Insurance with respect to the Company, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (26) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and (27) other risks and uncertainties described in this document and in the Company’s other filings with the Securities and Exchange Commission (“SEC”).
     Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and the cautionary statements described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A — “Risk Factors”.
Overview
     RGA is an insurance holding company that was formed on December 31, 1992. The consolidated financial statements include the assets, liabilities, and results of operations of RGA, RGA Reinsurance, RGA Barbados, RGA Americas, RGA Canada, RGA Australia, RGA UK and RGA Atlantic as well as several other subsidiaries subject to an ownership position of greater than fifty percent (collectively, the “Company”).

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     The Company is primarily engaged in traditional individual and group life, annuity, critical illness and financial reinsurance. RGA and its predecessor, the Reinsurance Division of General American, a Missouri life insurance company, have been engaged in the business of life reinsurance since 1973. Approximately 68.7% of the Company’s 2009 net premiums were from its more established operations in North America, represented by its U.S. and Canada segments.
     The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties, income earned on invested assets, and fees earned from financial reinsurance transactions.
     The Company’s primary business is life reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or voluntary surrenders of underlying policies, deaths of insureds, and the exercise of recapture options by ceding companies.
     As is customary in the reinsurance business, life insurance clients continually update, refine, and revise reinsurance information provided to the Company. Such revised information is used by the Company in preparation of its financial statements and the financial effects resulting from the incorporation of revised data are reflected currently.
     The Company’s long-term profitability primarily depends on the volume and amount of death claims incurred and the ability to adequately price the risks it assumes. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. Effective January 1, 2008, the Company increased the maximum amount of coverage that it retains per life in the U.S. from $6.0 million to $8.0 million. This increase does not affect business written prior to January 1, 2008. Claims in excess of this retention amount are retroceded to retrocessionaires; however, the Company remains fully liable to the ceding company for the entire amount of risk it assumes. The increase in the Company’s U.S. retention limit from $6.0 million to $8.0 million reduces the amount of premiums it pays to retrocessionaires, but increases the maximum effect a single death claim can have on its results and therefore may result in additional volatility to its results. For other countries, particularly those with higher risk factors or smaller books of business, the Company systematically reduces its retention. The Company has a number of retrocession arrangements whereby certain business in force is retroceded on an automatic or facultative basis.
     The Company has five main geographic-based operational segments, each of which is a distinct reportable segment: U.S., Canada, Europe & South Africa, Asia Pacific and Corporate and Other. The U.S. operations provide traditional life, long-term care, annuity, and financial reinsurance primarily to domestic clients. The Canada operations provide insurers with reinsurance of traditional life products as well as creditor reinsurance, group life and health reinsurance and non-guaranteed critical illness products. Europe & South Africa operations include traditional life reinsurance and critical illness business from Europe & South Africa, in addition to other markets the Company is developing. Asia Pacific operations provide primarily traditional and group life reinsurance, critical illness and, to a lesser extent, financial reinsurance. Corporate and Other includes results from, among others, RTP, a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry and the investment income and expense associated with the Company’s collateral finance facility. Effective January 1, 2009, due to immateriality, the discontinued accident and health operations were included in the results of the Corporate and Other segment. The consolidated statements of income for 2008 and 2007 reflect this line of business as a discontinued operation. More information about the Company’s discontinued accident and health division may be found in Note 21 — “Discontinued Operations” in the Notes to Consolidated Financial Statements. The Company measures segment performance based on profit or loss from operations before income taxes.
     The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses are credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
     The Company believes it is one of the leading life reinsurers in North America based on premiums and the amount of life reinsurance in force. The Company believes, based on an industry survey of 2008 information prepared by Munich American at the request of the Society of Actuaries Reinsurance Section (“SOA survey”), that it has the second largest market share in North America as measured by life insurance in force. The Company’s approach to the North American market has been to:

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    focus on large, high quality life insurers as clients;
 
    provide quality facultative underwriting and automatic reinsurance capacity; and
 
    deliver responsive and flexible service to its clients.
     In 1994, the Company began using its North American underwriting expertise and industry knowledge to expand into international markets and now has subsidiaries, branches or representative offices in Australia, Barbados, Bermuda, China, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, South Africa, South Korea, Spain, Taiwan and the United Kingdom. These operations are included in either the Company’s Asia Pacific segment or its Europe & South Africa segment. The Company generally starts new operations from the ground up in these markets as opposed to acquiring existing operations, and it often enters these markets to support its North American clients as they expand internationally. Based on information from a nationally recognized rating agency, the Company believes it is the third largest life reinsurer in the world based on 2008 net life reinsurance premiums. While the Company believes information provided by the rating agency is generally reliable, the Company has not independently verified the data. The rating agency does not guarantee the accuracy and completeness of the information. The Company conducts business with the majority of the largest U.S. and international life insurance companies. The Company has also developed its capacity and expertise in the reinsurance of asset-intensive products (primarily annuities and corporate-owned life insurance) and financial reinsurance.
Industry Trends
     The Company believes that the following trends in the life insurance industry will continue to create demand for life reinsurance.
Outsourcing of Mortality. The SOA survey indicates that U.S. life reinsurance in force has tripled from $2.7 trillion in 1998 to $8.1 trillion at year-end 2008. The Company believes this trend reflects the continued utilization by life insurance companies of reinsurance to manage capital and mortality risk and to develop competitive products. However, the survey results indicate a smaller percentage of new business was reinsured in 2008 than previous years, which has caused premium growth rates in the U.S. life reinsurance market to moderate from previous years. The Company believes the decline in new business being reinsured is likely a reaction by ceding companies to a broad-based increase in reinsurance rates in the market and stronger capital positions maintained by ceding companies in recent years. However, the Company believes reinsurers will continue to be an integral part of the life insurance market due to their ability to efficiently aggregate a significant volume of life insurance in force, creating economies of scale and greater diversification of risk. As a result of having larger amounts of data at their disposal compared to primary life insurance companies, reinsurers tend to have better insights into mortality trends, creating more efficient pricing for mortality risk.
Capital Management. Regulatory environments, rating agencies and competitive business pressures are causing life insurers to reinsure as a means to:
    manage risk-based capital by shifting mortality and other risks to reinsurers, thereby reducing amounts of reserves and capital they need to maintain;
 
    release capital to pursue new business initiatives; and
 
    unlock the capital supporting, and value embedded in, non-core product lines.
Consolidation and Reorganization Within the Life Reinsurance and Life Insurance Industry. As a result of consolidations in recent years within the life reinsurance industry, there are fewer competitors. According to the SOA survey, as of December 31, 2008, the top five companies held approximately 71.0% of the market share in North America based on life reinsurance in force, whereas in 1998, the top five companies held approximately 54.2% of the market share. As a consequence, the Company believes the life reinsurance pricing environment will remain attractive for the remaining life reinsurers, particularly those with a significant market presence and strong ratings.
The SOA surveys indicate that the authors obtained information from participating or responding companies and do not guarantee the accuracy and completeness of their information. Additionally, the surveys do not survey all reinsurance companies, but the Company believes most of its principal competitors are included. While the Company believes these surveys to be generally reliable, the Company has not independently verified their data.

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Additionally, merger and acquisition transactions within the life insurance industry continue. The Company believes that reorganizations and consolidations of life insurers will continue. As reinsurance services are increasingly used to facilitate these transactions and manage risk, the Company expects demand for its products to continue.
Changing Demographics of Insured Populations. The aging of the population in North America is increasing demand for financial products among “baby boomers” who are concerned about protecting their peak income stream and are considering retirement and estate planning. The Company believes that this trend is likely to result in continuing demand for annuity products and life insurance policies, larger face amounts of life insurance policies and higher mortality risk taken by life insurers, all of which should fuel the need for insurers to seek reinsurance coverage.
The Company continues to follow a two-part business strategy to capitalize on industry trends.
Continue Growth of North American Business. The Company’s strategy includes continuing to grow each of the following components of its North American operations:
    Facultative Reinsurance. Based on discussions with the Company’s clients, an industry survey and informal knowledge about the industry, the Company believes it is a leader in facultative underwriting in North America. The Company intends to maintain that status by emphasizing its underwriting standards, prompt response on quotes, competitive pricing, capacity and flexibility in meeting customer needs. The Company believes its facultative business has allowed it to develop close, long-standing client relationships and generate additional business opportunities with its facultative clients. In every year since 2007, the Company’s U.S. facultative operation has processed over 100,000 facultative submissions.
 
    Automatic Reinsurance. The Company intends to expand its presence in the North American automatic reinsurance market by using its mortality expertise and breadth of products and services to gain additional market share.
 
    In Force Block Reinsurance. There are occasions to grow the business by reinsuring in force blocks, as insurers and reinsurers seek to exit various non-core businesses and increase financial flexibility in order to, among other things, redeploy capital and pursue merger and acquisition activity.
Continue Expansion Into Selected Markets and Products. The Company’s strategy includes building upon the expertise and relationships developed in its North American business platform to continue its expansion into selected markets and products, including:
    International Markets. Management believes that international markets offer opportunities for growth, and the Company intends to capitalize on these opportunities by establishing a presence in selected markets. Since 1994, the Company has entered new markets internationally, including, in the mid-to-late 1990’s, Australia, Hong Kong, Japan, Malaysia, New Zealand, South Africa, Spain, Taiwan and the UK, and beginning in 2002, China, India and South Korea. The Company received regulatory approval to open a representative office in China in 2005, opened representative offices in Poland and Germany in 2006, opened new offices in France and Italy in 2007 and opened a representative office in the Netherlands in 2009. Before entering new markets, the Company evaluates several factors including:
     
o
  the size of the insured population,
 
   
o
  competition,
 
   
o
  the level of reinsurance penetration,
 
   
o
  regulation,
 
   
o
  existing clients with a presence in the market, and
 
   
o
  the economic, social and political environment.
      As previously indicated, the Company generally starts new operations in these markets from the ground up as opposed to acquiring existing operations, and it often enters these markets to support its large international clients as they expand into additional markets. Many of the markets that the Company has entered since 1994, or may enter in the future, are not utilizing life reinsurance, including facultative life reinsurance, at the same levels as the North American market, and therefore, the Company believes these markets represent opportunities for increasing reinsurance penetration. In particular, management believes

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      markets such as Japan and South Korea are beginning to realize the benefits that reinsurers bring to the life insurance market. Additionally, the Company believes that in certain European markets, ceding companies may want to reduce counterparty exposure to their existing life reinsurers, creating opportunities for the Company.
 
    Asset intensive and Other Products. The Company intends to continue leveraging its existing client relationships and reinsurance expertise to create customized reinsurance products and solutions. Industry trends, particularly the increased pace of consolidation and reorganization among life insurance companies and changes in products and product distribution, are expected to enhance existing opportunities for asset intensive and other products. The Company began reinsuring annuities with guaranteed minimum benefits on a limited basis in 2007. To date, most of the Company’s asset-intensive business and other products have been written in the U.S.; however, the Company believes opportunities outside of the U.S. may further develop in the near future, particularly in Japan. The Company also reinsures the longevity risk related to payout annuities in the UK, and in 2008 entered the U.S. healthcare reinsurance market with a primary focus on long-term care and Medicare supplement insurance. In 2010, the Company expanded into the group reinsurance market in North America with the acquisition of ReliaStar Life Insurance Company’s U.S. and Canadian operations. See Note 22 — “Subsequent Event” in the Notes to Consolidated Financial Statements for additional information on the acquisition.
Results of Operations
Consolidated
     Consolidated income from continuing operations increased $219.3 million, or 116.7%, and decreased $120.5 million, or 39.1%, in 2009 and 2008, respectively. Diluted earnings per share from continuing operations were $5.55 in 2009 compared to $2.88 in 2008 and $4.80 in 2007. The increase in income in 2009 was primarily due to a favorable change in the fair value of embedded derivatives within the U.S. segment due to the impact of tightening credit spreads in the U.S. debt markets. Also contributing to the favorable results were increased net premiums and investment income and the recognition in other revenues of a gain on the repurchase of long-term debt of $38.9 million. The decrease in income in 2008 compared to 2007 reflects an increase in investment related losses due to the recognition of investment impairments and an increase in the unrealized loss due to an unfavorable change in the fair value of embedded derivatives within the U.S. Asset-Intensive sub-segment due primarily to the impact of widening credit spreads in the U.S. debt markets. Also contributing to the decrease in income in 2008 was unfavorable mortality experience in the U.S. Traditional sub-segment. Offsetting these negative income items in 2008 were increases in premium levels in all segments and favorable mortality experience in the Canada, Europe & South Africa and Asia Pacific segments. Foreign currency exchange fluctuations resulted in a decrease to income from continuing operations of approximately $8.7 million in 2009 and an increase of approximately $4.2 million in 2008.
     The Company recognizes in consolidated income from continuing operations, changes in the fair value of embedded derivatives on modified coinsurance or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable annuity products. The change in the value of embedded derivatives related to reinsurance treaties written on a modified coinsurance or funds withheld basis are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, had a favorable effect on income from continuing operations of $139.2 million in 2009 and an unfavorable effect of $93.3 million in 2008, respectively, as compared to the prior years. Changes in risk-free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, affected income from continuing operations favorably by $11.6 million in 2009 and unfavorably by $9.9 million in 2008, respectively, as compared to the prior years. The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, affected income from continuing operations unfavorably by $30.5 million and $0.9 million in 2009 and 2008, respectively, as compared to the prior years.
     The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in an increase of approximately $120.4 million and a decrease of approximately $104.1 million in consolidated income from continuing operations in 2009 and 2008, respectively, as compared to the prior years. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives and the

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primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.
     Consolidated net premiums increased $375.9 million, or 7.0%, and $440.3 million, or 9.0%, in 2009 and 2008, respectively, due to growth in life reinsurance in force and scheduled premium increases on treaties written on a yearly-renewable-term basis. Consolidated assumed insurance in force was $2.3 trillion, $2.1 trillion and $2.1 trillion as of December 31, 2009, 2008 and 2007, respectively. The Company added new business production, measured by face amount of insurance in force, of $321.0 billion, $305.0 billion and $302.4 billion during 2009, 2008 and 2007, respectively. Management believes industry consolidation, reduced capital levels in the life insurance industry and the established practice of reinsuring mortality risks should continue to provide opportunities for growth at levels comparable to 2009 and 2008. Foreign currency fluctuations relative to the prior year unfavorably affected net premiums by approximately $207.6 million and approximately $50.3 million in 2009 and 2008, respectively.
     Consolidated investment income, net of related expenses, increased $251.2 million, or 28.8%, and decreased $36.6 million, or 4.0%, in 2009 and 2008, respectively, primarily due to market value changes related to the Company’s funds withheld at interest investment related to the reinsurance of certain equity-indexed annuity products, which are substantially offset by a corresponding change in interest credited to policyholder account balances. The increase in investment income in 2009 also reflects a larger average invested asset base offset by a lower effective investment portfolio yield. Largely offsetting the decrease in investment income in 2008 was a larger average invested asset base and a higher effective investment portfolio yield. Average invested assets at amortized cost, excluding funds withheld, totaled $13.0 billion, $11.7 billion and $10.6 billion in 2009, 2008 and 2007, respectively. The average yield earned on investments, excluding funds withheld, was 5.75%, 6.02% and 5.96% in 2009, 2008 and 2007, respectively. The Company expects the average yield to vary from year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments, and the timing of dividends and distributions on certain investments.
     Total investment related gains (losses), net improved by $681.4 million and declined by $468.5 million in 2009 and 2008, respectively. The improvement in 2009 is due to favorable changes in the value of embedded derivatives associated with reinsurance treaties written on a modified coinsurance or funds withheld basis of $506.2 million and guaranteed minimum living benefits of $520.2 million partially offset by an increase in net hedging losses related to the liabilities associated with guaranteed minimum living benefits of $392.3 million. The decline in 2008 is due to an increase of $122.6 million in investment impairments and unfavorable changes in the value of embedded derivatives associated with reinsurance treaties written on a modified coinsurance or funds withheld basis of $285.9 million and guaranteed minimum living benefits of $258.5 million partially offset by an increase in net hedging gains related to the liabilities associated with guaranteed minimum living benefits of $178.8 million. See the discussion of “Investments” in the “Liquidity and Capital Resources” section of Management’s Discussion and Analysis for additional information on impairment losses. Investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.
     The consolidated provision for income taxes from continuing operations represents approximately 31.3%, 33.0%, and 35.1% of pre-tax income for 2009, 2008 and 2007, respectively. The 2009 effective tax rate was affected by the recognition of a previously uncertain tax position in addition to the recognition of a deferred tax asset for which a valuation allowance previously existed and by earnings of non-U.S. subsidiaries in which the Company is permanently reinvested whose statutory tax rates are less than the U.S. statutory tax rate. In 2008, the consolidated effective tax rate was lower than expected due to a decrease in the tax liability related to the Company’s uncertain tax position. The Company calculated tax benefits related to its discontinued operations of $5.9 million and $7.8 million for 2008 and 2007, respectively. The effective tax rate on discontinued operations is approximately 35% for both 2008 and 2007.
Critical Accounting Policies
     The Company’s accounting policies are described in Note 2 — “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements. The Company believes its most critical accounting policies include the capitalization and amortization of deferred acquisition costs (“DAC”); the establishment of liabilities for future policy benefits, other policy claims and benefits, including incurred but not reported claims; the valuation of fixed maturity investments and investment impairments, if any; embedded derivatives; accounting for income taxes; and the establishment of arbitration or litigation reserves. The balances of these accounts require extensive use of assumptions and estimates, particularly related to the future performance of the underlying business.

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     Additionally, for each of the Company’s reinsurance contracts, it must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the Company is subject or features that delay the timely reimbursement of claims. If the Company determines that the possibility of a significant loss from insurance risk will occur only under remote circumstances, it records the contract under a deposit method of accounting with the net amount receivable or payable reflected in premiums receivable and other reinsurance balances or other reinsurance liabilities on the consolidated balance sheets. Fees earned on the contracts are reflected as other revenues, as opposed to net premiums, on the consolidated statements of income.
     Differences in experience compared with the assumptions and estimates utilized in the justification of the recoverability of DAC, in establishing reserves for future policy benefits and claim liabilities, or in the determination of other-than-temporary impairments to investment securities can have a material effect on the Company’s results of operations and financial condition.
Deferred Acquisition Costs (“DAC”)
     Costs of acquiring new business, which vary with and are primarily related to the production of new business, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. DAC amounts reflect the Company’s expectations about the future experience of the business in force and include commissions and allowances as well as certain costs of policy issuance and underwriting. Some of the factors that can affect the carrying value of DAC include mortality assumptions, interest spreads and policy lapse rates. For traditional life and related coverages, the Company performs periodic tests to determine that DAC remains recoverable at all times, including at issue, and the cumulative amortization is re-estimated and, if necessary, adjusted by a cumulative charge to current operations. For its asset-intensive business, the Company updates the estimated gross profits with actual gross profits each reporting period, resulting in an increase or decrease to DAC to reflect the difference in the actual gross profits versus the previously estimated gross profits. As a result of recoverability testing for new business issues, a charge of approximately $7.7 million to current operations was recorded for in the Asset Intensive sub-segment in 2009 with projected revenue deemed insufficient to cover future benefits and expenses. As of December 31, 2009, the Company estimates that approximately 91.2% of its DAC balance is collateralized by surrender fees due to the Company and the reduction of policy liabilities, in excess of termination values, upon surrender or lapse of a policy.
Liabilities for Future Policy Benefits and Other Policy Liabilities
     Liabilities for future policy benefits under long-term life insurance policies (policy reserves) are computed based upon expected investment yields, mortality and withdrawal (lapse) rates, and other assumptions, including a provision for adverse deviation from expected claim levels. The Company primarily relies on its own valuation and administration systems to establish policy reserves. The policy reserves the Company establishes may differ from those established by the ceding companies due to the use of different mortality and other assumptions. However, the Company relies upon its ceding company clients to provide accurate data, including policy-level information, premiums and claims, which is the primary information used to establish reserves. The Company’s administration departments work directly with its clients to help ensure information is submitted by them in accordance with the reinsurance contracts. Additionally, the Company performs periodic audits of the information provided by ceding companies. The Company establishes reserves for processing backlogs with a goal of clearing all backlogs within a ninety-day period. The backlogs are usually due to data errors the Company discovers or computer file compatibility issues, since much of the data reported to the Company is in electronic format and is uploaded to its computer systems.
     The Company periodically reviews actual historical experience and relative anticipated experience compared to the assumptions used to establish aggregate policy reserves. Further, the Company establishes premium deficiency reserves if actual and anticipated experience indicates that existing aggregate policy reserves, together with the present value of future gross premiums, are not sufficient to cover the present value of future benefits, settlement and maintenance costs and to recover unamortized acquisition costs. The premium deficiency reserve is established through a charge to income, as well as a reduction to unamortized acquisition costs and, to the extent there are no unamortized acquisition costs, an increase to future policy benefits. Because of the many assumptions and estimates used in establishing reserves and the long-term nature of the Company’s reinsurance contracts, the reserving process, while based on actuarial science, is inherently uncertain. If the Company’s assumptions, particularly on mortality, are inaccurate, its reserves may be inadequate to pay claims and there could be a material adverse effect on its results of operations and financial condition.
     Other policy claims and benefits include claims payable for incurred but not reported losses, which are determined using case-basis estimates and lag studies of past experience. These estimates are periodically reviewed and any adjustments

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to such estimates, if necessary, are reflected in current operations. The time lag from the date of the claim or death to the date when the ceding company reports the claim to the Company can be several months and can vary significantly by ceding company and business segment. The Company updates its analysis of incurred but not reported claims, including lag studies, on a periodic basis and adjusts its claim liabilities accordingly. The adjustments in a given period are generally not significant relative to the overall policy liabilities.
Valuation of Fixed Maturity Securities
     The Company primarily invests in fixed maturity securities, including bonds and redeemable preferred stocks. These securities are classified as available-for-sale and accordingly are carried at fair value on the consolidated balance sheets. The difference between amortized cost and fair value is reflected as an unrealized gain or loss, less applicable deferred taxes as well as related adjustments to deferred acquisition costs, if applicable, in accumulated other comprehensive income (“AOCI”) in stockholders’ equity. The determinations of fair value may require extensive use of assumptions and inputs. In addition, other-than-temporary impairment losses related to non-credit factors are recognized in AOCI.
     The Company performs regular analysis and review of the various techniques, assumptions and inputs utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also utilizes information from third parties, such as pricing services and brokers, to assist in determining fair values for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s financial statements. The Company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, initial and ongoing review of third party pricing services and techniques, review of pricing trends and monitoring of recent trade information. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.
     When available, fair values are based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market standard valuation techniques, primarily a combination of a market approach, including matrix pricing and an income approach. The assumptions and inputs used by management in applying these techniques include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and assumptions regarding liquidity and future cash flows.
     The significant inputs to the market standard valuation techniques for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market.
     When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are consistent with what other market participants would use when pricing such securities.
     The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings.
     Additionally, the Company evaluates its intent to sell fixed maturity securities and whether it is more likely than not that it will be required to sell fixed maturity securities, along with factors such as the financial condition of the issuer, payment performance, the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, and various other factors. Securities, based on management’s judgments, with an other-than-temporary impairment in value are written down to management’s estimate of fair value.

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Valuation of Embedded Derivatives
     The Company reinsures certain annuity products that contain terms that are deemed to be embedded derivatives, primarily equity-indexed annuities and variable annuities with guaranteed minimum benefits. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated under the general accounting principles for Derivatives and Hedging. If the instrument would not be accounted for in its entirety at fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and reported separately. Such embedded derivatives are carried on the consolidated balance sheets at fair value with the host contract.
     The valuation of the various embedded derivatives requires complex calculations based on actuarial and capital market inputs assumptions related to estimates of future cash flows. Such assumptions include, but are not limited to, assumptions regarding equity market performance, equity market volatility, interest rates, credit spreads, benefits and related contract charges, mortality, lapses, withdrawals, benefit selections and non-performance risk. These assumptions have a significant impact on the value of the embedded derivatives. For example, independent future decreases in equity market returns, future decreases in interest rates and future increases in equity market volatilities would increase the value of the embedded liability derivative associated with guaranteed minimum withdrawal benefits on variable annuities at December 31, 2009, resulting in an increase in investment related losses. See “Market Risk” disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.
     Additionally, reinsurance treaties written on a modified coinsurance or funds withheld basis are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. The majority of the Company’s funds withheld at interest balances are associated with its reinsurance of annuity contracts, the majority of which are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. Management believes the embedded derivative feature in each of these reinsurance treaties is similar to a total return swap on the assets held by the ceding companies. The valuation of these embedded derivatives is sensitive to the credit spread environment. Decreases or increases in credit spreads result in an increase or decrease in value of the embedded derivative and therefore an increase in investment related gains or losses, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the U.S. Asset-Intensive Segment for additional information.
Income Taxes
     Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for federal, state and foreign income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
     Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
     The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. The Company has significant deferred tax assets related to net operating and capital losses. Most of the Company’s exposure related to its deferred tax assets are within legal entities that file a consolidated United States federal income tax return. The Company has projected its ability to utilize its net operating losses and has determined that all of these losses are expected to be utilized prior to their expiration. The Company has also done extensive analysis of its capital losses and has determined that sufficient unrealized capital gains exist within its investment portfolios that should offset any capital loss realized. It is also the Company’s intention to hold all unrealized loss securities until maturity or until their market value recovers.

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     The Company will establish a valuation allowance when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:
(i)   future taxable income exclusive of reversing temporary differences and carryforwards;
 
(ii)   future reversals of existing taxable temporary differences;
 
(iii)   taxable income in prior carryback years; and
 
(iv)   tax planning strategies.
     The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when the ultimate deductibility of certain items is challenged by taxing authorities, when it becomes clear that certain items will not be challenged, or when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events such as changes in tax legislation could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur.
Arbitration and Litigation Reserves
     The Company at times is a party to various litigation and arbitrations. The Company cannot predict or determine the ultimate outcome of any pending litigation or arbitrations or even provide useful ranges of potential losses. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated. However, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s consolidated financial position and/or net income in a particular reporting period.
U.S. Operations
     U.S. operations consist of two major sub-segments: Traditional and Non-Traditional. The Traditional sub-segment primarily specializes in mortality-risk reinsurance. The Non-Traditional sub-segment consists of Asset-Intensive and Financial Reinsurance.
                                 
For the year ended December 31, 2009           Non-Traditional    
(dollars in thousands)   Traditional   Asset-Intensive   Financial
Reinsurance
  Total
U.S.
     
Revenues:
                               
Net premiums
  $ 3,313,864     $ 6,859     $     $ 3,320,723  
Investment income, net of related expenses
    428,541       386,642       (286 )     814,897  
Investment related gains (losses), net:
                               
Other-than-temporary impairments on fixed maturity securities
    (88,352 )     (7,917 )     (225 )     (96,494 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
    15,040       557       35       15,632  
Other investment related gains (losses), net
    (10,572 )     117,001       288       106,717  
     
Total investment related gains (losses), net
    (83,884 )     109,641       98       25,855  
Other revenues
    3,197       70,566       20,296       94,059  
     
Total revenues
    3,661,718       573,708       20,108       4,255,534  
     
Benefits and expenses:
                               
Claims and other policy benefits
    2,837,808       6,971             2,844,779  
Interest credited
    63,178       260,364             323,542  
Policy acquisition costs and other insurance expenses
    450,358       259,112       1,188       710,658  
Other operating expenses
    54,651       10,176       3,010       67,837  
     
Total benefits and expenses
    3,405,995       536,623       4,198       3,946,816  
     
 
                               
Income before income taxes
  $ 255,723     $ 37,085     $ 15,910     $ 308,718  
     

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            Non-Traditional    
For the year ended December 31, 2008                   Financial   Total
(dollars in thousands)   Traditional   Asset-Intensive   Reinsurance   U.S.
     
Revenues:
                               
Net premiums
  $ 3,093,074     $ 6,558     $     $ 3,099,632  
Investment income, net of related expenses
    394,917       176,106       588       571,611  
Investment related gains (losses), net:
                               
Other-than-temporary impairments on fixed maturity securities
    (69,050 )     (8,422 )     (486 )     (77,958 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
                       
Other investment related gains (losses), net
    (2,854 )     (514,976 )     237       (517,593 )
     
Total investment related gains (losses), net
    (71,904 )     (523,398 )     (249 )     (595,551 )
Other revenues
    377       56,775       15,280       72,432  
     
Total revenues
    3,416,464       (283,959 )     15,619       3,148,124  
     
Benefits and expenses:
                               
Claims and other policy benefits
    2,661,963       11,241             2,673,204  
Interest credited
    60,448       172,366             232,814  
Policy acquisition costs and other insurance expenses (income)
    415,117       (298,810 )     1,041       117,348  
Other operating expenses
    47,943       7,990       2,737       58,670  
     
Total benefits and expenses
    3,185,471       (107,213 )     3,778       3,082,036  
     
 
                               
Income (loss) before income taxes
  $ 230,993     $ (176,746 )   $ 11,841     $ 66,088  
     
                                 
            Non-Traditional    
For the year ended December 31, 2007                   Financial   Total
(dollars in thousands)   Traditional   Asset-Intensive   Reinsurance   U.S.
     
Revenues:
                               
Net premiums
  $ 2,868,403     $ 6,356     $     $ 2,874,759  
Investment income (loss), net of related expenses
    352,553       271,638       (53 )     624,138  
Investment related gains (losses), net:
                               
Other-than-temporary impairments on fixed maturity securities
    (2,767 )     (2,755 )     (2 )     (5,524 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
                       
Other investment related gains (losses), net
    (11,003 )     (153,403 )     (5 )     (164,411 )
     
Total investment related gains (losses), net
    (13,770 )     (156,158 )     (7 )     (169,935 )
Other revenues
    922       38,006       23,117       62,045  
     
Total revenues
    3,208,108       159,842       23,057       3,391,007  
     
Benefits and expenses:
                               
Claims and other policy benefits
    2,344,185       5,875       (124 )     2,349,936  
Interest credited
    58,595       185,726             244,321  
Policy acquisition costs and other insurance expenses (income)
    417,958       (16,499 )     6,410       407,869  
Other operating expenses
    49,746       7,069       4,138       60,953  
     
Total benefits and expenses
    2,870,484       182,171       10,424       3,063,079  
     
 
                               
Income (loss) before income taxes
  $ 337,624     $ (22,329 )   $ 12,633     $ 327,928  
     
     Income before income taxes for the U.S. operations segment increased by $242.6 million, or 367.1%, and decreased by $261.8 million, or 79.8%, in 2009 and 2008, respectively. The increase in income before income taxes in 2009 and decrease in 2008 can primarily be attributed to the impact of changes in credit spreads on the fair value of embedded derivatives associated with treaties written on a modified coinsurance or funds withheld basis. Decreases or increases in credit spreads result in an increase or decrease in value of the embedded derivative, and therefore, an increase or decrease in investment related gains or losses, respectively. In addition, the decrease in income in 2008 reflects an increase in investment impairments. See the discussion of “Investments” in the “Liquidity and Capital Resources” section of Management’s Discussion and Analysis for additional information on impairment losses. Higher than expected claims in the Traditional sub-segment adversely affected income before income taxes in 2009 and 2008.
Traditional Reinsurance
     The U.S. Traditional sub-segment provides life and health reinsurance to domestic clients for a variety of products through yearly renewable term, coinsurance and modified coinsurance agreements. These reinsurance arrangements may involve either facultative or automatic agreements. This sub-segment added new business production, measured by face amount of insurance in force, of $135.0 billion, $134.4 billion and $164.2 billion during 2009, 2008 and 2007, respectively. Management believes industry consolidation, reduced capital levels in the life insurance industry and the established practice

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of reinsuring mortality risks should continue to provide opportunities for new business at levels comparable to 2009 and 2008.
     Income before income taxes for the U.S. Traditional sub-segment increased by $24.7 million, or 10.7%, and decreased by $106.6 million, or 31.6% in 2009 and 2008, respectively. The increase in 2009 was primarily driven by an increase in business and slightly better mortality experience as compared to 2008. This was partially offset by increased investment related losses in 2009. The decrease in 2008 was due to an increase in investment related losses of $58.1 million and adverse mortality experience compared to 2007. The increase in investment related losses in 2008 was due to the aforementioned realized investment losses, recognized primarily in the third quarter of 2008.
     Net premiums for the U.S. Traditional sub-segment grew $220.8 million, or 7.1%, and $224.7 million, or 7.8% in 2009 and 2008, respectively. These increases in net premiums were driven primarily by the growth of total U.S. Traditional business in force and increasing premium sales associated with treaties written on a yearly renewable term basis. Total face amount was $1,285.5 million, $1,269.0 million and $1,226.8 million as of December 31, 2009 and 2008, and 2007, respectively.
     Net investment income increased $33.6 million, or 8.5%, and $42.4 million, or 12.0%, in 2009 and 2008, respectively, primarily due to growth in the invested asset base. Additionally, 2008 reflects an increase in the average yield earned on investments compared to 2007. Investment related losses increased $12.0 million and $58.1 million in 2009 and 2008, respectively, due primarily to investment impairments associated with fixed maturity securities.
     Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
     Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were 85.6%, 86.1% and 81.7% in 2009, 2008 and 2007, respectively. The loss ratios in 2009 and 2008 reflect somewhat higher mortality than expected due primarily to an increase in the number of large claims ($1 million or more per claim), while mortality experience was favorable in 2007. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal volatility that is inherent in the business.
     Interest credited expense increased $2.7 million, or 4.5%, and $1.9 million, or 3.2%, in 2009 and 2008, respectively. The 2009 and 2008 increases are the result of one treaty that had a slight increase in its asset base with a credited loan rate remaining constant at 5.6% since 2007. Interest credited in this case relates to amounts credited on cash value products which also have a significant mortality component. The amount of interest credited fluctuates in step with changes in deposit levels, cash surrender values and investment performance. Income before income taxes is affected by the spread between the investment income and the interest credited on the underlying products.
     Policy acquisition costs and other insurance expenses as a percentage of net premiums were 13.6%, 13.4% and 14.6% in 2009, 2008 and 2007, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to period.
     Other operating expenses increased $6.7 million, or 14.0%, and decreased $1.8 million, or 3.6% in 2009 and 2008, respectively. Other operating expenses, as a percentage of net premiums, were 1.6%, 1.6% and 1.7% in 2009, 2008 and 2007, respectively. The expense ratio tends to fluctuate only slightly from period to period due to maturity and scale of this operation.
Asset-Intensive Reinsurance
     The U.S. Asset-Intensive sub-segment assumes primarily investment risk within underlying annuities and corporate-owned life insurance policies. Most of these agreements are coinsurance, coinsurance with funds withheld or modified coinsurance whereby the Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities.
Impact of certain derivatives:
     Income for 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 modified coinsurance (“Modco”) basis or funds withheld basis, as well as embedded derivatives associated with the Company’s reinsurance of equity-indexed annuities

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and variable annuities with guaranteed minimum benefit riders. The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented.
                         
For the year ended December 31,            
(dollars in thousands)   2009   2008   2007
     
Revenues:
                       
Total revenues
  $ 573,708     $ (283,959 )   $ 159,842  
Less:
                       
Embedded derivatives – Modco/Funds withheld treaties
    78,394       (427,798 )     (141,905 )
Guaranteed minimum benefit riders and related free standing derivatives
    38,911       (89,004 )     (9,284 )
     
Revenues before certain derivatives
    456,403       232,843       311,031  
     
 
                       
Benefits and expenses:
                       
Total benefits and expenses
    536,623       (107,213 )     182,171  
Less:
                       
Embedded derivatives – Modco/Funds withheld treaties
    45,254       (246,722 )     (104,381 )
Guaranteed minimum benefit riders and related free standing derivatives
    76,858       (94,179 )      
Equity-indexed annuities
    (2,659 )     15,207        
     
Benefits and expenses before certain derivatives
    417,170       218,481       286,552  
     
 
                       
Income (loss) before income taxes:
                       
Income (loss) before income taxes
    37,085       (176,746 )     (22,329 )
Less:
                       
Embedded derivatives – Modco/Funds withheld treaties
    33,140       (181,076 )     (37,524 )
Guaranteed minimum benefit riders and related free standing derivatives
    (37,947 )     5,175       (9,284 )
Equity-indexed annuities
    2,659       (15,207 )      
     
Income before income taxes and certain derivatives
    39,233       14,362       24,479  
     
     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 modified coinsurance or funds withheld basis, allowing for deferred acquisition expenses. Changes in the fair value of the embedded derivative are driven by changes in investment credit spreads, including the Company’s own credit spread. Generally, an increase in investment credit spreads, ignoring changes in the Company’s own credit spread, will have a negative impact on the fair value of the embedded derivative (decrease in income).
     In 2009, the change in fair value of the embedded derivative increased revenues by $78.4 million, partially offset by the related deferred acquisition expenses of $45.3 million, for a positive pre-tax income impact of $33.1 million, primarily due to a decrease in investment credit spreads. During 2008, credit spreads widened sharply, particularly in the second half of the year. As a result, the change in fair value of the embedded derivative decreased revenues by $427.8 million, partially offset by the related deferred acquisition expenses of $246.7 million, for a negative pre-tax income impact of $181.1 million.
     Guaranteed Minimum Benefit Riders- Represents the impact related to guaranteed minimum benefits associated with the Company’s reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives purchased by the Company to hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in expenses. In 2009, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, was $38.9 million and deferred acquisition expenses were $76.9 million for a negative pre-tax income impact of $38.0 million. In 2008, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated hedge instruments was negative $89.0 million and deferred acquisition expenses were negative $94.2 million for a pre-tax income impact of $5.2 million.
     Equity-Indexed Annuities- Represents the impact of changes in the risk-free rate on the calculation of the fair value of embedded derivative liabilities associated with equity-indexed annuities, after adjustments for related deferred acquisition expenses and retrocession. In 2009 and 2008, expenses decreased $2.7 million and increased $15.2 million respectively.
     The changes in derivatives 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 risk-free rates and credit

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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 the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.
Discussion and analysis before certain derivatives:
     The increase in income before taxes and certain derivatives in 2009 of $24.9 million is primarily due to improvement in the broader U.S. financial markets and related favorable impacts on the underlying annuity account values. In addition, investment related gains in funds withheld portfolios, included in investment income, increased $20.5 million before deferred acquisition costs. These increases were partially offset by an $7.7 million increase in policy acquisition costs as a result of deferred acquisition costs recoverability testing of deferred acquisition costs for new business issues. The decrease in income before income taxes and derivatives in 2008 of $10.1 million was primarily due to a combination of investment related losses in funds withheld portfolios, included in investment income, of $15.3 million before deferred acquisition costs and an increase in realized investment related losses of approximately $7.1 million, net of deferred acquisition costs. Higher mortality and fee income earned on the variable annuity transactions also contributed to income in both 2009 and 2008.
     The 2009 increase of $223.6 million and the 2008 decrease of $78.2 million in revenue before certain derivatives, was driven by changes in investment income related to equity options held in a funds withheld portfolio associated with equity-indexed annuity treaties. Increases and decreases in investment income related to equity options were mostly offset by corresponding increases and decreases in interest credited expense. Also impacting revenue were investment related gains and losses in the funds withheld portfolios which increased approximately $20.5 million in 2009 and decreased $15.3 million in 2008, both before deferred acquisition costs. These investment related gains and losses are reflected in investment income.
     The average invested asset base supporting this sub-segment was $5.1 billion, $5.1 billion and $4.8 billion for 2009, 2008 and 2007, respectively. The asset base in 2009 was relatively flat compared to 2008 due to annuity contract surrenders which led to a decline in the account value and related invested asset base, offset by new business written on an existing equity-indexed treaty. The growth in the asset base in 2008 was driven by new business on an existing equity-indexed treaty, a new fixed-annuity transaction and a new guaranteed investment contract, together adding approximately $700.0 million to the asset base of this sub-segment. Invested assets outstanding were $5.2 billion as of December 31, 2009 compared to $5.1 billion in 2008. As of December 31, 2009, $3.6 billion of the invested assets were funds withheld at interest, of which 94.9% of the balance was associated with equity-indexed annuity treaties with one client. As of December 31, 2008, $3.4 billion of the invested assets were funds withheld at interest, of which 91.1% of the balance was associated with equity-indexed annuity treaties with one client.
     The 2009 increase of $198.7 million and the 2008 decrease of $68.1 million in benefits and expenses before certain derivatives were primarily due to changes in the interest credited expense related to equity option income on funds withheld equity-indexed annuity treaties. These changes were mostly offset by a corresponding increase or decrease in investment income.
Financial Reinsurance
     The U.S. Financial Reinsurance sub-segment income before income taxes consists primarily of net fees earned on financial reinsurance transactions. Financial reinsurance risks are assumed by the U.S. segment and a portion are retroceded to other insurance companies or brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts and brokered business are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses.
     Income before income taxes increased by $4.1 million, or 34.4%, and decreased by $0.8 million, or 6.3%, in 2009 and 2008, respectively. The increase in 2009 was primarily related to new treaties written in the fourth quarter. The decrease in 2008 was primarily due to one treaty, which was recaptured late in 2007.
     At December 31, 2009, 2008 and 2007, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, was $1.2 billion, $0.5 billion and $0.5 billion, respectively. The pre-tax statutory surplus amounts include all business assumed or brokered by the Company in the U.S. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion, and therefore, can fluctuate from period to period.

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Canada Operations
     The Company conducts reinsurance business in Canada through RGA Canada, a wholly-owned subsidiary. RGA Canada assists clients with capital management and mortality and morbidity risk management, and is primarily engaged in traditional individual life reinsurance, as well as creditor, critical illness, and group life and health reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance.
                         
For the year ended December 31,            
(dollars in thousands)   2009   2008   2007
         
Revenues:
                       
Net premiums
  $ 614,831     $ 534,271     $ 487,136  
Investment income, net of related expenses
    137,750       140,434       124,634  
Investment related gains (losses), net:
                       
Other-than-temporary impairments on fixed maturity securities
    (168 )     (2,608 )     (5 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
    26              
Other investment related gains (losses), net
    23,662       1,519       7,458  
         
Total investment related gains (losses), net
    23,520       (1,089 )     7,453  
Other revenues
    1,134       18,332       182  
         
Total revenues
    777,235       691,948       619,405  
         
 
                       
Benefits and expenses:
                       
Claims and other policy benefits
    501,061       456,072       425,498  
Interest credited
    75       365       726  
Policy acquisition costs and other insurance expenses
    146,990       110,177       91,234  
Other operating expenses
    22,774       23,068       20,404  
         
Total benefits and expenses
    670,900       589,682       537,862  
         
 
                       
Income before income taxes
  $ 106,335     $ 102,266     $ 81,543  
     
     Reinsurance in force for the Canada operation totaled approximately $276.8 billion, $209.5 billion, and $217.7 billion at December 31, 2009, 2008, and 2007, respectively. On a Canadian dollar basis, reinsurance in force for the Canada operation reflected continued growth and totaled approximately C$290.2 billion, C$255.4 billion, and C$217.4 billion at December 31, 2009, 2008, and 2007, respectively.
     Income before income taxes increased by $4.1 million, or 4.0%, and $20.7 million, or 25.4%, in 2009 and 2008, respectively. The increase in income before income taxes in 2009 was primarily due to an increase in investment related gains of $24.6 million compared to 2008. This increase was largely offset by a generally weaker Canadian dollar, which resulted in a decrease in income before income taxes of approximately $5.8 million. The segment’s 2009 results also reflect slightly adverse mortality experience, excluding creditor business, compared to very favorable mortality in 2008. In addition, the 2008 income before income taxes reflects the favorable net effect of $6.8 million from the recaptures of a previously assumed and a previously retroceded treaty. The increase in income before income taxes in 2008 compared to 2007 was primarily due to higher premium volume, favorable mortality experience and an increase in the aforementioned recapture fees which added $6.8 million. The 2008 increase was largely offset by a decrease of $8.5 million in investment related gains and losses. In 2008, strength in the Canadian dollar resulted in an increase in income before income taxes of approximately $0.7 million.
     Net premiums increased $80.6 million, or 15.1%, and $47.1 million, or 9.7%, in 2009 and 2008, respectively. Premiums from creditor treaties increased by $63.6 million in 2009 and $14.4 million in 2008. On a Canadian dollar basis, net premiums increased approximately 23.0% in 2009 compared to 2008. Creditor and group life and health premiums represented 29.0%, 20.9% and 17.5% of net premiums in 2009, 2008 and 2007, respectively. The remaining increases are primarily due to new business from both new and existing treaties. The segment added new business production, measured by face amount of insurance in force, of $43.9 billion, $51.2 billion and $46.8 billion during 2009, 2008 and 2007, respectively. Management believes industry consolidation, changing capital levels in the life insurance industry and the established practice of reinsuring mortality risks should continue to provide opportunities for new business, albeit at rates less than historically experienced. Additionally, foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net premiums of approximately $42.2 million and an increase of approximately $2.2 million in 2009 and 2008,

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respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies, and therefore may fluctuate from period to period.
     Net investment income decreased $2.7 million, or 1.9%, and increased $15.8 million, or 12.7%, in 2009 and 2008, respectively. The effect of changes in the Canadian dollar exchange rates resulted in a decrease in net investment income of approximately $9.3 million and an increase of approximately $0.9 million in 2009 and 2008, respectively. Investment income and investment related gains and losses are allocated to the segments based upon average assets and related capital levels deemed appropriate to support segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. The increase in investment income in 2008 was mainly the result of an increase in the allocated asset base due to growth in the underlying business volume.
     Other revenues decreased by $17.2 million in 2009 but increased by $18.2 million in 2008 compared to 2007. The decrease in 2009 was primarily due to the absence of recapture fees while the increase in 2008 was due to an increase of $16.2 million in recapture fees.
     Loss ratios for this segment were 81.5%, 85.4% and 87.3% in 2009, 2008 and 2007, respectively. The loss ratios on creditor reinsurance business are normally lower than traditional reinsurance, while allowances (policy acquisition costs) are normally higher as a percentage of premiums. Loss ratios for creditor business were 35.7%, 52.0% and 44.8% in 2009, 2008 and 2007, respectively. The higher creditor loss ratio in 2008 reflects the release of retroceded reserves of $10.4 million from the recapture of a previously retroceded block of creditor business. Excluding creditor business and the aforementioned recaptures in 2008, the loss ratios for this segment were 97.8%, 92.9% and 96.2% in 2009, 2008 and 2007, respectively. The higher loss ratio in 2009 is primarily the result of slightly adverse mortality experience compared to very favorable mortality experience in 2008. The lower loss ratio for 2008 is primarily due to favorable mortality experience compared to 2007. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of long-term permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year mortality costs to fund claims in later years when those level premiums may not cover expected increasing mortality or claim costs. Excluding creditor business, claims and other policy benefits, as a percentage of net premiums and investment income were 75.0%, 70.1% and 73.5% in 2009, 2008 and 2007, respectively.
     Policy acquisition costs and other insurance expenses as a percentage of net premiums totaled 23.9%, 20.6% and 18.7% in 2009, 2008 and 2007, respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums for creditor business were 55.5%, 51.6% and 49.6% in 2009, 2008 and 2007, respectively. Excluding foreign exchange and creditor business, policy acquisition costs and other insurance expenses as a percentage of net premiums were 12.6%, 12.4% and 11.6% in 2009, 2008 and 2007, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels, significantly caused by the mix of first year coinsurance business versus yearly renewable term business. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.
     Other operating expenses decreased $0.3 million, or 1.3%, and increased $2.7 million, or 13.1%, in 2009 and 2008, respectively. The effect of changes in the Canadian dollar exchange rates resulted in a decrease in operating expenses of approximately $1.2 million and an increase of approximately $1.1 million in 2009 and 2008, respectively. Other operating expenses as a percentage of net premiums were 3.7%, 4.3% and 4.2% in 2009, 2008 and 2007, respectively.
Europe & South Africa Operations
     The Europe & South Africa segment includes operations in France, Germany, India, Italy, Mexico, the Netherlands, Poland, South Africa, Spain and the UK. The segment provides life reinsurance for a variety of products through yearly renewable term and coinsurance agreements, reinsurance of critical illness coverage and to a lesser extent, the reinsurance of longevity risk related to payout annuities. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.

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For the year ended December 31,            
(dollars in thousands)   2009   2008   2007
     
Revenues:
                       
Net premiums
  $ 781,952     $ 707,768     $ 678,551  
Investment income, net of related expenses
    32,240       32,993       26,167  
Investment related gains (losses), net:
                       
Other-than-temporary impairments on fixed maturity securities
    (3,418 )     (9,857 )     (209 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
    558              
Other investment related gains (losses), net
    4,112       1,170       (1,974 )
         
Total investment related gains (losses), net
    1,252       (8,687 )     (2,183 )
Other revenues (losses)
    11,436       401       (144 )
         
Total revenues
    826,880       732,475       702,391  
         
Benefits and expenses:
                       
Claims and other policy benefits
    656,485       532,292       515,660  
Interest credited
                1,019  
Policy acquisition costs and other insurance expenses
    37,753       69,422       84,749  
Other operating expenses
    80,301       65,075       53,496  
         
Total benefits and expenses
    774,539       666,789       654,924  
         
 
                       
Income before income taxes
  $ 52,341     $ 65,686     $ 47,467  
     
     Income before income taxes decreased by $13.3 million, or 20.3%, and increased by $18.2 million or 38.4%, in 2009 and 2008, respectively. The decrease in income before income taxes in 2009 was primarily due to an increase in claims and other policy benefits and an unfavorable foreign currency exchange fluctuation partially offset by a decrease in policy acquisition costs and other insurance expenses. In addition, a retrocession block of business was recaptured in 2009 that increased income before income taxes by $6.0 million. The increase in income before income taxes for 2008 was primarily due to increased net premiums and decreased policy acquisition costs and other insurance expenses partially offset by adverse claims experience and an unfavorable foreign currency exchange fluctuation. In addition, a block of business was recaptured in 2008 that increased income before income taxes by $6.1 million. Unfavorable foreign currency exchange fluctuations contributed to a decrease in income before income taxes totaling approximately $2.1 million and $8.6 million in 2009 and 2008, respectively.
     Net premiums grew by $74.2 million, or 10.5%, and $29.2 million, or 4.3%, in 2009 and 2008, respectively. These increases were primarily the result of new business from both new and existing treaties. The segment added new business production, measured by face amount of insurance in force, of $121.1 billion, $87.5 billion and $61.3 billion during 2009, 2008 and 2007, respectively. During 2009 and 2008, there were unfavorable foreign currency exchange fluctuations, particularly from the British pound, the euro and the South African rand weakening against the U.S. dollar, which decreased net premiums by approximately $107.5 million and $47.7 million, respectively.
     A significant portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled $212.1 million, $236.4 million and $235.2 million in 2009, 2008 and 2007, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.
     Net investment income decreased $0.8 million, or 2.3%, and increased $6.8 million, or 26.1%, in 2009 and 2008, respectively. The decrease in 2009 can primarily be attributed to a decrease in investment yield. The increase in 2008 can be attributed to growth in the invested asset base and increased investment yield. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
     Loss ratios for this segment were 84.0%, 75.2% and 76.0% in 2009, 2008 and 2007, respectively. During 2009, a retrocession block of business was recaptured which had the effect of increasing the loss ratio. Excluding this recapture, the loss ratio for 2009 was 82.2%. During 2008, a block of business was recaptured which had the effect of lowering the loss ratio. Excluding this recapture, the loss ratio for 2008 was 77.0%. The increases in the loss ratios for 2009 and 2008 were primarily due to unfavorable claims experience in the UK and South Africa. Although reasonably predictable over a period

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of years, death claims can be volatile over shorter periods. Management views recent experience as normal volatility that is inherent in the business.
     Policy acquisition costs and other insurance expenses as a percentage of net premiums were 4.8%, 9.8% and 12.5% for 2009, 2008 and 2007, respectively. Excluding the aforementioned recaptures, policy acquisition costs and other insurance expenses as a percentage of net premiums were 6.3% in 2009 and 8.8% in 2008. These percentages fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business. In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.
     Other operating expenses increased $15.2 million, or 23.4%, and $11.6 million, or 21.6%, in 2009 and 2008, respectively. Other operating expenses as a percentage of net premiums totaled 10.3%, 9.2% and 7.9% in 2009, 2008 and 2007, respectively. These increases were due to higher costs associated with maintaining and supporting the segment’s increase in business over the past several years and the Company’s recent expansion into Central Europe. The Company believes that sustained growth in net premiums should lessen the burden of start-up expenses and expansion costs over time.
Asia Pacific Operations
     The Asia Pacific segment includes operations in Australia, Hong Kong, Japan, Malaysia, Singapore, New Zealand, South Korea, Taiwan and mainland China. The principal types of reinsurance include life, critical illness, disability income, superannuation, and financial reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and, in addition, offer life and disability insurance coverage. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.
                         
For the year ended December 31,            
(dollars in thousands)   2009   2008   2007
         
Revenues:
                       
Net premiums
  $ 998,927     $ 1,000,814     $ 864,550  
Investment income, net of related expenses
    61,335       47,400       36,388  
Investment related gains (losses), net:
                       
Other-than-temporary impairments on fixed maturity securities
    (6,172 )     (4,997 )     (150 )
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income
    804              
Other investment related gains (losses), net
    5,165       2,336       (1,379 )
         
Total investment related gains (losses), net
    (203 )     (2,661 )     (1,529 )
Other revenues
    25,029       12,320       9,197  
         
Total revenues
    1,085,088       1,057,873       908,606  
         
Benefits and expenses:
                       
Claims and other policy benefits
    817,052       799,376       692,859  
Policy acquisition costs and other insurance expenses
    106,405       107,076       99,285  
Other operating expenses
    78,085       65,912       56,372  
         
Total benefits and expenses
    1,001,542       972,364       848,516  
         
 
                       
Income before income taxes
  $ 83,546     $ 85,509     $ 60,090  
     
     Income before income taxes decreased by $2.0 million, or 2.3%, and increased by $25.4 million, or 42.3%, in 2009 and 2008, respectively. The decrease in income before income taxes in 2009 was primarily related to increased claims and other policy benefits throughout the segment. The increase in income before income taxes in 2008 was primarily due to increased net premiums and favorable mortality experience throughout the segment. Foreign currency exchange fluctuations resulted in a negligible increase to income before income taxes in 2009 and an increase of approximately $3.6 million in 2008.
     Net premiums decreased by $1.9 million, or 0.2%, and increased by $136.3 million, or 15.8%, in 2009 and 2008, respectively. The decrease in premiums in 2009 was due to a decrease of $61.3 million, collectively, in Korea, Taiwan and New Zealand largely offset by an increase of $54.3 million, collectively, in Australia, Hong Kong and Japan compared to 2008. The premium growth in 2008 was primarily the result of increases in Australia, Korea, Taiwan and Japan, collectively adding approximately $121.4 million to net premiums compared to 2007. The segment added new business production, measured by face amount of insurance in force, of $21.0 billion, $31.9 billion and $30.1 billion during 2009, 2008 and 2007,

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respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period.
     Throughout most of 2009, there were unfavorable foreign currency fluctuations, particularly in the Australian dollar, Korean won, New Zealand dollar and Taiwanese dollar, against the U.S. dollar. The overall effect of changes in Asia Pacific segment currencies was a decrease in 2009 net premiums of approximately $58.0 million compared to 2008. The unfavorable foreign currency exchange fluctuation in 2009 was partially offset by an increase in net premiums that was primarily the result of new business from both new and existing treaties. During 2008, there was an unfavorable foreign currency fluctuation, particularly in the Korean won, offset by a favorable fluctuation in the Japanese yen, against the U.S. dollar. The overall effect of changes in local Asia Pacific segment currencies was a decrease in 2008 net premiums of approximately $5.0 million compared to 2007.
     A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the Asia Pacific operations is offered primarily in South Korea, Australia and Hong Kong. Net premiums from this coverage totaled $181.2 million, $213.8 million, and $189.8 million in 2009, 2008 and 2007, respectively.
     Net investment income increased $13.9 million, or 29.4%, and $11.0 million, or 30.3%, in 2009 and 2008, respectively. These increases can be primarily attributed to growth in the invested asset base. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
     Other revenues increased by $12.7 million, or 103.2%, and $3.1 million, or 34.0%, in 2009 and 2008, respectively. The primary source of other revenues is fees from financial reinsurance treaties in Japan. At December 31, 2009 and 2008, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, was $0.5 billion and $0.6 billion, respectively. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.
     Loss ratios for this segment were 81.8%, 79.9% and 80.1% for 2009, 2008 and 2007, respectively. The increase in 2009 compared with 2008 was primarily related to an increase in benefits as a percentage of net premiums in Australia, New Zealand and Taiwan. Loss ratios between 2008 and 2007 were relatively consistent. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal volatility that is inherent in the business. Loss ratios will fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business.
     Policy acquisition costs and other insurance expenses as a percentage of net premiums were 10.7%, 10.7% and 11.5% for 2009, 2008 and 2007, respectively. The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does fluctuate periodically due to timing of client company reporting and variations in the mixture of business.
     Other operating expenses increased $12.2 million, or 18.5%, and $9.5 million, or 16.9%, in 2009 and 2008, respectively. Other operating expenses as a percentage of net premiums totaled 7.8%, 6.6% and 6.5% in 2009, 2008 and 2007, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.
Corporate and Other
     Corporate and Other revenues include investment income from invested assets not allocated to support segment operations and undeployed proceeds from the Company’s capital raising efforts, in addition to unallocated investment related gains and losses. Corporate expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance expenses line item, unallocated overhead and executive costs, and interest expense related to debt and trust preferred securities. Additionally, Corporate and Other includes results from, among others, RTP, a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry and the investment income and expense associated with the Company’s collateral finance facility. Effective January 1, 2009, due to immateriality, the discontinued accident and health operations were included in the results of the Corporate and Other segment.

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For the year ended December 31,            
(dollars in thousands)   2009   2008   2007
     
Revenues:
                       
Net premiums
  $ 8,728     $ 6,816     $ 4,030  
Investment income, net of related expenses
    76,240       78,838       96,577  
Investment related gains (losses), net:
                       
Other-than-temporary impairments on fixed maturity securities
    (22,582 )     (17,893 )     (1,573 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
    (975 )            
Other investment related gains (losses), net
    7,281       (21,324 )     (10,949 )
         
Total investment related gains (losses), net
    (16,276 )     (39,217 )     (12,522 )
Other revenues
    53,393       4,346       8,867  
         
Total revenues
    122,085       50,783       96,952  
         
Benefits and expenses:
                       
Claims and other policy benefits (income)
    49       988       43  
Interest credited
    121              
Policy acquisition costs and other insurance expenses (income)
    (43,480 )     (46,124 )     (35,305 )
Other operating expenses
    45,782       30,192       45,387  
Interest expense
    69,940       76,161       76,906  
Collateral finance facility expense
    8,268       28,723       52,031  
         
Total benefits and expenses
    80,680       89,940       139,062  
         
 
                       
Income (loss) before income taxes
  $ 41,405     $ (39,157 )   $ (42,110 )
     
     Income (loss) before income taxes increased by $80.6 million, or 205.7%, and $3.0 million, or 7.0%, in 2009 and 2008, respectively. The increase in income in 2009 is primarily due to a $22.9 million decrease in investment related losses, a $49.0 million increase in other revenues, a $20.5 million decrease in collateral finance facility expense and a $6.2 million decrease in interest expense slightly offset by a $15.6 million increase in other expenses. The increase in income in 2008 is primarily due to a $26.7 million increase in investment related losses, due to investment impairments, a $17.7 million decrease in investment income, largely offset by a $23.3 million decrease in collateral finance facility expense, a $10.8 million decrease in policy acquisition costs and other insurance expenses and a $15.2 million decrease in other operating expenses.
     Total revenues increased $71.3 million, or 140.4%, and decreased $46.2 million, or 47.6%, in 2009 and 2008, respectively. The increase in revenues in 2009 was due to an decrease in investment related losses of $22.9 million, reflecting improved economic conditions, and an increase in other revenues related to the recognition of a gain on the repurchase of long-term debt of $38.9 million and a $4.8 million foreign exchange gain on the repayment of debt related to the Company’s credit facility denominated in British pounds. Slightly offsetting these increases were investment related losses of $3.0 million related to the expected final disposition of the Company’s direct insurance operations in Argentina and a decrease in investment income of $2.6 million. The decrease in revenues in 2008 was due to a $17.7 million decrease in net investment income largely due to lower investment returns on floating rate investments used to fund the Company’s collateral finance facility and a $26.7 million increase in investment related losses due to realized investment losses as compared to the recognition of a $10.5 million currency translation loss recognized in 2007 related to the pending sale of the direct insurance operations in Argentina.
     Total benefits and expenses decreased $9.3 million or 10.3%, and decreased $49.1 million or 35.3%, in 2009 and 2008, respectively. The decrease in total benefits and expenses in 2009 was primarily due to a $20.5 million decrease in collateral finance facility expense due to reduced variable interest rates and decreased interest expense of $6.2 million primarily due to lower interest provisions for income taxes related to uncertain tax positions. The decrease in interest expense related to the above-mentioned debt repurchase was largely offset by additional interest expense related to the issuance of $400.0 million in senior notes in the fourth quarter of 2009. These decreases were partially offset by a $15.6 million increase in other expenses due to increased compensation-related costs. The decrease in total benefits and expenses in 2008 was primarily due to a $23.3 million decrease in collateral finance facility expense due to substantially reduced variable interest rates in the current year. Additionally, other operating expenses decreased $15.2 million in 2008 primarily related to a decrease in equity based compensation and policy acquisition costs and other insurance expenses decreased $10.8 million, primarily due to increased charges to the operating segments for the use of capital.

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Discontinued Operations
     Effective January 1, 2009, due to immateriality, the discontinued accident and health operations were included in the results of the Corporate and Other segment. The consolidated statements of income for 2008 and 2007 reflect this line of business as a discontinued operation. The calculation of the claim reserve liability for the entire portfolio of accident and health business requires management to make estimates and assumptions that affect the reported claim reserve levels. The loss from discontinued accident and health operations, net of income taxes, decreased to $11.0 million in 2008 from $14.4 million in 2007 due primarily to fewer settlements arising out of previously contested matters. Revenues associated with discontinued operations, which were not reported on a gross basis in the Company’s consolidated statements of income in 2008 and 2007 totaled $2.1 million and $2.0 million, respectively. As of December 31, 2009, there were no arbitrations or claims disputes associated with the Company’s discontinued accident and health operations.
Deferred Acquisition Costs
     DAC related to interest-sensitive life and investment-type contracts is amortized over the lives of the contracts, in relation to the present value of estimated gross profits (“EGP”) from mortality, investment income, and expense margins. The EGP for asset-intensive products include the following components: (1) estimates of fees charged to policyholders to cover mortality, surrenders and maintenance costs; (2) expected interest rate spreads between income earned and amounts credited to policyholder accounts; and (3) estimated costs of administration. EGP is also reduced by the Company’s estimate of future losses due to defaults in fixed maturity securities as well as the change in reserves for embedded derivatives. DAC is sensitive to changes in assumptions regarding these EGP components, and any change in such assumptions could have an effect on the Company’s profitability.
     The Company periodically reviews the EGP valuation model and assumptions so that the assumptions reflect a reasonable view of future experience. Two assumptions are considered to be most significant: (1) estimated interest spread, and (2) estimated future policy lapses. The following table reflects the possible change that would occur in a given year if assumptions, as a percentage of current deferred policy acquisition costs related to asset-intensive products ($1,177.6 million as of December 31, 2009), are changed as illustrated:
                 
    One-Time Increase   One-Time Decrease
Quantitative Change in Significant Assumptions:   in DAC   in DAC
Estimated interest spread increasing (decreasing) 25 basis points from the current spread
    2.15 %     -2.26 %
 
               
Estimated future policy lapse rates decreasing (increasing) 20% on a permanent basis (including surrender charges)
    1.91 %     -1.31 %
     In general, a change in assumption that improves the Company’s expectations regarding EGP is going to have the effect of deferring the amortization of DAC into the future, thus increasing earnings and the current DAC balance. DAC can be no greater than the initial DAC balance plus interest and would be subject to recoverability testing which is ignored for purposes of this analysis. Conversely, a change in assumption that decreases EGP will have the effect of speeding up the amortization of DAC, thus reducing earnings and lowering the DAC balance. The Company also adjusts DAC to reflect changes in the unrealized gains and losses on available-for-sale fixed maturity securities since these changes affect EGP. This adjustment to DAC is reflected in accumulated other comprehensive income.
     The DAC associated with the Company’s non-asset-intensive business is less sensitive to changes in estimates for investment yields, mortality and lapses. In accordance with generally accepted accounting principles, the estimates include provisions for the risk of adverse deviation and are not adjusted unless experience significantly deteriorates to the point where a premium deficiency exists.

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     The following table displays DAC balances for asset-intensive business and non-asset-intensive business by segment as of December 31, 2009:
                         
                     
    Asset-Intensive   Non-Asset-Intensive   Total
(dollars in thousands)   DAC   DAC   DAC
U.S.
  $ 1,177,619     $ 1,340,526     $ 2,518,145  
Canada
          317,125       317,125  
Europe & South Africa
          458,188       458,188  
Asia Pacific
          404,561       404,561  
Corporate and Other
          953       953  
         
Total
  $ 1,177,619     $ 2,521,353     $ 3,698,972  
     
     As of December 31, 2009, the Company estimates that approximately 91.2% of its DAC balance is collateralized by surrender fees due to the Company and the reduction of policy liabilities, in excess of termination values, upon surrender or lapse of a policy.
Liquidity and Capital Resources
Current Market Environment
     During 2008, the capital and credit markets experienced extreme volatility and disruption. Between September 2008 and the first quarter of 2009, the volatility and disruptions intensified significantly. This environment was driven by, among other things, heightened concerns over conditions in the U.S. housing and mortgage markets, the availability and cost of credit, the health of U.S. and global financial institutions, a decline in business and consumer confidence and increased unemployment. Turmoil in the U.S. and global financial markets resulted in bankruptcies, credit defaults, consolidations and government interventions. The U.S. and global financial markets have improved significantly since the first quarter of 2009.
     Results of operations in 2009 reflect a favorable change in the value of embedded derivatives as credit spreads tightened significantly since the first quarter of 2009. Gross unrealized losses in the Company’s fixed maturity and equity securities available-for-sale have improved from $1,552.8 million at March 31, 2009 and $1,416.4 million at December 31, 2008 to $584.9 million at December 31, 2009. Likewise, gross unrealized gains have also improved. The recent market conditions have adversely affected the Company’s results of operations and financial position. From the third quarter of 2008 through the end of 2009, the Company incurred significant investment related losses as a result of impairments. Results of operations in 2008 also reflected a significant unfavorable change in the value of embedded derivatives, which is a direct result of widening credit spreads and changes in the risk-free rates in the U.S. debt markets.
     The Company continues to be in a position to hold its investment securities until recovery, provided it remains comfortable with the credit of the issuer. The Company does not rely on short-term funding or commercial paper, and therefore, to date, has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future. The Company has selectively reduced its exposure to distressed security issuers through security sales. Although management believes the Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.
     As witnessed during parts of 2008 and 2009, a general economic downturn or a downturn in the equity and other capital markets can adversely affect the market for many annuity and life insurance products. Because the Company obtains substantially all of its revenues through life and annuity reinsurance, its business would be adversely affected if the market for annuities or life insurance was adversely affected.
The Holding Company
     RGA is an insurance holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid to its shareholders and interest payments on its indebtedness (See Note 15 — “Debt and Trust Preferred Securities” in the Notes to Consolidated Financial Statements). The primary sources of RGA’s liquidity include proceeds from its capital raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with RGA Reinsurance and RCM, and dividends from operating subsidiaries. As the Company continues its expansion efforts, RGA will continue to be dependent upon these sources of liquidity.
     The Company believes that it has sufficient liquidity for the next 12 months to fund its cash needs under various scenarios that include the potential risk of the early recapture of a reinsurance treaty by the ceding company and significantly

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higher than expected death claims. Historically, the Company has generated positive net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, preferred securities or common equity and, if necessary, the sale of invested assets subject to market conditions.
     See Note 3 — “Stock Transactions” and Note 15 — “Debt and Trust Preferred Securities” in the Notes to Consolidated Financial Statements for additional information regarding the Company’s securities transactions.
Statutory Dividend Limitations
     RCM and RGA Reinsurance are subject to Missouri statutory provisions that restrict the payment of dividends. They may not pay dividends in any 12-month period in excess of the greater of the prior year’s statutory net gain from operations or 10% of statutory capital and surplus at the preceding year-end, without regulatory approval. The applicable statutory provisions only permit an insurer to pay a shareholder dividend from unassigned surplus. Any dividends paid by RGA Reinsurance would be paid to RCM, its parent company, which in turn has restrictions related to its ability to pay dividends to RGA. RCM’s primary asset is its investment in RGA Reinsurance. As of January 1, 2010, RCM and RGA Reinsurance could pay maximum dividends, without prior approval, of approximately $141.3 million and $146.6 million, respectively. The MDI allows RCM to pay a dividend to RGA to the extent RCM received the dividend from RGA Reinsurance, without limitation related to the level of unassigned surplus. Dividend payments from other subsidiaries are subject to regulations in the jurisdiction of domicile.
     The dividend limitations for RCM and RGA Reinsurance are based on statutory financial results. Statutory accounting practices differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. Significant differences include deferred acquisition costs, deferred income taxes, required investment reserves, reserve calculation assumptions and surplus notes.
Valuation of Life Insurance Policies Model Regulation (Regulation XXX)
     The Valuation of Life Insurance Policies Model Regulation, commonly referred to as Regulation XXX, was implemented in the U.S. for various types of life insurance business beginning January 1, 2000. Regulation XXX significantly increased the level of reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level premium term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. In situations where primary insurers have reinsured business to reinsurers that are unlicensed and unaccredited in the U.S., the reinsurer must provide collateral equal to its reinsurance reserves in order for the ceding company to receive statutory financial statement credit. Reinsurers have historically utilized letters of credit for the benefit of the ceding company, or have placed assets in trust for the benefit of the ceding company as the primary forms of collateral. The increasing nature of the statutory reserves under Regulation XXX will likely require increased levels of collateral from reinsurers in the future to the extent the reinsurer remains unlicensed and unaccredited in the U.S.
     In order to manage the effect of Regulation XXX on its statutory financial statements, RGA Reinsurance has retroceded a majority of Regulation XXX reserves to unaffiliated and affiliated unlicensed reinsurers. RGA Reinsurance’s statutory capital may be significantly reduced if the unaffiliated or affiliated reinsurer is unable to provide the required collateral to support RGA Reinsurance’s statutory reserve credits and RGA Reinsurance cannot find an alternative source for collateral.
Shareholder Dividends
     Historically, RGA has paid quarterly dividends ranging from $0.027 per share in 1993 to $0.09 per share in 2009. In January 2010, the quarterly dividend was increased to $0.12 per share. All future payments of dividends are at the discretion of RGA’s board of directors and will depend on the Company’s earnings, capital requirements, insurance regulatory conditions, operating conditions, and other such factors as the board of directors may deem relevant. The amount of dividends that RGA can pay will depend in part on the operations of its reinsurance subsidiaries. Under certain circumstances, RGA may be contractually prohibited from paying dividends on common stock, see discussion below in “Debt and Trust Preferred Securities”.
Debt and Trust Preferred Securities
     Certain of the Company’s debt agreements contain financial covenant restrictions related to, among other things, liens, the issuance and disposition of stock of restricted subsidiaries, minimum requirements of net worth, maximum ratios of debt to capitalization and change in control provisions. A material ongoing covenant default could require immediate

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payment of the amount due, including principal, under the various agreements. Additionally, the Company’s debt agreements contain cross-default covenants, which would make outstanding borrowings immediately payable in the event of a material covenant default under any of the agreements which remains uncured, including, but not limited to, non-payment of indebtedness when due for an amount in excess of $100.0 million, bankruptcy proceedings, or any event which results in the acceleration of the maturity of indebtedness. The facility fee and interest rate for the Company’s credit facilities are based on its senior long-term debt ratings. A decrease in those ratings could result in an increase in costs for the credit facilities. As of December 31, 2009, the Company had $1,216.1 million in outstanding borrowings under its long-term debt agreements and was in compliance with all covenants under those agreements. The ability of the Company to make debt principal and interest payments depends primarily on the earnings and surplus of subsidiaries, investment earnings on undeployed capital proceeds, and the Company’s ability to raise additional funds.
     In November 2009, RGA issued 6.45% Senior Notes due November 15, 2019 with a face amount of $400.0 million. These senior notes were registered with the Securities and Exchange Commission. The net proceeds from the offering were approximately $396.3 million and were designated for general corporate purposes. Capitalized issue costs were approximately $3.0 million.
     During 2009, the Company repurchased $80.2 million face amount of its 6.75% junior subordinated debentures for $39.2 million. The debt was purchased by RGA Reinsurance. As a result, the Company recorded a pre-tax gain of $38.9 million, after fees and unamortized discount, in other revenues in 2009.
     In March 2007, RGA issued 5.625% Senior Notes due March 15, 2017 with a face amount of $300.0 million. These senior notes were registered with the Securities and Exchange Commission. The net proceeds from the offering were approximately $295.3 million, a portion of which were used to pay down $50.0 million of indebtedness under a U.S. bank credit facility. The remaining net proceeds are designated for general corporate purposes. Capitalized issue costs were approximately $2.4 million.
     The Company maintains three revolving credit facilities, including a syndicated credit facility with an overall capacity of $750.0 million that expires in September 2012. The Company may borrow cash and may obtain letters of credit in multiple currencies under this facility. As of December 31, 2009, the Company had no cash borrowings outstanding and $373.9 million in issued, but undrawn, letters of credit under this facility. The Company’s other credit facilities consist of a £15.0 million credit facility that expires in May 2011, and an A$50.0 million Australian credit facility that expires in March 2011, with no outstanding balances as of December 31, 2009.
     As of December 31, 2009, the average interest rate on long-term and short-term debt outstanding, excluding the Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company (“Trust Preferred Securities”), was 6.38% compared to 6.39% at the end of 2008. Interest is expensed on the face amount, or $225.0 million, of the Trust Preferred Securities at a rate of 5.75%.
     Based on the historic cash flows and the current financial results of the Company, management believes RGA’s cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months.
Collateral Finance Facility
     In June 2006, RGA’s subsidiary, Timberlake Financial, issued $850.0 million of Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance. Proceeds from the notes, along with a $112.8 million direct investment by the Company, were deposited into a series of accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. As of December 31, 2009, the Company held assets in trust and in custody of $876.7 million for this purpose. Interest on the notes will accrue at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly and totaled $8.3 million and $28.7 million in 2009 and 2008, respectively. The payment of interest and principal on the notes is insured by a monoline insurance company through a financial guaranty insurance policy. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries. Timberlake Financial will rely primarily upon the receipt of interest and principal payments on a surplus note and dividend payments from its wholly-owned subsidiary, Timberlake Re, a South Carolina captive insurance company, to make payments of interest and principal on the notes. The ability of Timberlake Re to make interest and principal payments on the surplus note and dividend payments to Timberlake Financial is contingent upon South Carolina regulatory approval, the return on Timberlake Re’s investment assets and the performance of specified term life insurance policies with guaranteed level premiums retroceded by RGA’s subsidiary, RGA Reinsurance, to Timberlake Re.

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     In accordance with the general accounting principles for Consolidation, Timberlake Financial is considered to be a variable interest entity and the Company is deemed to hold the primary beneficial interest. As a result, Timberlake Financial has been consolidated in the Company’s financial statements. The Company’s consolidated balance sheets include the assets of Timberlake Financial recorded as fixed maturity investments and other invested assets, which consists of restricted cash and cash equivalents, with the liability for the notes recorded as collateral finance facility. The Company’s consolidated statements of income include the investment return of Timberlake Financial as investment income and the cost of the facility is reflected in collateral finance facility expense.
Reinsurance Operations
     Reinsurance agreements, whether facultative or automatic, generally provide recapture provisions. Most U.S.-based reinsurance treaties include a recapture right for ceding companies, generally after 10 years. Outside of the U.S., treaties primarily include a mutually agreed upon recapture provision. Recapture rights permit the ceding company to reassume all or a portion of the risk formerly ceded to the reinsurer. In some situations, the Company has the right to place assets in trust for the benefit of the ceding party in lieu of recapture. Additionally, certain treaties may grant recapture rights to ceding companies in the event of a significant decrease in RGA Reinsurance’s NAIC risk based capital ratio or financial strength rating. The RBC ratio trigger varies by treaty at amounts between 125% and 225% of the NAIC’s company action level. Financial strength rating triggers vary by treaty with the majority of the triggers reached if RGA Reinsurance’s financial strength rating falls five notches from its current rating of “AA-“ to the “BBB” level on the S&P scale. Recapture of business previously ceded does not affect premiums ceded prior to the recapture of such business, but would reduce premiums in subsequent periods. Upon recapture, the Company would reflect a net gain or loss on the settlement of the assets and liabilities associated with the treaty. In some cases, the ceding company is required to pay the Company a recapture fee. The Company estimates approximately $294.5 billion of its gross assumed in force business, as of December 31, 2009, was subject to treaties where the ceding company could recapture in the event minimum levels of financial condition or ratings were not maintained.
Assets in Trust
     Some treaties give ceding companies the right to request that the Company place assets in trust for the benefit of the cedant to support statutory reserve credits in the event of a downgrade of the Company’s ratings to specified levels, generally non-investment grade levels, or if minimum levels of financial condition are not maintained. As of December 31, 2009, these treaties had approximately $1,059.3 million in statutory reserves. Assets placed in trust continue to be owned by the Company, but their use is restricted based on the terms of the trust agreement. Securities with an amortized cost of $1,022.4 million were held in trust for the benefit of certain subsidiaries of the Company to satisfy collateral requirements for reinsurance business at December 31, 2009. Additionally, securities with an amortized cost of $1,755.6 million as of December 31, 2009 were held in trust to satisfy collateral requirements under certain third-party reinsurance treaties. Under certain conditions, RGA may be obligated to move reinsurance from one RGA subsidiary company to another RGA subsidiary or make payments under the treaty. These conditions include change in control or ratings of the subsidiary, insolvency, nonperformance under a treaty, or loss of reinsurance license of such subsidiary. If RGA was ever required to perform under these obligations, the risk to the consolidated company under the reinsurance treaties would not change; however, additional capital may be required due to the change in jurisdiction of the subsidiary reinsuring the business, which could lead to a strain on liquidity.
     Proceeds from the notes issued by Timberlake Financial and the Company’s direct investment in Timberlake Financial were deposited into a series of trust accounts as collateral and are not available to satisfy the general obligations of the Company. As of December 31, 2009 the Company held deposits in trust and in custody of $876.7 million for this purpose, which is not included above. See “Collateral Finance Facility” above for additional information on the Timberlake notes.
Guarantees
     RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain credit facilities, reinsurance treaties and office lease obligations, whereby if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. In limited circumstances, treaty guarantees are granted to ceding companies in order to provide additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party, totaled $330.3 million and $273.6 million as of December 31, 2009 and 2008, respectively, and are reflected on the Company’s consolidated balance sheets in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels

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and underwriting results. Guarantees related to trust preferred securities and credit facilities provide additional security to third parties should a subsidiary fail to make principal and/or interest payments when due. As of December 31, 2009, RGA’s exposure related to these guarantees was $159.2 million. RGA has issued payment guarantees on behalf of two of its subsidiaries in the event the subsidiaries fail to make payment under their office lease obligations, the exposure of which was $4.3 million as of December 31, 2009.
     In addition, the Company indemnifies its directors and officers pursuant to its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.
Balance Sheet Arrangements
     The Company had commitments to fund investments in limited partnerships, commercial mortgage loans and private placement investments in the amount of $86.6 million, $12.6 million and $7.0 million, respectively, at December 31, 2009. The Company anticipates that the majority of its current commitments will be invested over the next five years, however, contractually, these commitments could become due at the request of the counterparties. Investments in limited partnerships are carried at cost after consideration of any other-than-temporary impairments and included in other invested assets in the consolidated balance sheets.
     In order to reduce the level of statutory reserves, primarily in the U.S. and Canada, which generally exceed reserves required on an economic basis, the Company has entered into various reinsurance agreements with affiliated and unaffiliated reinsurers. In order for the Company to receive statutory reserve credit, the reinsurer must provide collateral for the benefit of the Company, usually in the form of assets in trust or letters of credit.
     The Company has not engaged in trading activities involving non-exchange-traded contracts reported at fair value, nor has it engaged in relationships or transactions with persons or entities that derive benefits from their non-independent relationship with the Company.
Cash Flows
     The Company’s principal cash inflows from its reinsurance operations include premiums and deposit funds received from ceding companies. The primary liquidity concerns with respect to these cash flows are early recapture of the reinsurance contract by the ceding company and lapses of annuity products reinsured by the Company. The Company’s principal cash inflows from its investing activities result from investment income and the maturity and sales of invested assets. The primary liquidity concern with respect to these cash inflows relates to the risk of default by debtors and interest rate volatility. The Company manages these risks very closely. See “Investments” and “Interest Rate Risk” below.
     Additional sources of liquidity to meet unexpected cash outflows in excess of operating cash inflows and current cash and equivalents on hand include selling short-term investments or fixed maturity securities and drawing funds under existing credit facilities, under which the Company had availability of $445.3 million as of December 31, 2009. The Company also has $685.6 million of funds available through collateralized borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”).
     The Company’s principal cash outflows primarily relate to the payment of claims liabilities, interest credited, operating expenses, income taxes, and principal and interest under debt and other financing obligations. The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts (See Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements). The Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires nor to the recoverability of future claims. The Company’s management believes its current sources of liquidity are adequate to meet its cash requirements for the next 12 months.
     The Company’s net cash flows provided by operating activities for the years ended December 31, 2009, 2008 and 2007, were $1,364.2 million, $727.0 million and $1,099.3 million, respectively. Cash flows from operating activities are affected by the timing of premiums received, claims paid and working capital changes. Operating cash increased $637.3 million during 2009 as cash from premiums and investment income increased $277.7 million and $246.9 million, respectively, while operating net cash outlays decreased by $112.7 million. During 2008, operating cash decreased $372.3 million as cash from premiums increased $357.2 million but was more than offset by decreased investment income of $40.7 million and by higher operating net cash outlays of $688.8 million. The Company believes the short-term cash requirements

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of its business operations will be sufficiently met by the positive cash flows generated. Additionally, the Company believes it maintains a high-quality fixed maturity portfolio with positive liquidity characteristics. These securities are available-for-sale and could be sold if necessary to meet the Company’s short- and long-term obligations, subject to market conditions.
     Net cash used in investing activities was $1,939.1 million, $1,073.2 million and $976.9 million in 2009, 2008 and 2007, respectively. Changes in cash used in investing activities primarily relate to the management of the Company’s investment portfolios and the investment of excess cash generated by operating and financing activities. The increase in net cash used in investing activities in 2009 was due in part to the investment of proceeds from the issuance of common stock in the fourth quarter of 2008 and senior notes issued in the fourth quarter of 2009. The increase in net cash used in investing activities in 2008 was primarily due to the investment of proceeds from investment type contracts.
     Net cash provided by financing activities was $195.0 million, $841.2 million and $116.6 million in 2009, 2008 and 2007, respectively. The decrease in cash provided by financing activities in 2009 was largely due to reduced deposits under investment type contracts, a $335.5 million decrease in the cash collateral received under derivative contracts due to a change in the value of the underlying derivatives and $62.5 million related to the repurchase and repayment of long-term debt. The increase in cash provided by financing activities in 2008 was largely due to deposits under investment type contracts and a $159.8 million increase in the cash collateral received under derivative contracts due to a change in the value of the underlying derivatives. Issuances of Company securities resulted in increases in cash provided by financing activities of $64.5 million and $36.6 million in 2009 and 2008, respectively.
Contractual Obligations
     The following table displays the Company’s contractual obligations, including obligations arising from its reinsurance business (in millions):
                                         
    Payment Due by Period
            Less than 1            
    Total   Year   1 - 3 Years   4 - 5 Years   After 5 Years
Future policy benefits1
  $ (1,293.3 )   $ (645.2 )   $ (963.8 )   $ (574.2 )   $ 889.9  
Interest-sensitive contract liabilities2
    13,070.5       905.2       1,908.0       1,895.5       8,361.8  
Long — term debt, including interest
    2,581.5       52.0       290.4       76.9       2,162.2  
Fixed Rate Trust Pref Sec., including interest3
    758.7       12.9       25.9       25.9       694.0  
Collateral finance facility, including interest
    901.2       10.0       86.0       71.1       734.1  
Other policy claims and benefits
    2,229.1       2,229.1                    
Operating leases
    37.8       9.3       12.7       11.1       4.7  
Limited partnerships
    86.6       86.6                    
Investment purchase commitments
    19.9       19.9                    
             
Total
  $ 18,392.0     $ 2,679.8     $ 1,359.2     $ 1,506.3     $ 12,846.7  
     
 
1   Future policyholder benefits include liabilities related primarily to the Company’s reinsurance of life and health insurance products. Amounts presented in the table above represent the estimated obligations as they become due to ceding companies for benefits under such contracts, and also include future premiums, allowances and other amounts due to or from the ceding companies as the result of the Company’s assumptions of mortality, morbidity, policy lapse and surrender risk as appropriate to the respective product. Total payments may vary materially from prior years due to the assumption of new treaties or as a result of changes in projections of future experience. All estimated cash payments presented in the table above are undiscounted as to interest, net of estimated future premiums on policies currently in force and gross of any reinsurance recoverable. The sum of the undiscounted estimated cash flows shown for all years in the table is a negative obligation of $(1,293.3) million compared to the discounted liability amount of $7,748.5 million included on the consolidated balance sheet, substantially all due to the effects of discounting the estimated cash flows. The time value of money is not factored into the calculations in the table above. In addition, differences will arise due to changes in the projection of future benefit payments compared with those developed when the reserve was established. Expected premiums exceed expected policy benefit payments and allowances due to the nature of the reinsurance treaties, which generally have increasing premium rates that exceed the increasing benefit payments.

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2   Interest-sensitive contract liabilities include amounts related to the Company’s reinsurance of asset-intensive products, primarily deferred annuities and corporate-owned life insurance. Amounts presented in the table above represent the estimated obligations as they become due both to and from ceding companies relating to activity of the underlying policyholders. Amounts presented in the table above represent the estimated obligations under such contracts undiscounted as to interest, including assumptions related to surrenders, withdrawals, premium persistency, partial withdrawals, surrender charges, annuitizations, mortality, future interest credited rates and policy loan utilization. The sum of the obligations shown for all years in the table of $13,070.5 million exceeds the liability amount of $7,666.0 million included on the consolidated balance sheet principally due to the lack of discounting and accounting for separate account contracts.
 
3   Assumes that all securities will be held until the stated maturity date of March 18, 2051. For additional information on these securities, see “Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debentures of the Company” in Note 2 — “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements.
     Excluded from the table above are deferred income tax liabilities, unrecognized tax benefits, and accrued interest of $613.2 million, $221.0 million, and $34.1 million, respectively, for which the Company cannot reliably determine the timing of payment. Current income tax payable is also excluded from the table.
     The net funded status of the Company’s pension and other postretirement liabilities included within other liabilities has been excluded from the amounts presented in the table above. As of December 31, 2009, the Company had a net unfunded balance of $47.4 million related to pension and other postretirement liabilities. See Note 10 — “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for information related to the Company’s obligations and funding requirements for pension and other post-employment benefits.
Letters of Credit
     The Company has obtained letters of credit, issued by banks, in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. Certain of these letters of credit contain financial covenant restrictions similar to those described in the “Debt and Trust Preferred Securities” discussion above. At December 31, 2009, there were approximately $21.4 million of outstanding bank letters of credit in favor of third parties. Additionally, the Company utilizes letters of credit to secure statutory reserve credits when it retrocedes business to its subsidiaries, including Parkway Re, RGA Americas, RGA Barbados and RGA Atlantic. The Company cedes business to its affiliates to help reduce the amount of regulatory capital required in certain jurisdictions, such as the U.S. and the UK. The capital required to support the business in the affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of December 31, 2009, $617.5 million in letters of credit from various banks were outstanding, but undrawn, backing reinsurance between the various subsidiaries of the Company.
     Based on the growth of the Company’s business and the pattern of reserve levels under Regulation XXX associated with term life business, the amount of ceded reserve credits is expected to grow. This growth will require the Company to obtain additional letters of credit, put additional assets in trust, or utilize other mechanisms to support the reserve credits. If the Company is unable to support the reserve credits, the regulatory capital levels of several of its subsidiaries may be significantly reduced. The reduction in regulatory capital would not directly affect the Company’s consolidated shareholders’ equity under GAAP; however, it could affect the Company’s ability to write new business and retain existing business.
     The Company maintains a syndicated revolving credit facility with an overall capacity of $750.0 million, which is scheduled to mature in September 2012. The Company may borrow cash and may obtain letters of credit in multiple currencies under the facility. At December 31, 2009, the Company had $373.9 million in issued, but undrawn, letters of credit under this facility, which is included in the total above. Applicable letter of credit fees and fees payable for the credit facility depend upon the Company’s senior unsecured long-term debt rating. In September 2009, the Company entered into a ten-year, $200.0 million letter of credit facility agreement. This letter of credit is expected to be fully utilized through 2016 and then amortize to zero by 2019. As of December 31, 2009, the Company had $200.0 million in issued, but undrawn, letters of credit under this new facility, which is included in the total above. Letter of credit fees for this facility are fixed for the term of the facility. Fees associated with the Company’s other letters of credit are not fixed for periods in excess of one year and are based on the Company’s ratings and the general availability of these instruments in the marketplace.
     In 2006, the Company entered into a reinsurance agreement that requires it to post collateral for a portion of the business being reinsured. As part of the collateral requirements, a third party financial institution has issued a letter of credit

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for the benefit of the ceding company (the “beneficiary”), which may draw on the letter of credit to be reimbursed for valid claim payments not made by RGA pursuant to the reinsurance treaty. RGA is not a direct obligor under the letter of credit. To the extent the letter of credit is drawn by the beneficiary, reimbursement to the third party financial institution will be through reduction in amounts owed to RGA by the third party financial institution under a secured structured loan. RGA’s liability under the reinsurance agreement will be reduced by any amount drawn by the ceding company under the letter of credit. As of December 31, 2009, the structured loan totaled $150.7 million and the amount of the letter of credit totaled $150.7 million. The structured loan is recorded in “other invested assets” on RGA’s consolidated balance sheets.
Asset / Liability Management
     The Company manages its invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.
     The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.
     The Company’s liquidity position (cash and cash equivalents and short-term investments) was $633.1 million and $933.5 million at December 31, 2009 and December 31, 2008, respectively. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.
     The Company periodically sells investment securities under agreements to repurchase the same securities. These arrangements are used for purposes of short-term financing. There were no securities subject to these agreements outstanding at December 31, 2009 or 2008. The book value of securities subject to these agreements, if any, are included in fixed maturity securities while the repurchase obligations would be reported in other liabilities in the consolidated statement of financial position. The Company also occasionally enters into arrangements to purchase securities under agreements to resell the same securities. Amounts outstanding, if any, are reported in cash and cash equivalents. These agreements are primarily used as yield enhancement alternatives to other cash equivalent investments. There were no agreements outstanding at December 31, 2009 or 2008.
     RGA Reinsurance is a member of the FHLB and holds $27.8 million of common stock in the FHLB, which is included in other invested assets on the Company’s consolidated balance sheets. RGA Reinsurance occasionally enters into traditional funding agreements with the FHLB but had no outstanding traditional funding agreements with the FHLB at December 31, 2009 or 2008.
     In addition, RGA Reinsurance has also entered into funding agreements with the FHLB under guaranteed investment contracts whereby RGA Reinsurance has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on RGA Reinsurance’s commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize RGA Reinsurance’s obligations under the funding agreements. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB’s recovery is limited to the amount of RGA Reinsurance’s liability under the outstanding funding agreements. The amount of the Company’s liability for the funding agreements with the FHLB under guaranteed investment contracts was $399.3 million and $199.3 million at December 31, 2009 and 2008, respectively, which is included in interest sensitive contract liabilities. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities and commercial mortgage loans.
     The Company’s asset-intensive products are primarily supported by investments in fixed maturity securities reflected on the Company’s balance sheet and under funds withheld arrangements with the ceding company. Investment guidelines are established to structure the investment portfolio based upon the type, duration and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. The Company manages the asset-intensive business to provide a targeted spread between the interest rate earned on investments and the interest rate credited to the underlying interest-sensitive contract liabilities. The Company periodically reviews models projecting different interest rate scenarios and their

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effect on profitability. Certain of these asset-intensive agreements, primarily in the U.S. operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company.
Investments
     The Company had total cash and invested assets of $19.7 billion and $16.5 billion at December 31, 2009 and 2008, respectively, as illustrated below (dollars in thousands):
                 
As of December 31,   2009   2008
Fixed maturity securities, available-for-sale
  $ 11,763,358     $ 8,531,804  
Mortgage loans on real estate
    791,668       775,050  
Policy loans
    1,136,564       1,096,713  
Funds withheld at interest
    4,895,356       4,520,398  
Short-term investments
    121,060       58,123  
Other invested assets
    516,086       628,649  
Cash and cash equivalents
    512,027       875,403  
     
Total cash and invested assets
  $ 19,736,119     $ 16,486,140  
     
     The following table presents consolidated invested assets, net investment income and investment yield, excluding funds withheld. Funds withheld assets are primarily associated with the reinsurance of annuity contracts on which the Company earns a spread. Fluctuations in the yield on funds withheld assets are generally offset by a corresponding adjustment to the interest credited on the liabilities (dollars in thousands).
                                         
                            Increase / (Decrease)
    2009   2008   2007   2009   2008
Average invested assets at amortized cost
  $ 13,013,390     $ 11,653,879     $ 10,637,020       11.7 %     9.6 %
Net investment income
    747,730       701,039       633,621       6.7 %     10.6 %
Investment yield (ratio of net investment income to average invested assets)
    5.75 %     6.02 %     5.96 %   (27)bps   6 bps
     Investment yield decreased in 2009 as the decline of certain key indices such as LIBOR resulted in lower investment returns on the Company’s floating rate investments. In addition, recent economic conditions, have resulted in the decision to maintain a higher level of liquidity. Thus, the Company invested some of its cash flows in highly liquid assets with shorter maturities than what was previously held in the portfolio, which has also contributed to the decrease in the average yield of the portfolio. Investment yield increased in 2008 as the economic environment allowed the Company to invest in securities with higher spreads than those already held in the portfolio. Also in 2008, new liability structures with longer duration targets allowed the Company to invest in securities with longer maturities than what was held in the portfolio, which, in a positively-sloped yield curve environment, has also contributed to the increase in the average yields of the portfolio.
     All investments held by RGA and its subsidiaries are monitored for conformance with the qualitative and quantitative limits prescribed by the applicable jurisdiction’s insurance laws and regulations. In addition, the operating companies’ boards of directors periodically review their respective investment portfolios. The Company’s investment strategy is to maintain a predominantly investment-grade, fixed maturity portfolio, to provide adequate liquidity for expected reinsurance obligations, and to maximize total return through prudent asset management. The Company’s asset/liability duration matching differs between operating segments. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years. The average duration for all the Company’s portfolios, when consolidated, ranges between eight and ten years. See Note 4 — “Investments” in the Notes to Consolidated Financial Statements for additional information regarding the Company’s investments.

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Fixed Maturities and Equity Securities Available-for-Sale
     The following tables provide information relating to investments in fixed maturity securities and equity securities by sector as of December 31, 2009 and 2008 (dollars in thousands):
                                                 
                                            Other-than-
                            Estimated           temporary
    Amortized   Unrealized   Unrealized   Fair   % of   impairments
2009   Cost   Gains   Losses   Value   Total   in AOCI (1)
Available-for-sale:
                                               
U.S. corporate securities
  $ 3,689,797     $ 180,635     $ 147,384     $ 3,723,048       31.7 %   $  
Canadian and Canadian provincial governments
    1,984,475       394,498       25,746       2,353,227       20.0        
Residential mortgage-backed securities
    1,494,021       32,538       70,015       1,456,544       12.4       (7,018 )
Foreign corporate securities
    1,627,806       77,340       33,398       1,671,748       14.2        
Asset-backed securities
    522,760       9,307       80,131       451,936       3.8       (2,194 )
Commercial mortgage-backed securities
    1,177,621       20,670       169,427       1,028,864       8.7       (13,690 )
U.S. government and agencies
    540,001       1,085       15,027       526,059       4.5        
State and political subdivisions
    107,233       273       17,744       89,762       0.8        
Other foreign government securities
    473,243       2,198       13,271       462,170       3.9        
     
Total fixed maturity securities
  $ 11,616,957     $ 718,544     $ 572,143     $ 11,763,358       100.0 %   $ (22,902 )
     
Non-redeemable preferred stock
  $ 123,648     $ 1,878     $ 12,328     $ 113,198       66.0 %        
Other equity securities
    58,008       760       409       58,359       34.0          
             
Total equity securities
  $ 181,656     $ 2,638     $ 12,737     $ 171,557       100.0 %        
             
 
(1)   See Note 4 — “Investments” under Fixed Maturities and Equity Securities Available-for-Sale in the Notes to Consolidated Financial Statements for additional information regarding AOCI.
                                         
                            Estimated        
    Amortized     Unrealized     Unrealized     Fair     % of  
2008   Cost     Gains     Losses     Value     Total  
Available-for-sale:
                                       
U.S. corporate securities
  $ 3,577,116     $ 34,262     $ 598,745     $ 3,012,633       35.3 %
Canadian and Canadian provincial governments
    1,500,511       397,899       7,171       1,891,239       22.2  
Residential mortgage-backed securities
    1,231,123       24,838       106,776       1,149,185       13.5  
Foreign corporate securities
    1,112,018       14,335       152,920       973,433       11.4  
Asset-backed securities
    484,577       2,098       147,297       339,378       4.0  
Commercial mortgage-backed securities
    1,085,062       2,258       326,730       760,590       8.9  
U.S. government and agencies
    7,555       876             8,431       0.1  
State and political subdivisions
    46,537             7,883       38,654       0.4  
Other foreign government securities
    338,349       20,062       150       358,261       4.2  
     
Total fixed maturity securities
  $ 9,382,848     $ 496,628     $ 1,347,672     $ 8,531,804       100.0 %
     
Non-redeemable preferred stock
  $ 187,510     $ 49     $ 64,160     $ 123,399       77.4 %
Other equity securities
    40,582             4,607       35,975       22.6  
     
Total equity securities
  $ 228,092     $ 49     $ 68,767     $ 159,374       100.0 %
     
     The Company’s fixed maturity securities are invested primarily in U.S. and foreign corporate bonds, mortgage- and asset-backed securities, and Canadian government securities. As of December 31, 2009 and 2008, approximately 94.8% and 96.7%, respectively, of the Company’s consolidated investment portfolio of fixed maturity securities was investment-grade.
     Important factors in the selection of investments include diversification, quality, yield, total rate of return potential and call protection. The relative importance of these factors is determined by market conditions and the underlying product or portfolio characteristics. Cash equivalents are primarily invested in high-grade money market instruments. The largest asset class in which fixed maturities were invested was in corporate securities, which represented approximately 45.9% of total fixed maturities at December 31, 2009, compared to 46.7% at December 31, 2008. The tables below show the major industry types and weighted average credit ratings, which comprise the U.S. and foreign corporate fixed maturity holdings at December 31, 2009 and 2008 (dollars in thousands):

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December 31, 2009
    Amortized   Estimated           Average
    Cost   Fair Value   % of Total   Credit Ratings
     
Finance
  $ 1,411,464     $ 1,358,925       25.2 %     A-  
Industrial
    1,670,610       1,735,522       32.2     BBB+
Foreign (1)
    1,627,352       1,671,090       30.9       A  
Utility
    603,958       624,710       11.6     BBB+
Other
    4,219       4,549       0.1       A  
     
Total
  $ 5,317,603     $ 5,394,796       100.0 %     A-  
     
                                 
December 31, 2008
    Amortized   Estimated           Average
    Cost   Fair Value   % of Total   Credit Ratings
     
Finance
  $ 1,475,205     $ 1,155,906       29.0 %     A  
Industrial
    1,520,330       1,339,200       33.6     BBB+
Foreign (1)
    1,112,018       973,433       24.4       A  
Utility
    542,737       480,809       12.1     BBB+
Other
    38,844       36,718       0.9     AA-
     
Total
  $ 4,689,134     $ 3,986,066       100.0 %     A-  
     
 
(1)   Includes U.S. dollar-denominated debt obligations of foreign obligors and other foreign investments.
     The National Association of Insurance Commissioners (“NAIC”) assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their statutory filings. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).
     The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at December 31, 2009 and 2008 was as follows (dollars in thousands):
                                                         
            December 31, 2009   December 31, 2008
NAIC   Rating Agency   Amortized   Estimated   % of   Amortized   Estimated   % of
Designation   Designation   Cost   Fair Value   Total   Cost   Fair Value   Total
  1    
AAA/AA/A
  $ 8,457,812     $ 8,716,920       74.1 %   $ 7,001,968     $ 6,607,730       77.4 %
  2    
BBB
    2,401,885       2,433,144       20.7       1,991,276       1,649,513       19.3  
  3    
BB
    455,539       381,242       3.3       268,276       195,088       2.3  
  4    
B
    210,252       145,206       1.2       77,830       50,064       0.6  
  5    
CCC and lower
    75,486       70,165       0.6       33,945       22,538       0.3  
  6    
In or near default
    15,983       16,681       0.1       9,553       6,871       0.1  
                 
       
Total
  $ 11,616,957     $ 11,763,358       100.0 %   $ 9,382,848     $ 8,531,804       100.0 %
                 

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     The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at December 31, 2009 and 2008 (dollars in thousands):
                                 
    December 31, 2009   December 31, 2008
    Amortized   Estimated   Amortized   Estimated
    Cost   Fair Value   Cost   Fair Value
Residential mortgage-backed securities:
                               
Agency
  $ 771,787     $ 797,354     $ 851,507     $ 868,479  
Non-agency
    722,234       659,190       379,616       280,706  
     
Total residential mortgage-backed securities
    1,494,021       1,456,544       1,231,123       1,149,185  
Commercial mortgage-backed securities
    1,177,621       1,028,864       1,085,062       760,590  
Asset-backed securities
    522,760       451,936       484,577       339,378  
     
Total
  $ 3,194,402     $ 2,937,344     $ 2,800,762     $ 2,249,153  
     
     The residential mortgage-backed securities include agency-issued pass-through securities, collateralized mortgage obligations, a majority of which are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. The weighted average credit rating of the residential mortgage-backed securities was “AA+” at December 31, 2009 and 2008. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments. In addition, mortgage-backed securities face default risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.
     As of December 31, 2009 and 2008, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling $1,655.0 million and $1,573.4 million, and estimated fair values of $1,439.1 and $1,143.3 million. Those amounts include exposure to commercial mortgage-backed securities held directly in the Company’s investment portfolios within fixed maturity securities, as well as securities held by ceding companies that support the Company’s funds withheld at interest investment. The securities are highly rated with weighted average S&P credit ratings of approximately “AA” and “AA+” at December 31, 2009 and 2008, respectively. Approximately 65.1% and 83.7%, based on estimated fair value, were classified in the “AAA” category at December 31, 2009 and 2008, respectively. The Company recorded other-than-temporary impairments of $7.8 million, net of non-credit adjustments, in its direct investments in commercial mortgage-backed securities for the year ended December 31, 2009. The Company did not record any other-than-temporary impairments in its direct investments in commercial mortgage-backed securities in 2008. The following tables summarize the securities by rating and underwriting year at December 31, 2009 and 2008 (dollars in thousands):
                                                 
    December 31, 2009
    AAA   AA   A
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 192,355     $ 204,592     $ 24,346     $ 23,355     $ 20,123     $ 17,016  
2004
    46,462       45,390       2,363       2,361       11,632       8,388  
2005
    159,802       153,569       30,893       26,038       43,694       29,720  
2006
    292,369       280,475       41,649       34,854       41,128       34,859  
2007
    223,827       216,853       6,922       2,267       64,860       56,996  
2008
    19,050       19,790       29,211       26,617              
2009
    16,638       16,422       1,485       1,532              
     
Total
  $ 950,503     $ 937,091     $ 136,869     $ 117,024     $ 181,437     $ 146,979  
     

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Continued   December 31, 2009
    BBB   Below Investment Grade   Total
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 21,118     $ 15,634     $ 2,980     $ 2,309     $ 260,922     $ 262,906  
2004
    1,918       1,634                   62,375       57,773  
2005
    24,580       16,718       25,318       17,148       284,287       243,193  
2006
    26,257       19,091       47,951       22,392       449,354       391,671  
2007
    82,460       68,428       128,193       62,440       506,262       406,984  
2008
                25,384       12,204       73,645       58,611  
2009
                            18,123       17,954  
     
Total
  $ 156,333     $ 121,505     $ 229,826     $ 116,493     $ 1,654,968     $ 1,439,092  
     
                                                 
    December 31, 2008
    AAA   AA   A
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 250,720     $ 254,690     $ 24,276     $ 17,518     $ 28,432     $ 16,744  
2004
    50,245       46,737       2,147       999       10,603       3,835  
2005
    200,140       136,101       2,530       682       54,173       30,079  
2006
    306,478       234,575       16,219       6,074       45,346       31,379  
2007
    362,226       256,163       50,648       14,343       59,013       20,636  
2008
    30,017       28,501       23,387       10,698       18,342       11,186  
     
Total
  $ 1,199,826     $ 956,767     $ 119,207     $ 50,314     $ 215,909     $ 113,859  
     
                                                 
    BBB   Below Investment Grade   Total
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 18,144     $ 11,938     $     $     $ 321,572     $ 300,890  
2004
                            62,995       51,571  
2005
    3,679       776                   260,522       167,638  
2006
    15,283       8,709       1,305       941       384,631       281,678  
2007
                            471,887       291,142  
2008
                            71,746       50,385  
     
Total
  $ 37,106     $ 21,423     $ 1,305     $ 941     $ 1,573,353     $ 1,143,304  
     
     Asset-backed securities include credit card and automobile receivables, sub-prime mortgage-backed securities, home equity loans, manufactured housing bonds and collateralized debt obligations. The Company’s asset-backed securities are diversified by issuer and contain both floating and fixed rate securities and had a weighted average credit rating of “AA” at December 31, 2009 and 2008. The Company owns floating rate securities that represent approximately 19.0% and 20.0% of the total fixed maturity securities at December 31, 2009 and 2008, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the consolidated balance sheets as collateral finance facility. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ priority in the issuer’s capital structure, the adequacy of and ability to realize proceeds from collateral, and the potential for prepayments. Credit risks include consumer or corporate credits such as credit card holders, equipment lessees, and corporate obligors. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.

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     As of December 31, 2009 and 2008, the Company held investments in securities with sub-prime mortgage exposure with amortized costs totaling $164.6 million and $230.1 million, and estimated fair values of $104.3 million and $147.8 million, respectively. Those amounts include exposure to sub-prime mortgages through securities held directly in the Company’s investment portfolios within asset-backed securities, as well as securities backing the Company’s funds withheld at interest investment. The weighted average S&P credit ratings on these securities was approximately “BBB+” and “AA-” at December 31, 2009 and 2008, respectively. Additionally, the Company has largely avoided investing in securities originated since the second half of 2005, which management believes was a period of lessened underwriting quality. The Company recorded other-than-temporary impairments of $40.6 million, net of non-credit adjustments, and $11.6 million, in its subprime portfolio for the years ended December 31, 2009 and 2008, respectively, due primarily to the increased likelihood that some or all of the remaining scheduled principal and interest payments on select securities will not be received. The following tables summarize the securities by rating and underwriting year at December 31, 2009 and 2008 (dollars in thousands):
                                                 
    December 31, 2009
    AAA   AA   A
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 7,782     $ 6,599     $ 1,841     $ 1,438     $ 5,231     $ 3,197  
2004
                14,784       11,227       5,280       3,803  
2005
    15,034       12,181       23,248       20,349       6,506       2,779  
2006
                                   
2007
                                   
2008
                                   
2009
                                   
     
Total
  $ 22,816     $ 18,780     $ 39,873     $ 33,014     $ 17,017     $ 9,779  
     
                                                 
    BBB   Below Investment Grade   Total
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 975     $ 431     $ 2,739     $ 1,116     $ 18,568     $ 12,781  
2004
                18,249       9,327       38,313       24,357  
2005
    23,419       12,162       18,215       8,243       86,422       55,714  
2006
    4,985       1,507       4,566       2,563       9,551       4,070  
2007
                11,709       7,372       11,709       7,372  
2008
                                   
2009
                                   
     
Total
  $ 29,379     $ 14,100     $ 55,478     $ 28,621     $ 164,563     $ 104,294  
     
                                                 
    December 31, 2008
    AAA   AA   A
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 11,007     $ 9,116     $ 6,509     $ 4,320     $ 1,813     $ 1,227  
2004
                21,220       13,437       33,728       26,228  
2005
    37,134       27,793       36,424       26,471       6,514       2,582  
2006
    135       134       4,500       2,076       4,998       1,991  
2007
                888       283              
2008
                                   
     
Total
  $ 48,276     $ 37,043     $ 69,541     $ 46,587     $ 47,053     $ 32,028  
     

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Continued   December 31, 2008
    BBB   Below Investment Grade   Total
            Estimated           Estimated           Estimated
Underwriting Year   Amortized Cost   Fair Value   Amortized Cost   Fair Value   Amortized Cost   Fair Value
2003 & Prior
  $ 413     $ 77     $ 807     $ 106     $ 20,549     $ 14,846  
2004
                7,900       5,727       62,848       45,392  
2005
    11,908       6,529       17,905       5,739       109,885       69,114  
2006
    3,442       2,618       3,287       449       16,362       7,268  
2007
                19,588       10,880       20,476       11,163  
2008
                                   
     
Total
  $ 15,763     $ 9,224     $ 49,487     $ 22,901     $ 230,120     $ 147,783  
     
     Alt-A is a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime. At December 31, 2009 and 2008, the Company’s Alt-A securities had an amortized cost of $176.6 million and $197.7 million, respectively, with an unrealized loss of $21.9 million and $39.9 million, respectively. As of December 31, 2009, 56.4% of the Alt-A securities were rated “AA−” or better. This amount includes securities directly held by the Company and securities held by ceding companies that support the Company’s funds withheld at interest investment. The Company recorded other-than-temporary impairments of $14.6 million, net of non-credit adjustments, and $16.5 million, in its Alt-A securities portfolio for the years ended December 31, 2009 and 2008, respectively, due primarily to the increased likelihood that some or all of the remaining scheduled principal and interest payments on certain securities will not be received.
     At December 31, 2009 and 2008, the Company’s fixed maturity and funds withheld portfolios included approximately $601.8 million and $538.2 million, respectively, in estimated fair value, of securities that are insured by various financial guarantors, or less than five percent of consolidated investments. The securities are diversified between municipal bonds and asset-backed securities with well diversified collateral pools. The Company invested in insured collateralized debt obligation (“CDO”) structures backing sub-prime investments of approximately $0.2 million and $0.1 million at December 31, 2009 and 2008, respectively. The insured securities are primarily investment grade, at issuance, without the benefit of the insurance provided by the financial guarantor and therefore the Company does not expect to incur significant realized losses as a result of the financial difficulties encountered by several of the financial guarantors. In addition to the insured securities, the Company held investment-grade securities issued by financial guarantors totaling $8.3 million and $13.4 million in amortized cost at December 31, 2009 and 2008, respectively.
     The Company does not invest in the common equity securities of Fannie Mae and Freddie Mac, both government sponsored entities; however, as of December 31, 2009 and 2008, the Company held in its general portfolio $41.0 million and $6.8 million, respectively, amortized cost in direct exposure in the form of senior unsecured agency and preferred securities with the increase attributable to purchases of senior unsecured agency debentures. Additionally, as of December 31, 2009 and 2008, the portfolios held by the Company’s ceding companies that support its funds withheld asset contain approximately $543.6 million and $359.6 million, respectively, in amortized cost of unsecured agency bond holdings and no equity exposure. As of December 31, 2009 and 2008, indirect exposure in the form of secured, structured mortgaged securities issued by Fannie Mae and Freddie Mac totaled approximately $0.9 billion and $1.1 billion, respectively, in amortized cost across the Company’s general and funds withheld portfolios. Including the funds withheld portfolios, the Company’s direct holdings in the form of preferred securities had a total book value of $0.7 million and $0.7 million at December 31, 2009 and 2008, respectively. As a result of the U.S. government intervention and cessation of dividend payments, the Company recorded an other-than-temporary impairment of its preferred holdings of Fannie Mae and Freddie Mac totaling $12.2 million in 2008. The Company did not record any further other-than-temporary impairments on its preferred holdings of Fannie Mae and Freddie Mac in 2009.
     The Company monitors its fixed maturity securities and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market conditions and industry sector, current intent and ability to hold securities and various other subjective factors. Based on management’s judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. See “Investments — Other-than-Temporary Impairment” in Note 2 — “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for additional information. The Company recorded $132.3 million, net of non-credit adjustments, $131.1 million and $8.5 million in other-than-temporary investment impairments in 2009, 2008 and 2007, respectively. The

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impairments in 2008 and 2009 are due primarily to the continued turmoil in the U.S. and global financial markets which has resulted in bankruptcies, credit defaults, consolidations and government interventions. The table below summarizes other-than-temporary impairments for 2009, net of non-credit adjustments, 2008 and 2007 (dollars in thousands).
                         
Years Ended December 31,   2009   2008   2007
Asset Class
                       
Subprime / Alt-A / Other structured securities
  $ 71,789     $ 30,361     $ 68  
Corporate / Other fixed maturity securities
    41,000       82,952       7,393  
Equity securities
    11,058       17,232       1,020  
Other
    8,471       526        
     
Total
  $ 132,318     $ 131,071     $ 8,481  
     
     During 2009 and 2008, the Company sold fixed maturity securities and equity securities with fair values of $687.8 million and $536.7 million at losses of $73.0 million and $24.1 million, respectively, or at 90.4% and 95.7% of book value, respectively. The Company generally does not engage in short-term buying and selling of securities.
     At December 31, 2009 and 2008, the Company had $584.9 million and $1,416.4 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. These securities are concentrated, calculated as a percentage of gross unrealized losses, as follows:
                 
    December 31,
    2009   2008
Sector:
               
U.S. corporate securities
    26 %     46 %
Canadian and Canada provincial governments
    4       1  
Residential mortgage-backed securities
    12       7  
Foreign corporate securities
    7       12  
Asset-backed securities
    14       10  
Commercial mortgage-backed securities
    29       23  
State and political subdivisions
    3       1  
U.S. government and agencies
    3        
Other foreign government securities
    2        
     
Total
    100 %     100 %
     
 
               
Industry:
               
Finance
    25 %     33 %
Asset-backed
    13       10  
Industrial
    7       19  
Mortgage-backed
    41       31  
Government
    12       1  
Utility
    2       6  
     
Total
    100 %     100 %
     
     The following table presents the total gross unrealized losses for 1,316 and 1,716 fixed maturity securities and equity securities at December 31, 2009 and 2008, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
                                                 
    December 31, 2009   December 31, 2008
            Gross                   Gross    
    Number of   Unrealized           Number of   Unrealized    
    Securities   Losses   % of Total   Securities   Losses   % of Total
Less than 20%
    1,112     $ 254,075       43.4 %     980     $ 324,390       22.9 %
20% or more for less than six months
    38       69,322       11.9       561       796,747       56.3  
20% or more for six months or greater
    166       261,483       44.7       175       295,302       20.8  
     
Total
    1,316     $ 584,880       100.0 %     1,716     $ 1,416,439       100.0 %
     

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     As of December 31, 2009 and 2008, respectively, 71.4% and 92.7% of these securities were investment grade and 43.4% and 22.9% had fair values that were less than 20% below cost. The amount of the unrealized loss on these securities was primarily attributable to a widening of credit spreads since the time the securities were purchased.
     While all of these securities are monitored for potential impairment, the Company believes due to continued uncertain market conditions and liquidity concerns, and the high levels of price volatility, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to an issuer. The Company’s determination of whether a decline in value is other-than-temporary includes the Company’s analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as a potential indicator of credit deterioration.
     The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for the 1,316 and 1,716 fixed maturity securities and equity securities that have estimated fair values below amortized cost at December 31, 2009 and 2008, respectively. These investments are presented by class and grade of security, as well as the length of time the estimated fair value has remained below amortized cost.
                                                 
    December 31, 2009
                    Equal to or greater than    
    Less than 12 months   12 months   Total
            Gross           Gross           Gross
    Estimated   Unrealized   Estimated   Unrealized   Estimated   Unrealized
(dollars in thousands)   Fair Value   Losses   Fair Value   Losses   Fair Value   Losses
Investment grade securities:
                                               
U.S. corporate securities
  $ 373,049     $ 27,625     $ 679,908     $ 89,711     $ 1,052,957     $ 117,336  
Canadian and Canadian provincial governments
    494,718       15,374       135,315       10,372       630,033       25,746  
Residential mortgage-backed securities
    402,642       23,671       197,320       20,185       599,962       43,856  
Foreign corporate securities
    362,406       5,262       182,300       24,693       544,706       29,955  
Asset-backed securities
    48,651       1,927       166,603       57,262       215,254       59,189  
Commercial mortgage-backed securities
    177,360       10,312       425,793       79,297       603,153       89,609  
U.S. government and agencies
    496,514       15,027                   496,514       15,027  
State and political subdivisions
    34,612       3,397       40,945       11,437       75,557       14,834  
Other foreign government securities
    240,216       8,370       30,321       4,901       270,537       13,271  
             
Investment grade securities
    2,630,168       110,965       1,858,505       297,858       4,488,673       408,823  
             
 
                                               
Non-investment grade securities:
                                               
U.S. corporate securities
    35,477       11,293       168,375       18,755       203,852       30,048  
Asset-backed securities
    6,738       3,256       24,408       17,686       31,146       20,942  
Foreign corporate securities
    1,755       17       3,771       3,426       5,526       3,443  
Residential mortgage-backed securities
    10,657       1,909       66,756       24,250       77,413       26,159  
Commercial mortgage-backed securities
                57,179       79,818       57,179       79,818  
State and political subdivisions
                5,170       2,910       5,170       2,910  
             
Non-investment grade securities
    54,627       16,475       325,659       146,845       380,286       163,320  
             
Total fixed maturity securities
  $ 2,684,795     $ 127,440     $ 2,184,164     $ 444,703     $ 4,868,959     $ 572,143  
             
 
                                               
Non-redeemable preferred stock
  $ 8,320     $ 1,263     $ 68,037     $ 11,065     $ 76,357     $ 12,328  
Other equity securities
    5       15       7,950       394       7,955       409  
             
Total equity securities
  $ 8,325     $ 1,278     $ 75,987     $ 11,459     $ 84,312     $ 12,737  
             
Total number of securities in an unrealized loss position
    582               734               1,316          
                                     

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    December 31, 2008
                    Equal to or greater than    
    Less than 12 months   12 months   Total
            Gross           Gross           Gross
    Estimated   Unrealized   Estimated   Unrealized   Estimated   Unrealized
(dollars in thousands)   Fair Value   Losses   Fair Value   Losses   Fair Value   Losses
Investment grade securities:
                                               
U.S. corporate securities
  $ 1,407,547     $ 240,299     $ 810,115     $ 281,947     $ 2,217,662     $ 522,246  
Canadian and Canadian provincial governments
    114,754       2,751       89,956       4,420       204,710       7,171  
Residential mortgage-backed securities
    190,525       58,026       213,310       39,794       403,835       97,820  
Foreign corporate securities
    508,102       82,490       140,073       59,816       648,175       142,306  
Asset-backed securities
    118,608       40,139       173,505       99,147       292,113       139,286  
Commercial mortgage-backed securities
    523,475       200,567       188,638       126,163       712,113       326,730  
State and political subdivisions
    20,403       1,947       18,250       5,936       38,653       7,883  
Other foreign government securities
    16,419       33       4,125       117       20,544       150  
             
Investment grade securities
    2,899,833       626,252       1,637,972       617,340       4,537,805       1,243,592  
             
 
                                               
Non-investment grade securities:
                                               
U.S. corporate securities
    140,426       36,615       60,378       39,884       200,804       76,499  
Asset-backed securities
    3,465       2,060       11,156       5,951       14,621       8,011  
Foreign corporate securities
    24,637       7,227       2,032       3,387       26,669       10,614  
Residential mortgage-backed securities
    8,089       5,944       4,496       3,012       12,585       8,956  
             
Non-investment grade securities
    176,617       51,846       78,062       52,234       254,679       104,080  
             
Total fixed maturity securities
  $ 3,076,450     $ 678,098     $ 1,716,034     $ 669,574     $ 4,792,484     $ 1,347,672  
             
 
                                               
Non-redeemable preferred stock
  $ 49,376     $ 22,316     $ 61,249     $ 41,844     $ 110,625     $ 64,160  
Other equity securities
    11,804       4,607                   11,804       4,607  
             
Total equity securities
  $ 61,180     $ 26,923     $ 61,249     $ 41,844     $ 122,429     $ 68,767  
             
Total number of securities in an unrealized loss position
    1,039               677               1,716          
                                     
     As of December 31, 2009, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. However, as facts and circumstances change, the Company may sell fixed maturity securities in the ordinary course of managing its portfolio to meet diversification, credit quality, asset-liability management and liquidity profile. As of December 31, 2009, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, from time to time if facts and circumstances change, the Company may sell equity securities in the ordinary course of managing its portfolio to meet diversification, credit quality and liquidity profile.
     As of December 31, 2009 and 2008, respectively, the Company classified approximately 15.3% and 17.1% of its fixed maturity securities in the Level 3 category (refer to Note 6 — “Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities with an inactive trading market and asset-backed securities with subprime exposure in the Level 3 category due to the current market uncertainty associated with these securities and the Company’s utilization of information from third parties.
Mortgage Loans on Real Estate
     Mortgage loans represented approximately 4.0% and 4.7% of the Company’s cash and invested assets as of December 31, 2009 and 2008, respectively. As of December 31, 2009, all mortgages were U.S. based with approximately 86.6% invested in mortgages on commercial offices, industrial properties and retail locations. The Company’s mortgage loans generally range in size up to $15.0 million, with the average mortgage loan investment as of December 31, 2009 totaling approximately $4.3 million. The mortgage loan portfolio was diversified by geographic region and property type as discussed further in Note 4 — “Investments” in the Notes to Consolidated Financial Statements.
     Valuation allowances on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses. Information

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regarding the Company’s loan valuation allowances for mortgage loans as of December 31, 2009 and 2008 are as follows (dollars in thousands):
                 
    2009   2008
     
Balance at January 1,
  $ 526     $  
Additions
    8,327       526  
Deductions
    (3,069 )      
     
Balance at December 31,
  $ 5,784     $ 526  
     
Information regarding the portion of the Company’s mortgage loans that were impaired as of December 31, 2009 and 2008 are as follows (dollars in thousands):
                 
    2009   2008
     
Impaired loans with valuation allowances
  $ 14,967     $ 3,853  
Impaired loans without valuation allowances
    14,317       18,125  
     
Subtotal
    29,284       21,978  
Less: Valuation allowances on impaired loans
    5,784       526  
     
Impaired loans
  $ 23,500     $ 21,452  
     
     The Company’s average investment in impaired loans was $3.3 million and $3.7 million as of December 31, 2009 and 2008 respectively. Interest income on impaired loans was $0.8 million and $1.3 million for the twelve months ended December 31, 2009 and 2008, respectively.
Policy Loans
     Policy loans comprised approximately 5.8% and 6.7% of the Company’s cash and invested assets as of December 31, 2009 and 2008, respectively, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. Because policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.
Funds Withheld at Interest
     The majority of the Company’s funds withheld at interest balances are associated with its reinsurance of annuity contracts. The funds withheld receivable balance totaled $4.9 billion and $4.5 billion at December 31, 2009 and 2008, respectively, of which $3.4 billion and $3.1 billion, respectively, were subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. Under these principles, the Company’s funds withheld receivable under certain reinsurance arrangements incorporate credit risk exposures that are unrelated or only partially related to the creditworthiness of the obligor and include an embedded derivative feature that is not clearly and closely related to the host contract. Therefore, the embedded derivative feature must be measured at fair value on the consolidated balance sheets and changes in fair value reported in income. See “Embedded Derivatives” in Note 2 — “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for further discussion.
     Funds withheld at interest comprised approximately 24.8% and 27.4% of the Company’s cash and invested assets as of December 31, 2009 and 2008, respectively. Of the $4.9 billion funds withheld at interest balance as of December 31, 2009, $3.4 billion of the balance is associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company’s consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed by the ceding company. Interest accrues to these assets at rates defined by the treaty terms and the Company estimated the yields were approximately 7.69%, 3.54% and 6.42% for the years ended December 31, 2009, 2008 and 2007, respectively. Changes in these estimated yields are affected by equity options held in the funds withheld portfolio associated with equity-indexed annuity treaties. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors

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compliance. Ceding companies with funds withheld at interest had an average rating of “A” and “A+” at December 31, 2009 and 2008, respectively. Certain ceding companies maintain segregated portfolios for the benefit of the Company.
     Based on data provided by ceding companies at December 31, 2009 and 2008, funds withheld at interest were approximately (dollars in thousands):
                         
    December 31, 2009
                    % of Total
            Estimated   Estimated
Underlying Security Type:   Book Value   Fair Value   Fair Value
Segregated portfolios:
                       
Investment grade U.S. corporate securities
  $ 1,919,159     $ 1,942,720       50.5 %
Below investment grade U.S. corporate securities
    202,713       157,109       4.1  
Structured securities
    1,133,204       945,167       24.6  
Foreign corporate securities
    13,169       14,701       0.4  
U.S. government and agency debentures
    499,763       543,226       14.2  
Derivatives(1)
    160,382       197,860       5.2  
Other
    37,161       36,487       1.0  
     
Total segregated portfolios
    3,965,551       3,837,270       100.0 %
 
                       
Non-segregated portfolios
    1,364,299       1,364,299          
Embedded derivatives(2)
    (434,494 )              
             
Total funds withheld at interest
  $ 4,895,356     $ 5,201,569          
             
                         
    December 31, 2008
                    % of Total
            Estimated   Estimated
Underlying Security Type:   Book Value   Fair Value   Fair Value
Segregated portfolios:
                       
Investment grade U.S. corporate securities
  $ 1,737,178     $ 1,442,007       44.8 %
Below investment grade U.S. corporate securities
    73,245       59,336       1.8  
Structured securities
    1,141,435       892,895       27.7  
Foreign corporate securities
    15,531       14,819       0.5  
U.S. government and agency debentures
    740,782       784,421       24.3  
Derivatives(1)
    22,906       (971 )      
Other
    29,743       29,743       0.9  
     
Total segregated portfolios
    3,760,820       3,222,250       100.0 %
 
                       
Non-segregated portfolios
    1,272,466       1,272,466          
Embedded derivatives(2)
    (512,888 )              
             
Total funds withheld at interest
  $ 4,520,398     $ 4,494,716          
             
 
(1)   Derivatives primarily consist of S&P 500 options which are used to hedge liabilities and interest credited for equity-indexed annuity contracts reinsured by the Company.
 
(2)   Represents the fair value of embedded derivatives related to reinsurance written on a modified coinsurance or funds withheld basis and subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives for the segregated portfolios. When the segregated portfolios are presented on a fair value basis in the “Estimated Fair Value” column, the calculation of a separate embedded derivative is not applicable.
     Based on data provided by the ceding companies at December 31, 2009, the maturity distribution of the segregated portfolio portion of funds withheld at interest was approximately (dollars in thousands):

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    December 31, 2009
                    % of Total
            Estimated   Estimated
Maturity:   Book Value   Fair Value   Fair Value
Within one year
  $ 154,251     $ 190,367       4.5 %
More than one, less than five years
    464,526       464,345       11.0  
More than five, less than ten years
    822,715       826,186       19.6  
Ten years or more
    2,911,546       2,743,859       64.9  
     
Subtotal
    4,353,038       4,224,757       100.0 %
 
                       
Less: Reverse repurchase agreements
    (387,487 )     (387,487 )        
             
Total all years
  $ 3,965,551     $ 3,837,270          
             
Other Invested Assets
     Other invested assets represented approximately 2.6% and 3.8% of the Company’s cash and invested assets as of December 31, 2009 and 2008, respectively. Other invested assets include equity securities, non-redeemable preferred stocks, limited partnership interests, structured loans and derivative contracts.
                 
    December 31,
    2009   2008
Equity securities
  $ 58,359     $ 35,975  
Non-redeemable preferred stock
    113,198       123,399  
Limited partnerships
    156,573       140,077  
Structured loans
    150,677       101,380  
Derivatives
    24,156       206,341  
Other
    13,123       21,477  
     
Total other invested assets
  $ 516,086     $ 628,649  
     
     The Company recorded $12.0 million, $17.2 million and $1.0 million in other-than-temporary impairments on other invested assets in 2009, 2008 and 2007, respectively.
     The Company has utilized derivative financial instruments, primarily to protect the Company against possible changes in the fair value of its investment portfolio as a result of interest rate changes, to hedge liabilities associated with the reinsurance of variable annuities with guaranteed living benefits and to manage the portfolio’s effective yield, maturity and duration. In addition, the Company has used derivative financial instruments to reduce the risk associated with fluctuations in foreign currency exchange rates. The Company uses both exchange-traded and customized over-the-counter derivative financial instruments. The Company’s use of derivative financial instruments historically has not been significant to its financial position.
     The following table presents the notional amounts and fair value of investment related derivative instruments held at December 31, 2009 and 2008 (dollars in thousands):
                                                 
    December 31, 2009   December 31, 2008
            Carrying Value/           Carrying Value/
    Notional   Fair Value   Notional   Fair Value
    Amount   Assets   Liabilities   Amount   Assets   Liabilities
Interest rate swaps
  $ 1,410,353     $ 17,962     $ 47,738     $ 694,499     $ 155,189     $ 2,484  
Financial futures
    200,436                   260,568              
Foreign currency swaps
    226,715             9,008       296,497       48,943        
Foreign currency forwards
    40,500       2,200             31,300       2,209        
Consumer Price Index (CPI) swaps
    124,034       1,631                          
Credit default swaps
    367,500       2,363       249       290,000             7,705  
         
Total
  $ 2,369,538     $ 24,156     $ 56,995     $ 1,572,864     $ 206,341     $ 10,189  
         

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     The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the net positive fair value at the reporting date less collateral held by the Company. The Company held derivative assets related to its derivative contracts with counterparties of $24.2 million and $206.3 million at December 31, 2009 and 2008, respectively. However, due to counterparty netting arrangements, the Company had no credit exposure at December 31, 2009. In addition, the derivative assets of $206.3 million held by the Company at December 31, 2008 were collateralized with $159.8 million of cash collateral from the counterparty. The decrease in derivative assets in 2009 is primarily due to the termination of the Company’s foreign currency swaps used to hedge its investment in its Canada operation, which were outstanding as of December 31, 2008.
     The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments. See Note 5 — “Derivative Instruments” in the Notes to Consolidated Financial Statements for more information regarding the Company’s derivative instruments.
Enterprise Risk Management
Corporate Risk Management
     RGA maintains a corporate risk management framework which is responsible for assessing, measuring and monitoring risks facing the enterprise. This includes development and implementation of mitigation strategies to reduce exposures to these risks to acceptable levels. Risk management is an integral part of the Company’s culture and every day activities. It includes guidelines and controls in areas such as pricing, underwriting, currency, administration, investments, asset liability management, counterparty exposure, financing, regulatory change, business continuity planning, human resources, liquidity, sovereign risks and technology development.
     The corporate risk management framework is directed by the chief risk officer. Risk management officers from all areas of the Company support the chief risk officer in this effort. The chief risk officer provides quarterly risk management updates to the board of directors, executive management and the internal risk management officers.
     Specific risk assessments and descriptions can be found below and in Item 1A — “Risk Factors”.
Mortality Risk Management
     In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA’s mortality risk. In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises or retrocessionaires under excess coverage and coinsurance contracts. In the U.S., the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations, due to the acquisition of in force blocks of business, the Company has retained more than $8.0 million per individual policy. In total, there are 17 such cases of over-retained policies, for amounts averaging $1.6 million over the Company’s normal retention limit. The largest amount in excess of the Company’s retention on any one life is $6.3 million. The Company enters into agreements with other reinsurers to mitigate the risk related to the over-retained policies. Additionally, due to some lower face amount reinsurance coverages provided by the Company in addition to individual life, such as group life, disability and health, under certain circumstances, the Company could potentially incur claims totaling more than $8.0 million per individual life in the U.S. For other countries, particularly those with higher risk factors or smaller books of business, the Company systematically reduces its retention. The Company has a number of retrocession arrangements whereby certain business in force is retroceded on an automatic or facultative basis.
     The Company maintains a catastrophe insurance program (“Program”) that renews on September 7th of each year. The current Program began September 7, 2009, and covers events involving 10 or more insured deaths from a single occurrence. The Company retains the first $20 million in claims, the Program covers the next $80 million in claims, and the Company retains all claims in excess of $100 million. The Program covers reinsurance programs worldwide and includes losses due to acts of terrorism, including terrorism losses due to nuclear, chemical and/or biological events. The Program excludes, among other things, losses from earthquakes occurring in California, and would not cover losses from pandemics. The Program is insured by 14 insurance companies and Lloyd’s Syndicates, with only one single entity providing more than $10 million of coverage.

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Counterparty Risk — Reinsurance
     In the normal course of business, the Company seeks to limit its exposure to reinsurance contracts by ceding a portion of the reinsurance to other insurance companies or reinsurers. Should a counterparty not be able to fulfill its obligation to the Company under a reinsurance agreement, the impact could be material to the Company’s financial condition and results of operations.
     Generally, RGA’s insurance subsidiaries retrocede amounts in excess of their retention to RGA Reinsurance, Parkway Re, RGA Barbados, RGA Americas, RGA Worldwide or RGA Atlantic. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of December 31, 2009, all retrocession pool members in this excess retention pool reviewed by the A.M. Best Company were rated “A-”, the fourth highest rating out of fifteen possible ratings, or better. For a majority of the retrocessionaires that were not rated, letters of credit or trust assets have been given as additional security in favor of RGA Reinsurance. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance.
     The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.
     The Company relies upon its clients to provide timely, accurate information. The Company may experience volatility in its earnings as a result of erroneous or untimely reporting from its clients. The Company works closely with its clients and monitors this risk in an effort to minimize its exposure.
Market Risk
     Market risk is the risk of loss that may occur when fluctuation in interest and currency exchange rates and equity and commodity prices change the value of a financial instrument. Both derivative and non-derivative financial instruments have market risk so the Company’s risk management extends beyond derivatives to encompass all financial instruments held that are sensitive to market risk. The Company is primarily exposed to interest rate risk and foreign currency risk.
Interest Rate Risk:
     This risk arises from many of the Company’s primary activities, as the Company invests substantial funds in interest-sensitive assets and also has certain interest-sensitive contract liabilities. The Company manages interest rate risk and credit risk to maximize the return on the Company’s capital effectively and to preserve the value created by its business operations. As such, certain management monitoring processes are designed to minimize the effect of sudden and/or sustained changes in interest rates on fair value, cash flows, and net interest income. The Company manages its exposure to interest rates principally by matching floating rate liabilities with corresponding floating rate assets and by matching fixed rate liabilities with corresponding fixed rate assets. On a limited basis, the Company uses equity options to minimize its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products.
     The Company’s exposure to interest rate price risk and interest rate cash flow risk is reviewed on a quarterly basis. Interest rate price risk exposure is measured using interest rate sensitivity analysis to determine the change in fair value of the Company’s financial instruments in the event of a hypothetical change in interest rates. Interest rate cash flow risk exposure is measured using interest rate sensitivity analysis to determine the Company’s variability in cash flows in the event of a hypothetical change in interest rates.
     In order to reduce the exposure of changes in fair values from interest rate fluctuations, the Company has developed strategies to manage its liquidity and increase the interest rate sensitivity of its asset base. From time to time, the Company has utilized the swap market to manage the volatility of cash flows to interest rate fluctuations.
     Interest rate sensitivity analysis is used to measure the Company’s interest rate price risk by computing estimated changes in fair value of fixed rate assets and liabilities in the event of a hypothetical 10% change (increase or decrease) in market interest rates. The Company does not have fixed rate instruments classified as trading securities. The Company’s projected loss in fair value of financial instruments in the event of a 10% unfavorable change in market interest rates at its fiscal years ended December 31, 2009 and 2008 was $355.5 million and $169.6 million, respectively.
     The calculation of fair value is based on the net present value of estimated discounted cash flows expected over the life of the market risk sensitive instruments, using market prepayment assumptions and market rates of interest provided by independent broker quotations and other public sources, with adjustments made to reflect the shift in the treasury yield curve as appropriate.

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     At December 31, 2009, the Company’s estimated changes in fair value were within the targets outlined in the Company’s investment policy.
     Interest rate sensitivity analysis is also used to measure the Company’s interest rate cash flow risk by computing estimated changes in the cash flows expected in the near term attributable to floating rate assets and liabilities in the event of a range of assumed changes in market interest rates. This analysis assesses the risk of loss in cash flows in the near term in market risk sensitive floating rate instruments in the event of a hypothetical 10% change (increase or decrease) in market interest rates. The Company does not have variable rate instruments classified as trading securities. The Company’s projected decrease in cash flows in the near term associated with floating rate instruments in the event of a 10% unfavorable change in market interest rates at its fiscal years ended December 31, 2009 and 2008 was $6.8 million and $2.7 million, respectively.
     The cash flows from interest payments move in the same direction as interest rates for the Company’s floating rate instruments. The volatility in mortgage prepayments partially offsets the cash flows from interest. At December 31, 2009, the Company’s estimated changes in cash flows were within the targets outlined in the Company’s investment policy.
     Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, and mortgage prepayments, and should not be relied on as indicative of future results. Further, the computations do not contemplate any actions management could undertake in response to changes in interest rates.
     Certain shortcomings are inherent in the method of analysis presented in the computation of the estimated fair value of fixed rate instruments and the estimated cash flows of floating rate instruments, which constitute forward-looking statements. Actual values may differ materially from those projections presented due to a number of factors, including, without limitation, market conditions varying from assumptions used in the calculation of the fair value. In the event of a change in interest rates, prepayments could deviate significantly from those assumed in the calculation of fair value. Finally, the desire of many borrowers to repay their fixed rate mortgage loans may decrease in the event of interest rate increases.
Foreign Currency Risk:
     The Company is subject to foreign currency translation, transaction, and net income exposure. The Company manages its exposure to currency principally by matching invested assets with the underlying reinsurance liabilities to the extent possible. The Company has in place net investment hedges for a portion of its investments in its Canada and Australia operations. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders’ equity on the consolidated balance sheets. The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). The majority of the Company’s foreign currency transactions are denominated in Canadian dollars, British pounds, Australian dollars, Japanese yen, Korean won, euros, and the South African rand.
Market Risk Associated with Annuities with Guaranteed Minimum Benefits:
     The Company reinsures variable annuities including those with guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). Strong equity markets, increases in interest rates and decreases in volatility will generally decrease the fair value of the liabilities underlying the benefits. Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing reserves and lowering earnings. The Company maintains a customized dynamic hedging program that is designed to mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits. However, the hedge positions may not fully offset the changes in the carrying value of the guarantees due to, among other things, time lags, high levels of volatility in the equity and derivative markets, extreme swings in interest rates, unexpected contract holder behavior, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on the Company’s net income, financial condition or liquidity. The table below provides a summary of variable annuity account values and the fair value of the guaranteed benefits as of December 31, 2009 and 2008.

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    December 31,
(dollars in millions)   2009   2008
No guaranteed minimum benefits
  $ 1,231.2     $ 1,063.1  
GMDB only
    78.7       53.5  
GMIB only
    5.7       3.9  
GMAB only
    62.1       43.7  
GMWB only
    1,563.0       795.0  
GMDB / WB
    437.4       287.1  
Other
    34.3       24.3  
     
Total variable annuity account values
  $ 3,412.4     $ 2,270.6  
     
 
               
Fair value of guaranteed living benefits
  $ 23.7     $ 276.4  
Inflation
      The primary, direct effect on the Company of inflation is the increase in operating expenses. A large portion of the Company’s operating expenses consists of salaries, which are subject to wage increases at least partly affected by the rate of inflation. The rate of inflation also has an indirect effect on the Company. To the extent that a government’s policies to control the level of inflation result in changes in interest rates, the Company’s investment income is affected.
New Accounting Standards
     In June 2009, the Financial Accounting Standards Board (“FASB”) issued “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles”. Effective July 1, 2009, FASB Accounting Standards Codification™ (“Codification”) has become the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission for public companies. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted Codification on September 30, 2009 and has updated all disclosures to reference Codification herein.
Consolidation and Business Combinations
     In January 2010, the FASB amended the general accounting principles for Consolidation as it relates to decreases in ownership of a subsidiary. This amendment clarifies the scope of the decrease in ownership provisions. This amendment also requires additional disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets. The amendment is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption of this amendment is not expected to have an impact on the consolidated financial statements.
     In June 2009, the FASB amended the general accounting principles for Consolidation as it relates to the assessment of a variable interest entity. This amendment also requires additional disclosures to provide transparent information regarding the involvement in a variable interest entity. The amendment is effective for fiscal years and interim periods beginning after November 15, 2009. The Company is currently evaluating the impact of this amendment on its consolidated financial statements.
     In December 2007, the FASB amended the general accounting principles for Business Combinations. This amendment establishes principles and requirements for how an acquirer recognizes and measures certain items in a business combination, as well as disclosures about the nature and fi