ABCD

High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company
LimitedReport of the Independent Expert under
Section 109 of the Financial Services andMarkets Act 2000

KPMG LLP
19 August 2011
This report contains 46 pages including appendices.

© 2011 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

ABCDHigh Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

Contents
1

Introduction

1

1.1
1.2
1.3
1.4
1.5

Background
The Independent Expert
Cross border aspects
Restrictions
Summary report

1
1
2
2
2

2

Scope of the report and method of preparation

3

2.1
2.2
2.3
2.4

Scope
Method of preparation
Key areas of consideration
Reinsurance terminology

3
4
5
6

3

Background to RGA UK and RGA IRE

8

3.1
3.2
3.3

RGA Reinsurance UK Limited
RGA International Reinsurance Company Limited
Rationale for the Scheme

8
12
17

4

The Scheme in practice

18

4.1
4.2

Overview of the Scheme
Diagrammatic effect of the Scheme

18
18

5

Financial position before and after implementation of
the Scheme
21

5.1
5.2
5.3
5.4
5.5
5.6
5.7

Background
The Pillar 1 solvency position
Valuation assumptions
RGA UK Pillar 2 capital position
Consideration of Solvency II
New business
Summary

21
23
26
26
27
29
29

6

Effect on policyholders

30

6.1
6.2
6.3
6.4
6.5

Introduction
Security of policyholders’ benefits
Treating customers fairly
Investment management
Expense levels

30
30
30
32
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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

6.6

Retrocession parties

32

7

Other risk considerations

33

7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8

Credit risk
Operational risk
Legal risk
Regulatory risk
Tax risk
Change of regulator
CJEU ruling on gender discrimination
Eurozone uncertainty

33
34
34
34
35
35
36
36

8

Conclusions

38

Appendix 1: Main documents reviewed by the Independent
Expert39
Appendix 2: Copy of letter received from Hogan Lovells

40

ABCD
High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

1

Introduction

1.1

Background
RGA Reinsurance UK Limited (“RGA UK”) is a UK reinsurance company andsubsidiary of RGA Holdings Limited (“RGA Holdings”), this being the highest level
holding company in the UK. RGA International Reinsurance Company Limited (“RGAIRE”) is an Irish reinsurance company which also has branch offices in the UK andseveral other EU countries. Both RGA UK and RGA IRE are open to new business. Allof the business in RGA UK and RGA IRE comprises pure long term reinsurance
business, and there is no direct insurance business written in either company. The
ultimate owner of RGA UK, RGA Holdings and RGA IRE is Reinsurance Group of
America, Incorporated (“RGA, Inc”), a global reinsurance group incorporated in theUSA. The companies intend to transfer all of RGA UK’s business (the “TransferredBusiness”) to the UK branch of RGA IRE (“RGA IRE(UK)”) by way of an insurance
business transfer scheme (“the Scheme”) under Part VII of the Financial Services andMarkets Act 2000 (“FSMA 2000”). Subsequent to the transfer, all new UK business will
be written in RGA IRE(UK).
Under Section 109 of FSMA 2000, a scheme report must accompany an application madeto the High Court of Justice (the “Court”) in London for an order sanctioning a scheme totransfer insurance business from one company to another. The scheme report must be
provided by an independent expert (“the Independent Expert”) and it must be made in aform approved by the Financial Services Authority (“FSA”). The FSA has issued
guidance on the form of the scheme report, as set out in sections 18.2.31 to 18.2.41 of theSupervision Manual (“SUP”).

1.2

The Independent Expert
I have been jointly appointed by RGA UK and RGA IRE as the Independent Expert inconnection with the Scheme. I have also been approved by the FSA to carry out thiswork. Costs incurred in connection with the preparation of this report will be borne by
RGA UK.
I am a Fellow of the Institute and Faculty of Actuaries, having qualified as an actuary in
1988. I am currently a Partner in KPMG LLP. I hold a Life Actuary Certificate(including with-profits) issued by the UK actuarial profession. I have previously
performed the role of Independent Expert in relation to Section 109 of FSMA 2000. I ama Fellow of the Society of Actuaries in Ireland (this being the Irish equivalent to the UK
Institute and Faculty of Actuaries), and I have previous experience of providing
professional actuarial services to life insurance companies based in Ireland. I also haveexperience of working with life reinsurance companies.
As both companies are pure reinsurance companies, it is not possible for any individual tohold policies directly with them. I have not had any previous professional involvementwith either RGA UK or RGA IRE. KPMG, both in the UK and in the US, has previously
carried out work for companies within the RGA group, and it is possible that further work

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

will be carried out during the period in which the proposed transfer is being worked uponand put before the Court. I have had and will have no involvement in any such otherwork, none of which is specifically connected with the proposed transfer.

1.3

Cross border aspects
The proposed transfer is from a UK company to an Irish company. In thesecircumstances, it is the UK FSA and the UK High Court which have jurisdiction over thetransfer process. The relevant insurance regulator in Ireland is the Central Bank of
Ireland (“CBI”), which will continue to be the regulator of RGA IRE following thetransfer.

1.4

Restrictions
This report is in a form approved by the FSA and has been prepared for the Court under
Section 109 of FSMA 2000 solely in connection with and for the purposes of informing
the Court of my findings in respect of the work that I have performed at the request of
RGA UK and RGA IRE regarding the Scheme. A copy of this report may be madeavailable by RGA UK or RGA IRE to the FSA, the CBI and to any person who requests a
copy of it. Paragraph 2.1 of this report sets out the basis on which this report has been
prepared and confirms my overriding duty to the Court.
This report is designed to meet my obligations as independent expert under Section 109
of FSMA 2000, the requirements of Chapter SUP 18.2 of the Handbook issued by the
FSA, and the agreed requirements and particular features of RGA UK’s and RGA IRE’s
respective circumstances determined by their needs at the time. I recognise that the Court
will use this report in connection with the Court’s discharge of its statutory functions
concerning the Scheme.
Reliance may be placed on this report by the FSA (in connection with the discharge of its
regulatory objectives), the CBI, the policyholders of RGA UK and RGA IRE, and anyother affected persons. This report should not be regarded as suitable to be used or relied
on by any party wishing to acquire any right to bring action against KPMG LLP in
connection with any such use or reliance other than RGA UK, RGA IRE, the FSA (inconnection with the discharge of its regulatory objectives), the CBI, the policyholders of
RGA UK or RGA IRE, or any other affected persons for any purpose or in any context.
Any party other than RGA UK, RGA IRE, the FSA (in connection with the discharge of
its regulatory objectives), the CBI, the policyholders of RGA UK or RGA IRE, or any
other affected persons who obtains access to this report or a copy and chooses to rely on
this report (or any part of it) will do so at its own risk. To the fullest extent permitted bylaw, KPMG LLP and I will accept no responsibility or liability in respect of this report toany other party.

1.5

Summary report
I have produced an appropriate summary of this report for inclusion in the documentation
to be distributed or otherwise made available to policyholders, as envisaged in SUP
18.2.48G.

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ABCDHigh Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

2

Scope of the report and method of preparation

2.1

Scope
This report has been prepared in accordance with:•

SUP 18.2.31 to 18.2.41 forming part of the Handbook issued by the FSA;•Part 35 of the Civil Procedure Rules 1998, to the extent relevant.

As required by Part 35 of the Civil Procedure Rules, I hereby confirm that I understandmy duty to the Court, I have complied with that duty and I will continue to comply withthat duty.
In particular, I owe an overriding duty to the Court to assist the Court and to give the
Court independent expert evidence on the proposed transfer.
This report is prepared primarily to assess the likely impact that the Scheme will have on
the transferring policyholders of RGA UK and the existing policyholders of RGA IRE if
it proceeds. It is limited in its scope to the assessment of this Scheme alone and not toany other possible scheme. It is intended that this report be submitted, in full, as evidence
to the Court when it considers whether or not to sanction the Scheme. It is not part of myscope to consider the position of new policies written into RGA IRE following thetransfer, even if such new policies would have been written into RGA UK absent thetransfer.
The term “Effective Date”, as used in this report, refers to the date as at which, if the
Scheme proceeds, the Transferred Business of RGA UK will be transferred to RGA IRE.
It is expected that the Effective Date will be 1 January 2012.
It is not part of my scope to consider the effect of the Scheme on the Companies Act (orthe Irish equivalent) accounts of RGA UK or RGA IRE. My consideration of thefinancial effect of the Scheme has been based on the method of reporting required for the
regulatory returns to the FSA (“the FSA returns”) and the CBI (“CBI returns”). I havealso considered the position under the Individual Capital Assessment (“ICA”)
calculations that all UK long-term insurance companies need to carry out and makeavailable to the FSA on a private basis, and I have considered the fact that there is noequivalent to this ICA in Ireland. I have further considered, at a high level, the likely
effect of the new European Union Solvency II regime which is currently due to replace
the existing UK and Irish solvency regime with effect from 1 January 2013. I am
satisfied that consideration of the FSA returns, the CBI returns, and the ICA calculations,
together with a high level consideration of Solvency II, is appropriate for the purposes ofthis report. Further comments on the implementation timescale for Solvency II are given
in section 5.5 below.
I confirm that I have made clear which facts and matters referred to in this report arewithin my own knowledge and which are not. Those that are within my own knowledge I

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ABCD
High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011confirm to be true. The opinions I have expressed represent my true and complete
professional opinions on the matters to which they refer
Although the scope of my role as Independent Expert covers wider aspects than theactuarial aspects of the proposed transfer, the actuarial aspects do form a major part of myscope. In preparing this report I have therefore had in mind the requirements of Technical
Actuarial Standards R: Reports (“TAS R”), issued by the Board for Actuarial Standards.
This report complies in my opinion with the relevant requirements of TAS R. In terms of
TAS R definitions, this report constitutes an aggregate report, which is one which the user
(i.e. primarily the Court but also the policyholders) can use in order to make a decision.
A further technical actuarial standard comes into force on 1 October 2011. This is known
as Transformation TAS, and covers the subject area of Transformations, includingtransfers of insurance business between companies. In my opinion, this report complies
with the relevant requirements of Transformation TAS.

2.2

Method of preparation
In preparing this report I have done my best to be accurate and complete. I haveconsidered all matters that I regard as relevant to the opinions I have expressed, and I
have considered all matters that I believe may be relevant to the policyholders of RGA
UK and RGA IRE in their consideration of the Scheme. All the matters on which I haveexpressed an opinion lie within my field of experience. I have received confirmationfrom the Actuarial Function Holder (“AFH”) of RGA UK and the Signing Actuary of
RGA IRE that there is nothing in this report which is contrary to their understanding. I
have also received confirmation from senior executives of RGA UK and RGA IRE thatthe information contained in this report which relates to RGA UK and RGA IRE and to
how the transfer will be affected in practice is factually correct.
The Actuarial Function Holder of RGA UK has produced a report on the proposedtransfer for the RGA UK Board of Directors and I have reviewed this report.
In the course of carrying out my work and preparing this report I have considered various
documents provided to me by RGA UK, RGA IRE and Hogan Lovells (who are the legal
advisers to RGA UK and RGA IRE). A summary list of the main documents I haveconsidered is set out in Appendix 1.
All of the data and information which I have requested has been provided to me by RGA
UK, RGA IRE and their advisers as appropriate. I have relied upon the accuracy andcompleteness of this data and information, which has been provided to me both in written
and oral form by RGA UK, RGA IRE and their advisers. I have however raised questions
on the data and information provided, and I have entered where necessary into dialogue
with RGA UK and RGA IRE in order to follow up queries and to ensure that I fully
understand this data and information. I believe that it is reasonable for me to rely on thisinformation because it has been provided by senior and professionally responsible
executives of RGA UK and RGA IRE (most of whom are also FSA or CBI approved
persons), or by responsible senior professionals from their advisers. RGA UK and RGA
IRE also have a duty under the terms of my engagement letter to provide me with

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

complete and accurate information and to make clear to me any caveats which apply tothe data and information. In addition, and as part of my review and challenge process, I
have wherever possible reviewed the information provided for reasonableness andconsistency with industry best practice. Where critical information has been initiallyprovided orally, I have requested and obtained written confirmation.
As referred to in various parts of this report, I have had a number of discussions with the
AFH of RGA UK and the Signing Actuary of RGA IRE. During these discussions, I havewhere necessary challenged the relevant responses, and I have gone into further detailwhere necessary, particularly where responses were not in accordance with my initialexpectations or where responses indicated that the position in question was complex.
However, it is not part of my role as Independent Expert to override or second guess theactuarial advice provided to RGA UK or RGA IRE by the respective AFH or Signing
Actuary.
I have discussed the proposed transfer with the appropriate individuals within the FSA
and the FSA has approved the form of this report.

2.3

Key areas of consideration
As the Independent Expert, the key areas in my opinion that I need to consider are:•policyholder benefits, and the reinsurance premiums charged for those benefits;•

security of policyholder benefits;•

wider Treating Customers Fairly (“TCF”) issues,

for the two groups of policyholders that are potentially affected by the Scheme, namely:•

the transferring policyholders of RGA UK – ie the companies (“cedants”) cedingbusiness to RGA UK;•

the existing policyholders of RGA IRE – ie the companies (“cedants”) cedingbusiness to RGA IRE.

An important consideration for me as Independent Expert is whether different sub-groupsof policyholders are potentially affected differently by the Scheme. As referred to in
sections 3.1.2 and 3.2.2 below, I have considered this aspect and concluded that the twogroups of policyholders referred to above are the appropriate groups for me to consider.
In other words, the position of the policyholders in each of the two groups referred toabove is sufficiently similar for no further sub-division to be necessary.
Before consideration of these areas specifically, the following sections provide
background to RGA UK and RGA IRE, an overview of the Scheme and the pro-forma
position of both companies before and after the Scheme is implemented assuming that
Court sanction is granted.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

2.4

Reinsurance terminology
As the proposed transfer involves pure reinsurance companies, it will I believe be helpful
to the Court to explain some of the reinsurance terminology which is used.
Direct writing insurance companies reinsure with specialist reinsurance companies (suchas RGA UK and RGA IRE) in order to reduce and manage their risks. Most commonly,
the form of legal agreement between the direct writing insurance company and thereinsurer is a reinsurance treaty covering certain classes of business, and policies writtenby the direct writer are reinsured under the treaty – sometimes always, and sometimes ifthey meet certain criteria (eg if the sum assured exceeds a certain level). Sometimes thereinsurance will only cover a proportion of the benefits.
Treaties may be open to new policies being reinsured under them, or they may be closed
to such new policies.
As noted in section 2.3 above, direct writing companies are often referred to as cedants.
Reinsurance companies themselves also take out further reinsurance, and this is known as
retrocession. Retrocession often takes place to other reinsurance subsidiaries within thesame reinsurance group, but can also be to companies outside the group.
Both RGA UK and RGA IRE retrocede part of their risks to other RGA reinsurance
subsidiaries which lie outside of the UK and Ireland. In addition, both RGA UK and
RGA IRE are the recipients of inwards retrocessions from RGA reinsurance subsidiaries
which lie outside of the UK and Ireland.
I confirm that in considering the policyholders of RGA UK and RGA IRE, I have had
regard both to reinsurance inwards from direct writing companies, and to retrocession
inwards from other RGA reinsurance subsidiaries.
A further relevant reinsurance term is co-reinsurance. This is where a direct writing
insurance company enters simultaneously into two (or more) similar reinsurance treaties
with two (or more) different reinsurance entities. In this case the direct writer has two (ormore) separate contracts of reinsurance. RGA UK has written business on a coreinsurance basis, where the other co-reinsurer is an RGA reinsurance subsidiary outsideof the UK or Ireland. For such cases, the non-RGA UK part of the co-reinsurance
arrangement is not subject to the proposed transfer, and will remain in place unaffected.
Another relevant term is facultative reinsurance. This is where particular risks arereinsured based on specifically agreed reinsurance terms for that risk, as opposed to bereinsured automatically under a treaty.
Reinsurance can be arranged on a quota share basis, where the reinsurer is on risk for acertain percentage of all claims, and receives that same percentage of the premiums.
Reinsurance can also be arranged on an excess of loss basis, where the benefits above acertain level only are reinsured in return for an agreed reinsurance premium.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

Reinsurance can be written on an annual premium basis, where premiums are level,notwithstanding that the risk increases as the life assured gets older. Premiums in theearly years are more than sufficient to cover the risk in the early years, and the surplus isdrawn upon in the latter years. Alternatively, reinsurance can be written on a risk
premium basis, where the premium increases each year as the risk increases.
In addition to traditional reinsurance business, a reinsurance company can also write
customised non-traditional reinsurance (“Financial Reinsurance”) to meet the specificneeds of its clients. Under such financial reinsurance, the reinsurer provides temporary
loan finance to the cedant as part of the reinsurance package.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

3

Background to RGA UK and RGA IRE

3.1

RGA Reinsurance UK Limited

3.1.1

Background
RGA UK is authorised in the UK by the FSA to write reinsurance business in the UK,
Ireland, the Isle of Man and the Channel Islands. RGA UK offers traditional mortality,
critical illness, income protection, annuity in payment and group life reinsurance.
The immediate parent of RGA UK is RGA Holdings which in turn is a wholly owned
subsidiary of RGA.

3.1.2

Nature of business
RGA UK is a pure reinsurer. The clients of RGA UK are life insurance companies
operating in the UK and Ireland and there is in fact no business from the Isle of Man or
the Channel Islands. The business written includes co-reinsurance basis (see below), andcovers risks on both a quota share and an excess of loss basis. The business of RGA UK
consists of reinsurance treaties for:•Long-term protection business providing individual life, critical illness and income
protection cover. The company writes both guaranteed and reviewable premium ratebusiness. Under the former, the reinsurance premium rates are fixed. Under thelatter, the company is able to increase or decrease the amount of the reinsurance
premium rates depending on the experience under the treaty in question. The
majority of the long-term protection business is written on guaranteed premium rates,
ie where the reinsurer has no right to increase the premium rates. There is also asmall volume of business with renewable options , ie where the premium rates are
only guaranteed for a limited period of time and the cedants have the option to renew
the reinsurance at the end of the premium guarantee period and the rates thenprevailing.

•

Group life protection business providing life cover to a definable group of lives.
These are written as short term polices on a renewable premium basis with nonguaranteed future terms. The premium rates are subject to review at the end of an
initial period.

•

Underwritten annuity business providing annuity payments to impaired lives (ie lives
with medical impairments and hence shorter life expectancy than healthy lives) soldon an individual basis, where RGA UK takes on the longevity risk. Longevity risk is
the risk of increasing life expectancy trends of policyholders which could eventuallylead to higher than expected annuity payments.

RGA UK has also written a small amount of business on a facultative basis. There wasno financial reinsurance in-force as at 31 December 2010.
The above summary of RGA UK’s business indicates that RGA UK underwrites a rangeof different types of reinsurance business. However, I do not believe that the nature of

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

any of the business written is sufficiently different for the relevant policyholders to be
regarded as a distinct sub-group for the purposes of my analysis of the proposed transfer.

3.1.3

Business structure
Under RGA UK’s business model, new business is usually written on a co-reinsurance
basis. For protection business reinsurance treaties written before 1 July 2010, 10% of thebusiness was written into RGA UK and 90% was written on a co-reinsurance basis into
an overseas RGA subsidiary. From 1 July 2010 however, all new protection businessreinsurance treaties were written into RGA IRE(UK), ie the UK branch of the Irish
company as opposed to the UK company. RGA UK continues to receive new businessfor all pre 1 July 2010 treaties which are still open to new business.
For most of its treaties, RGA UK retrocedes 50% of its protection business, subject to a
maximum own retention of GBP 100,000, to an overseas RGA subsidiary.
For impaired annuity business, two reinsurance treaties have been written into RGA UK.
In each case this was on a co-reinsurance basis with an overseas RGA subsidiary. RGA
UK’s share of the co-reinsurance arrangement varies by treaties but is commonly 10% of
the underlying risk.
The diagram below shows the structure of RGA UK’s reinsurance business and therelevant intra-group retrocessions. Retrocession takes place both to RGA subsidiaries
outside of the UK and Ireland, and to other reinsurance groups.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011
LegendRGA share ownership
Retrocession arrangement
Assumed business
RGA entity
CedantDiagram 3.1.3. Irish and UK treaties written before 1 July 2010, and two UK impaired annuity treaties

Reinsurance Group of America, Incorporated

RGA entities outside
UK and Ireland

RGA Holdings
Limited (UK)100% - X%)

X%
UK impaired annuities

RGA UKX%

UK protection business(GBP and EUR)

100% - X%

Outward retrocession from RGA UK

Notes:The value of X in the co-reinsurance arrangements varies by treaty but is commonly 10%.
Although not shown on the diagram above, some of the outwards retrocession from RGA UK is to
non-RGA reinsurance companies.

3.1.4

Business profile
RGA UK currently has in force 59 reinsurance treaties for protection business and two
reinsurance treaties for impaired annuity business. Of these, 49 treaties are currently
open to new business.
In terms of the relative significance of the main types of business written in RGA UK,
individual life protection business providing life and critical illness cover represents over
99% of total liabilities. The rest of the business relates to group life business andimpaired annuity business.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

The table below summarises RGA UK’s business as at the date of its most recent
regulatory returns to the FSA. The premiums information contained within the tableshows the premiums receivable in 2010.
RGA UK premiums and liabilities as at 31 December 2010
Amounts in £000s

Total
premiums

Total
liabilities

17,997
21,71760
77-

55,39532,684
343
77
2,918

Annuity non-profit (impaired annuities)
Total gross premiums / long-term liabilities

6,617
46,468522
91,939Retrocession (external)
Life:
Term assurance
Critical illness
Total Retrocession premiums / liabilities (external)(1,977)(1,054)(3,031)(10,633)(2,226)(12,859)

Retrocession (intra-group)
Life:
Term assurance
Critical illness
Income protection
Group life
Total retrocession premiums / liabilities (intra-group)(10,427)(9,872)(30)(38)(20,367)(30,469)(16,723)(172)(38)(47,402)

Total retrocession premiums / liabilities(23,398)(60,261)

Total net premiums / long-term liabilities

23,07031,678Other insurance and non insurance liabilities

-

4,745

Total premiums / long-term net liabilities

23,07036,423

Shareholders’ total liabilities-

774

Total net liabilities-

37,197Gross
Life:
Term assurance
Critical illness
Income protection
Group life
Other liabilities
Pension:Note: It can be seen from the above table that the 2010 premiums for the impaired
annuity business are large in relation to the liabilities shown. This is because the treatiesin question are swap-type treaties, where RGA UK receives a fixed stream of ongoing
premiums and pays out a variable stream of annuity claims. As these two streams are ofsimilar orders of magnitude at the outset of such a treaty, the liability is low.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

3.1.5

AssetsRGA UK aims to match its liabilities by duration and currency and invests in fixedinterest stocks and bank deposits. As at 31 December 2010 all the fixed interest stocks
were backed by governments, supra-sovereign issuers or issuers with a minimum credit
rating of BBB. The company has no exposure to equities, property or derivatives.

3.2

RGA International Reinsurance Company Limited

3.2.1

Background
RGA IRE is incorporated in Ireland and is regulated by the CBI. It is a wholly owned
subsidiary of RGA, Inc and was formed in June 2003 as a life reinsurance company tosupport RGA’s clients located in Continental Europe, India and Singapore. The company
has branch offices in the UK, France, Germany, Poland, Italy, Netherlands and Spain. It
is also an authorised reinsurer in Singapore.

3.2.2

Nature of business
The principal activity of RGA IRE is the transaction of traditional life, critical illness,disability and annuity reinsurance business. The company also writes reinsurance
business providing temporary loan finance to the cedant as part of the reinsurance
package. The business written includes co-reinsurance basis and covers risks on both aquota share and an excess of loss basis. The company writes reinsurance treaties
covering individual and group risks (the latter being where a group of lives are covered,such as employees of a particular employer). The business of RGA IRE consists ofreinsurance treaties for:
Life reinsurance business• Yearly renewable term and non-guaranteed longer term business providing cover for
death, critical illness, health & accident and total permanent disability. The premium
rates of these non-guaranteed treaties can be re-priced on a year-to-year basis. Thisbusiness is mainly from insurance companies in France, Spain and Italy, with lesser
portions coming from Hong Kong, Singapore, United Arab Emirates and other
European countries.
• Guaranteed premium rate yearly renewable term business from insurance companies
in the UK, Ireland and India. Under the terms of these guaranteed treaties, thepremium rates applicable to a new policy are guaranteed to remain unchanged
throughout the term of that policy and cannot be re-priced. Reinsurance premium
rates under these treaties can be re-priced only for future new business.
• Single premium term assurance business relating to decreasing term assurance
contracts sold by insurance companies in Italy and India. Under a decreasing term
assurance contract, the sum assured reduces over time and often in line with theoutstanding loan or mortgage amount against which the policy is design to protect.
• Underwritten individual annuity business written by UK insurance companies
providing annuity payments to impaired lives.

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19 August 2011

• Annuity business on standard (ie non-impaired) lives written by UK insurancecompanies on a bulk or group basis. These are commonly staff pension schemes ofcorporate organisations. These are actually annuity “swap” treaties, where the cedantreinsures the longevity risk of its bulk annuity business through a cashflow swap
arrangement. Under such arrangement, the cedant makes payments to the reinsurer
based on predetermined assumptions set out in the treaty and receives payments fromthe reinsurer based on the actual mortality experience of its bulk annuity business inreturn. In this way it is the reinsurer who actually bears the longevity risk.

Non-life reinsurance business• Non-guaranteed, yearly renewable business covering health, disability and personal
accident risks. This business is mainly from insurance companies in France, withlesser portions coming from India, East Asia and other European countries.
• Long term care business (which is designed to provide care benefits in old age) written
by insurance companies in France.
The in-force business of RGA IRE includes a number of cedants who became clients of
RGA IRE following its takeover of a block of business from XL Re on 1 January 2009.
This business is long term care business (ie to provide nursing benefits in old age) written
in France which now resides in the French branch of RGA IRE. My understanding is that
this XL Re business was acquired by RGA IRE as a result of a novation in RGA IRE’s
favour, as opposed to an insurance business transfer. As such, there are no additional
considerations in relation to this business as far as the current proposed transfer isconcerned.
It should be noted that the non-life reinsurance business referred to above is health,disability and long term care type business. It is thus closer in nature to life business than
to non-life reinsurance business covering motor, marine and aviation etc.
RGA IRE has also written a small amount of business on a facultative basis.
The above summary of RGA IRE’s business indicates that RGA IRE underwrites a rangeof different types of reinsurance business. However, I do not believe that the nature of
any of the business written is sufficiently different for the relevant policyholders to be
regarded as a distinct sub-group for the purposes of my analysis of the proposed transfer.
For the avoidance of doubt, this conclusion encompasses the inclusion of the non-lifereinsurance business with the single RGA IRE group since, as noted above, the actual
non-life business in question is closer in nature to life business than to motor, marine andaviation etc.

3.2.3

Business structure
RGA IRE writes the business described in section 3.2.2 above. In addition, since 1 July
2010, all new reinsurance treaties for UK protection business are written into RGA
IRE(UK), ie the UK branch of the Irish company. All business written in RGA IRE fromother European insurance companies is written into the relevant European branches of
RGA IRE.

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and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

RGA IRE(UK) currently retrocedes a significant proportion of its protection business tooverseas RGA subsidiaries. RGA IRE(UK) has also accepted inwards retrocession
business from other overseas RGA subsidiaries, part of which is further retroceded to an
overseas RGA subsidiary.
For UK bulk annuity swaps, the reinsurance arrangement is on a co-reinsurance basis.
The co-reinsurance proportion written into RGA IRE(UK) varies by treaty but iscommonly 5% of the underlying risk. RGA IRE(UK) also retrocedes a significant
proportion of its risk to an overseas RGA subsidiary.
Two new impaired annuity reinsurance treaties have been written in the UK branch of
RGA Ireland in 2011.
The diagram below shows the structure of RGA IRE’s reinsurance business and therelevant intra-group retrocessions in both directions. Retrocession takes place both to
RGA subsidiaries outside of the UK and Ireland, and to other reinsurance groups. Suchcomplex arrangements are not unusual in the reinsurance market where internationalgroups are concerned. The diagram below shows sufficient detail in order for the salientfeatures of RGA IRE’s business structure to be understood. It should be noted that there
is no retrocession, in either direction, between RGA UK and RGA IRE.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011
LegendRGA share ownership
Retrocession arrangement
Assumed business
RGA entity
CedantRGA IRE branch

Diagram 3.2.3. Structure of RGA IRE(UK) business

Reinsurance Group of America, Incorporated

RGA entities outside
UK and Ireland

RGA IRE

Outwards retrocession from RGA IRE(UK)

Non-UK
branches

Non-UKbusiness

RGA IRE(UK)
Inwards retrocession into RGA IRE(UK)100%
X%

UK protection
business (GBP)• UK bulk annuity swaps• UK impaired annuities

100% - X%

Notes: The value of X in the co-reinsurance arrangements varies by treaty but is commonly 5%.
Although not shown on the diagram above, some of the outwards retrocession from RGA IRE is to non-RGA
reinsurance companies.

3.2.4

Business profile
RGA IRE currently has over 210 reinsurance treaties for life protection business, over 50
for non-life business and 3 for long term care business. Since the end of 2010 RGA IRE
has also written some impaired annuity business.

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and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

In terms of the relative significance of the main types of business written in RGA IRE
measured by total liabilities, approximately 48% are guaranteed premium treaties, 41%
are non-guaranteed premium treaties, and the remaining 11% in single premium treaties,
bulk annuity swap treaties and impaired annuity treaties. For the non-life business written
into RGA IRE, around 62% of the total liabilities are long term care treaties and theremaining 38% are miscellaneous healthcare treaties.
The table below summarises RGA IRE’s business as at the date of its most recent
regulatory reports to the Central Bank. This table shows premiums receivable in 2010
and liabilities as at 31 December 2010.
RGA IRE premiums and liabilities as at 31 December 2010
Amounts in £000s *Total
premiums

Total
liabilities

42,9799,939
1,317
63,771
118,006

64,766
19,324
15,44869,166
168,704

2,088
13,171
15,25914,152
8,761
22,913Gross
Life:
Guaranteed premium treaties
Single premium treaties
Longevity treaties
Non-guaranteed premium treaties
Total Life gross premiums / liabilities
Non-life**:Long term care treaties
Other treaties (health and disability)
Total non life gross premiums / liabilities
Other reserves (miscellaneous pending claim payment provisions)742

Total gross premiums / technical liabilities

133,265

192,359

Retrocessions:Life:
Non life:
Total retrocessions:(90,405)(11,882)(102,287)(139,162)(18,239)(157,401)

30,97834,958

Total net premiums / long-term liabilities
Other liabilities(amount payable to retrocessionaires and other creditors)

68,354

Total net liabilities

103,312

Notes:* The figures disclosed in the RGA IRE valuation report at 31 December 2010 are denominated in
USD. For comparison purposes we converted the figures from USD to GBP, using an exchange rateof £1 = $1.5612.
** Non life business in RGA IRE as detailed in Section 3.2.2 above consists of long-term care,health, disability and personal accidents insurance only.

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ABCD
High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011For life reinsurance companies in Ireland, it is allowable to set up a deferred acquisition
cost asset within the regulatory balance sheet. This is, in effect, a negative liability, as
shown in the table above.
The vast majority of RGA IRE’s retrocessions are intra-group, and there is only a small
amount of liabilities retroceded external to the RGA group.
The intra-group retrocession is to other RGA reinsurance subsidiaries, but it should be
noted that there is no retrocession to RGA UK.

3.2.5

AssetsRGA IRE aims to match its liabilities by duration and currency and invests in corporate
bonds with a minimum credit rating of BB and cash only. The company has no exposure
to equity, property or derivatives.

3.3

Rationale for the Scheme
Although not a direct consideration for me as Independent Expert, it is neverthelessrelevant for me to be aware of the rationale for the Scheme.
As explained previously, most of RGA UK’s reinsurance business has (prior to 1 July2010) been written on a co-reinsurance basis with an overseas RGA subsidiary. Since 1
July 2010, all new reinsurance treaties for protection business have been written into
RGA IRE(UK). Although RGA UK continues to receive new business (on the coreinsurance basis) for all existing treaties still open to new business, RGA UK’s businessis expected to decline over the long term, and the fixed overhead costs of maintaining aseparate entity with a declining block of business are likely to become onerous.
Further, the introduction of Solvency II will bring fundamental changes to the capitalrequirements, corporate governance and risk management of all insurance andreinsurance companies operating in the EU. Each entity within a group is required to beable to demonstrate a sophisticated risk management framework that is fully integrated
into the entity’s operations. This means that the more entities within a group the higher
the expected costs of compliance.
A high level assessment carried out by the
management of RGA also indicates that a greater level of capital efficiency can beachieved by operating through one single legal entity within the EU. The main reason forthis is that maintaining separate entities within different EU states will not enable thegroup to benefit from the diversifications of risks across territories. In addition, the groupwill not be able so easily to use any excess capital arising in one entity to support any
deficiencies arising in another entity. Other groups have come to similar conclusions.
Given that RGA IRE and RGA UK are both wholly owned subsidiaries of RGA, Inc,
RGA, Inc has deemed that it is not necessary for RGA IRE to make any commercial
payment to RGA UK in respect of the additional future profits which are expected to arise
within RGA UK as a result of the transfer.
Overall, I can confirm that I am aware of and understand the business rationale for the
proposed transfer.

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and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

4

The Scheme in practice

4.1

Overview of the Scheme
The Scheme itself is a straightforward one, and provides for the entire assets andliabilities of RGA UK to be transferred to RGA IRE(UK).
As is common practice, the Scheme provides for certain policies which cannot betransferred immediately to be 100% reinsured to RGA IRE(UK) pending subsequenttransfer (when the relevant approval is received). These are known as Excluded Policies,
and there is an Excluded Policies Reinsurance Agreement. In practice, however,management of RGA UK do not expect there to be any Excluded Policies.
Although the wording of the Scheme is straightforward, and refers the transfer of thepolicies in question using normal direct insurance terminology, I have received
confirmation that the wording of the treaty will, from a legal perspective, ensure that eachof the following aspects of RGA UK’s business will be transferred to RGA IRE:•

the inwards reinsurance treaties which RGA UK has in force with its clients;•

the outwards retrocessions between RGA UK and other RGA subsidiaries;•

the outwards retrocessions between RGA UK and non-RGA organisations.

As noted in sections 2.3, 3.1.2, and 3.2.2 above, the two groups of policyholders that I
need to consider in my analysis of the affects of the Scheme are:•the transferring policyholders of RGA UK;•

the existing policyholders of RGA IRE.

As noted above, all the business is being transferred and it is not expected that there will
be any Excluded Policies.

4.2

Diagrammatic effect of the Scheme
The following diagrams illustrate the effect of the Scheme on the business andorganisation structure in RGA.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

4.2.1

Before the transfer
LegendRGA share ownership
Retrocession arrangement
Assumed business
RGA entity
CedantRGA IRE branch

Diagram 4.2.1. Before the transfer

Reinsurance Group of America, Incorporated

RGA Holdings
Limited (UK)RGA UK

UK and Irish
protection business(before 1 July 2010)

UK impaired
annuities

RGA entities outside
UK and Ireland

RGA IRERGA IRE(UK)UK
protection
business• UK bulk annuity swaps
UK impaired annuities

Non-UK
branches

Non-UKbusiness

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ABCD
High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

4.2.2

After the transfer
LegendRGA share ownership
Retrocession arrangement
Assumed business
RGA entity
CedantRGA IRE branch

Diagram 4.2.2. After the transfer

Reinsurance Group of America, Incorporated

RGA Holdings
Limited (UK)RGA entities outside
UK and Ireland

RGA IRERGA IRE(UK)UK and Irish
protection business(before 1 July 2010)

UK impaired
annuities

UK
protection
business• UK bulk annuity swaps• UK impaired annuities

Non-UK
branches

Non-UKbusiness

The diagram above shows that the business of RGA UK moves into and sits alongside theexisting business of RGA IRE. All of the retrocessions also move across with thebusiness and remain in place after the transfer. The business of RGA IRE, including its
inwards and outwards retrocessions remains unchanged.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

5

Financial position before and after implementation of the
Scheme5.1

Background
The FSA introduced a risk-based capital framework through the Integrated Prudential
Sourcebook which came into effect on 31 December 2004. Under the regulatory regime,
UK companies are required to assess their solvency under two methods called Pillar 1 andPillar 2.
Under Pillar 1, companies calculate their assets at broadly market value and their
liabilities are calculated with margins for prudence. Companies are also required to holdcapital in excess of their liabilities. The minimum amount of this excess capital is the
Capital Resources Requirement (“CRR”) and its calculation is defined in the Prudential
Sourcebook for Insurers. The results of the Pillar 1 calculation are publicly disclosed in adocument known as the FSA Returns.
Pillar 2 is intended to provide a more realistic and complete view of the risks to which thecompany is exposed and to provide a framework within which the company can be
managed. Under Pillar 2, companies are required to self assess their own capitalrequirements according to certain rules and guidance and the amount of capital so
calculated is the Individual Capital Assessment (“ICA”). The ICA is submitted privately
to the FSA who, after reviewing the information, may issue Individual Capital Guidance(“ICG”), requiring a greater amount of capital to be held. The ICG is also not publicly
disclosed.
Since 2004, there have been a number of modifications to rules for Pillar 1. In 2006, the
FSA introduced amendments which enabled life companies (including reinsurers) toinclude allowance for future policy lapses into the reserving calculations, and to allow anegative reserve arising on one policy to be offset against a positive reserve on anotherpolicy (as opposed to the former being replaced by zero). Both of these changes acted toremove what was generally regarded as an excessive level of prudence inherent in theprevious approach.
Further, in 2005, and arising from an EU Directive on reinsurance, the basis fordetermining the Pillar 1 capital requirements for pure life reinsurance companies (such as
RGA UK) was amended to be based on the approach adopted for non-life business. This
lead to a reduction in capital requirements, as it was recognised that the previous
approach (which has been retained for direct writing companies) was unnecessarily
onerous for pure life reinsurance companies. This Directive applies across the EU.
Under the Irish regulatory regime, companies are only required to assess their solvency
under a method similar to the UK Pillar 1 framework. There is no equivalent requirement
for companies operating in Ireland to assess their solvency under a method similar to the
ICA. Under the CBI requirements, companies value their assets at market value and their
liabilities are calculated with margins for prudence. Similar to the FSA requirements,

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and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

companies are also required to hold capital in excess of their liabilities. The minimum
amount of this excess capital is the Required Solvency Margin (“RSM”) and, following
the EU reinsurance directive referred to above, this requirement is the same as in the UK.
The results of the calculations are publicly disclosed in a document known as the Central
Bank Returns, which are similar to the FSA Returns.
For pure reinsurance companies in Ireland, the CBI has modified the requirements for thedetermination of liabilities as compared with the requirements which apply to direct
writing companies. The effect of these modifications is to apply, for pure life reinsurancecompanies in Ireland, substantially the same modifications as the 2006 changes referred
to above as introduced by the FSA (ie relating to the treatment of policy lapses andnegative reserves). Some presentational differences exist. One of these is that therequirement to consider changes in asset values and interest rates is part of capitalrequirements in the UK, but is considered as part of liabilities in Ireland. Another is thatin Ireland, a deferred acquisition costs asset is allowed, but the existence of this has to betaken into account when determining the liabilities.
The requirements for valuing assets are also very similar as between the UK and Ireland.
Assets are valued at market values, with admissibility restrictions applying to individual
stocks (other than government backed).
In summary, for pure life reinsurance companies, the requirements and the methods inpractice adopted for the publicly disclosed values of assets, liabilities and capitalrequirements are substantially the same as between the UK and Ireland. There is noequivalent to the UK Pillar 2 ICA regime currently in Ireland, and I consider this further
in section 5.4 below.
A key consideration in any proposed transfer of business is the effect on the solvency andfinancial strength of the companies involved, and this aspect is considered below under
the publicly disclosed Pillar 1 approach. In section 5.2 below, the term Pillar 1 is forconvenience also used in respect of RGA IRE, even though this terminology is notformally part of the Irish regulatory regime.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

5.2

The Pillar 1 solvency position

5.2.1

RGA UKThe following table shows the pre-scheme position of RGA UK on a Pillar 1 (regulatory
solvency) basis as at 31 December 2010.
Amounts in £000s

Pre
Scheme

(1)
(2)
(3)

AssetsLong-term insurance business fund
Shareholders' fundTotal long-term admissible assets

(4)
(5)
(6)
(7)
(8)
(9)
(10)

Liabilities
Mathematical reserves (gross)
Outwards reassurance
Intra-group reassurance
Mathematical reserves (net)Other long-term insurance business liabilities
Other shareholders' liabilities
Total net liabilities(11)

Capital resources available

46,588

(12)
(13)
(14)

Long-term insurance capital requirement ("LTICR")
Resilience capital requirement ("RCR")
Total capital resources requirement ("CRR")= (12) + (13)

3,338
1,123
4,461

(15)

Excess of Capital Resources to cover CRR= (11) - 14)

42,127(16)

Capital resources available as a % of CRR= (11) / (14)1044%

= (1) + (2)= (4) - (5) - (6)= (7) + (8) + (9)60,04023,74583,78591,93912,85947,402
31,6784,745
774
37,197After the transfer, and assuming as expected that there are no Excluded Policies, all theentries in the above table will become zero as the entirety of the assets and liabilities arebeing transferred to RGA IRE.
The above table shows that RGA UK is very well capitalised on a Pillar 1 basis. The
above table also highlights the existence of substantial outwards reinsurance (ieretrocession), largely to other RGA group subsidiaries.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

5.2.2

RGA IREThe following table shows the financial impact of the Scheme on RGA IRE’s Pillar 1solvency position, assuming the Scheme was implemented on 31 December 2010.
Amounts in £000s *Pre
SchemeEffect of
SchemePost
Scheme103,31364,838168,151

60,04023,74583,785

163,353
88,583251,936= (8) + (9) + (10)

192,360
0157,401034,95968,354
103,31391,93912,85947,402
1,123
32,801
4,745
774
38,320284,299
12,859204,803
1,123
67,76073,099774
141,633= (3) - (11)64,83845,465

110,303

5,401

0

5,401

= (12) - (13)59,43745,465

104,902

3,338
0
3,338

17,061
1,495
18,55642,127

86,346

Assets **
(1)
(2)
(3)

Long-term insurance business fund
Shareholders' fundTotal long-term admissible assets

(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)

Liabilities
Mathematical reserves (gross)
Outwards reinsurance – external ***Outwards reinsurance – intra-group
RCR
Mathematical reserves (net)Other liabilities
Shareholders’ liabilities
Total net liabilities(12)

Capital resources available(13)

Other items reducing the capital resources
available due to inadmissibility under thesolvency assessment= (1) + (2)= (4) - (5) - (6) + (7)(14)

Capital resources available after other items
reducing the capital available

(15)
(16)
(17)

Required solvency – Life ****
Required solvency – Non-life *****
Total capital resources requirement ("CRR")= (15) + (16)13,723
1,495
15,218(18)

Excess of Capital Resources to cover CRR= (14) – (17)44,219(19)

Capital resources available as a % of CRR= (14) / (17)

391%

565%

(20)

Ratio of admissible assets to net liabilities= (3) / (11)

163%

178%

Notes:* The figures disclosed in the CBI Returns are denominated in Euro. For comparison purposes weconverted the figures from Euro to GBP, using an exchange rate of €1 = £0.85588.
** For RGA IRE the split of the assets between long-term insurance business fund andshareholders’ fund is notionally based on the total net liabilities and capital resources available
respectively.
*** The amount of outwards reinsurance to non-RGA group companies is de-minimis for RGA IRE,
and it has thus been included in the table above with the intra-group outwards reinsurance.

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ABCD
High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011**** The introduction of the EU Directive on reinsurance in 2005 resulted in the amendment of thebasis for determining the Pillar 1 capital requirements for pure life reinsurance companies (such as
RGA UK and RGA IRE) to be based on the approach adopted for non-life business.
***** Non life business in RGA IRE as detailed in Section 3.2.2 consists of long-term care, health,disability and personal accidents insurance only.

The changes shown in the table above are detailed below. The numbering corresponds tothe lines in the above table.
(1)/(2) The admissible assets will increase by the value of assets transferred from RGA
UK.
(3)

Total long-term admissible assets will change as a result of changes in (1) and
(2).

(4)

The gross mathematical reserves will increase in respect of the business
transferred in from RGA UK.

(5)/(6) The amount of outwards reinsurance will increase corresponding to the business
transferred in from RGA UK.
(7)

It should be noted that RCR is a capital requirement in the UK. In Ireland this isincluded in the balance sheet as a liability.

(8)

The net mathematical reserves will change as a result of changes to (4), (5) and(6) and (7)(9)

Other liabilities are increased by the amount of liabilities transferred in fromRGA UK.

(10)

Shareholders’ liabilities are increased by the amount of liabilities transferred infrom RGA UK.

(15)

The required solvency margin for life business has increased as a result of thebusiness transferred in from RGA UK. There may be some benefits in due
course on carrying out a single calculation (as opposed to adding the two separate
calculations) but these have been ignored.

(16)

The required solvency for the non life business will not change as there is no suchbusiness being transferred in from RGA UK.

It should be noted that there are possibly some minor second order effects which have notbeen allowed for in the above table. Having discussed with the Signing Actuary of RGA
IRE, re-alignment of margins of prudence is expected to be made on the transferred
impaired annuity longevity assumptions to be consistent with the margins currently used
by RGA IRE. However, these are not expected to have a material impact.

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High Court of JusticeRGA Reinsurance UK Limited
and
RGA International Reinsurance Company Limited
KPMG LLP
19 August 2011

As the table above shows, RGA IRE has on its books a relatively small amount of nonlife business. Although technically non-life business, this business comprises health,disability, personal accident, and long term care, which is more akin to life business thanto motor, marine and aviation types of non-life business. I have however discussed this
aspect with a senior KPMG colleague who is expert in the field of non-life insurance, and
who is also familiar with the role of Independent Expert. It is known that the formula forthe determination of the required solvency margin (ie row 16 in the table above), whenapplied to non-life business, tends to understate the level of the risk involved, as
compared relatively with that for the life business. However, it is clear that RGA IRE
would still comfortably meet the solvency requirements even if this non-life solvency
margin requirement was higher. For example, if the non-life solvency margin
requirement was doubled, the capital resources coverage ratio would still be 356% asopposed to 391% pre-transfer, and 523% as opposed to 565% post transfer. Having
consulted with a non-life expert in this area, I am thus satisfied that the presence of nonlife business within RGA IRE does not present an issue for the transferring RGA UK
policyholders.
The above table shows that RGA IRE is well capitalised on a Pillar 1 basis before thetransfer. The transfer improves the position further, due to the level of excess assets
coming in from RGA UK.

5.3

Valuation assumptions
I have reviewed and discussed with the Actuarial Function Holder of RGA UK and the
Signing Actuary of RGA IRE the current and intended future valuation bases, and how
these bases may be affected by the Scheme. The bases currently used are in line withnormal actuarial practice for life reinsurance companies in the UK and Ireland, and it is
not intended that any material changes to valuation bases will be made following thetransfer. Hence the position derived above by adding the two sets of liabilities together
accurately reflects the post transfer position. As noted above, there could be some second
order affects arising in due course, but these are not expected to be material and, as also
noted above, RGA IRE is well capitalised on a Pillar 1 basis post transfer.

5.4

RGA UK Pillar 2 capital position
I have reviewed the estimated ICA position for RGA UK at the end of 2010. As noted in
section 2.1 above, the Pillar 2 information is not in the public domain, and in theparticular circumstances of this case (as explained below) it is not necessary for me toinclude any detailed numerical Pillar 2 results in this report. However, in summary, theexcess of capital resources over capital requirements on the Pillar 2 basis is marginallygreater than the Pillar 1 equivalent of £42m as referred to in section 5.2.1 above. The
ratio of capital resources to capital requirements on the Pillar 2 basis falls within therange 150%-200%, and in my experience this is common range for this ratio to lie within.
Under Pillar 1, prudent actuarial methods and assumptions are used to determine theliabilities. Under Pillar 2, realistic methods and assumptions are used. This results in theavailable capital being much higher under Pillar 2 than Pillar 1. However, at the sametime a full assessment of the risks is carried out, and this leads to a much higher capitalrequirement. The net result in this case, as noted above, is that the excess of available

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High Court of JusticeRGA Reinsurance UK Limited
and
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KPMG LLP
19 August 2011

capital over required capital is similar as between Pillar 1 and Pillar 2, with the latterbeing marginally greater.
I have discussed with the AFH of RGA UK the likely progression of RGA UK’s Pillar 1
and Pillar 2 positions. The AFH of RGA UK has carried out projections of the relative
positions over the next 2-3 years and I have reviewed and discussed these projections
with the AFH. Absent the proposed transfer, the AFH of RGA UK expects that the Pillar
1 basis would continue to be the more onerous basis over the next few years. For the
avoidance of doubt I note that it is possible that this situation could continue for a longer
period of time, but any projected comparison between the two bases over a longer period
necessarily becomes more subjective.
Although there is no Pillar 2 regime in Ireland, I am satisfied that in the circumstances ofthis case, this will not in practice be detrimental to the interests of the RGA UK
policyholders or the RGA IRE policyholders post transfer. This is because the excess
capital of RGA UK is similar under Pillar 2 to that under Pillar 1, with the Pillar 1 basis(which is the basis which applies in Ireland) being more onerous, and expected to remain
more onerous for the next few years (by which time the new Solvency II regime will be inforce – see section 5.5 below).

5.5

Consideration of Solvency II
As noted in section 2.1 above, a new risk based solvency regime known as Solvency II is
expected to be introduced within the EU from 1 January 2013. However, at the time of
finalising this report, there is a possibility that the implementation date may be delayed to
1 January 2014.
As part of the development of Solvency II, a series of Quantitative Impact Studies(“QISs”) were promulgated by the EU in order to provide a means of assessing theposition of companies under the latest draft rules. The most recent (and expected to be
final) QIS was QIS5 which was carried out as at 31 December 2009. I have reviewed theSolvency II positions for RGA UK and RGA IRE and the effect of the Scheme based on
the QIS5 results as at 31 December 2009. The table below summarises the position:
Amounts in £000s

Pre
SchemePre
SchemePost Scheme

RGA IRE
only

RGA UK
only

RGA IRE+RGA UK

Consolidated

Available capital
Capital requirement
Excess capital

84,382
32,63451,74886,04233,25552,787

170,424
65,889104,535

171,898
59,537112,361

Available capital as a % of capital requirement

259%

259%

259%

289%

Source: RGA IRE and RGA UK, QIS5 results as at 31 December 2009

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The table above shows that both RGA UK and RGA IRE both cover their Solvency II
capital requirements comfortably pre-transfer. The fact that the cover ratios for RGA IRE
and RGA UK are identical at 259% is a coincidence, and it is not expected that this will
necessarily be the case going forwards. However, the similarity of the results arising(when combined with the similarity of the risks undertaken as described in sections 3.1.2
and 3.2.2 above, and the risk based nature of the QIS5 specifications) does indicate thatboth companies have similar risk profiles and characteristics. Hence in joining the twocompanies together into a single company, neither the RGA IRE nor the RGA UK
policyholders are being exposed, in terms of their security, to a fundamentally different
position.
The third column of figures in the above table is simply the addition of RGA IRE andRGA UK. The forth column of figures shows that there is actually an improvement in theexcess capital and cover ratio when the calculations are performed on the combined
business in an integrated way. This is because, under the Solvency II approach,additional synergies and diversification of risks are captured. This is part of the rationale
for the transfer, as noted in section 3.3 above.
Solvency II itself allows companies to adopt either a “Standard Formula” approach, or an“Internal Model” approach. The Standard Formula approach essentially involves
evaluating an extensive series of defined stress tests. The Internal Model approach
involves developing from scratch an appropriate methodology and set of assumptions fordetermining capital requirements for the company in question. Although both small andlarge companies can adopt the Internal Model approach should they so wish, in practice it
is mainly the largest and/or most complex companies which intend to adopt the Internal
Model approach. It is relevant to note that the term “Standard Formula” is itself
potentially misleading, as it does involve the consideration and evaluation of acomprehensive range of financial and non-financial stress tests which have been subject
to detailed and extensive consultation as part of the Solvency II introduction process. The
Standard Formula approach has also been designed taking into account that it will be usedby reinsurance companies as well as direct writing companies.
The QIS5 results set out above are on the Standard Formula basis.
Absent the transfer, both RGA UK and RGA IRE intend to adopt the Standard Formulaapproach, and this approach will also be adopted by RGA IRE assuming that the transfer
proceeds. I have discussed with RGA UK and RGA IRE (including the RGA UK AFH
and the relevant RGA IRE Corporate Actuary) the rationale for adopting the Standard
Formula approach, and the applicability and suitability of the Standard Formula itself for
RGA UK and RGA IRE. I have discussed the challenges and areas of uncertainty which
the companies have faced in applying the Standard Formula approach. I have reviewed
and discussed the internal QIS5 reports which have been produced for both RGA UK and
RGA IRE. I am satisfied that the QIS5 results referred to above have been properly
produced with due attention to detail, and I can confirm that the choice of the Standard
Formula approach is consistent with what I would have expected for reinsurancecompanies of the size and complexity of RGA UK and RGA IRE. I can also confirm that
I concur with RGA UK and RGA IRE in their assessment that the Standard Formula ismaterially appropriate for the business and risks of RGA UK and RGA IRE.

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I note that many aspects of the new Solvency II regime have yet to be finalised, and thefinalisation of such aspects could have a material effect on the results shown above. I
note that there is currently some uncertainty in relation to the exact commencement dateof Solvency II, and that there may be certain transitional arrangements which apply
before Solvency II is fully in force. However, these uncertainties exist whether or not thetransfer proceeds and they affect both RGA UK and RGA IRE. Given the nature of
Solvency II and the progress made to date, it is in my view unlikely that any finalisationfrom this point forwards would be such that a financial disadvantage would arise fromcarrying out the transfer. I further note that there is currently no suggestion that theimplementation of Solvency II will be delayed beyond the period of time referred to in
section 5.4 above during which RGA UK’s Pillar 1 basis is more onerous than its Pillar 2basis.
Notwithstanding the limitations and uncertainties in relation to Solvency II referred toabove, I am satisfied that the QIS5 analyses carried out by RGA UK and RGA IRE (andreviewed by me) are the best possible current assessments of the likely affects of the new
Solvency II regime, and that these analyses show that the Solvency II requirements will
be comfortably met following the transfer.
Both RGA UK and RGA IRE have confirmed to me that they have no objection to their
QIS5 information being included within this report.
My supplementary report will contain an updated Solvency II QIS5 analysis as at 31
December 2010.

5.6

New business
RGA IRE will be open to new business after the Scheme is implemented and the capitalrequirements going forward will be to a large extent dependent on the volume of new
business written. This is the same for all insurance and reinsurance companies.

5.7

Summary
Based on the analysis set out above, I can conclude that there are no material issues
arising from the proposed transfer in relation to financial strength and the security of
benefits. RGA UK policyholders will experience a fall in their Pillar 1 coverage ratio, but
the level of coverage within RGA IRE is still perfectly satisfactory. The lack of a Pillar 2
regime in Ireland leads to no detriment in practice for the RGA UK policyholders given
the actual Pillar 2 position and given the forthcoming introduction of Solvency II.
Finally, based on the latest available estimated Solvency II results, the Solvency IIrequirements are comfortably met with both RGA UK and RGA IRE showing remarkably
similar positions.

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6

Effect on policyholders

6.1

Introduction
Having set out in the previous sections of this report the relevant financial effects of the
Scheme, this section considers the effect on policyholders from both these viewpoints andmore widely. My considerations set out below indicate whether the matters in question
apply to either or both of the two groups of policyholders involved, as referred to in
section 2.3 above.

6.2

Security of policyholders’ benefits
A relevant consideration is the security of all policyholders’ benefits in RGA IRE after
the implementation of the Scheme, as compared with the positions before the transfer.
Given that there are no with-profits or discretionary benefits being provided in either
company, it is necessary only for me to be satisfied that RGA IRE remains adequately
capitalised following the transfer. This consideration is relevant to both the transferring
RGA UK policyholders and the existing RGA IRE policyholders.
The analyses presented in section 5 above, and summarised in section 5.7 above,
demonstrate that RGA IRE will remain adequately capitalised following the transfer. The
nature of some the business written, such as annuity business and long term care can be
relatively capital intensive, and future capital requirements will depend to a large extent
on future volumes of new business, with any additional capital required normally being
supplied from within the group.
The nature of the risks underwritten in RGA UK and RGA IRE are similar, with RGA
IRE having a more diverse source of business across Europe and writing some risks (suchas long term care and financial reinsurance) which RGA UK does not write. However,the volumes of these additional types of business within RGA IRE are not sufficiently
high to present any material new risks to the RGA UK policyholders.

6.3

Treating customers fairly
Treating customers fairly (“TCF”) is an important part of the current UK regulatory
regime. The concept relates to how UK financial services companies deal with theircustomers across a wide range of areas and the following paragraphs deal with the areas
which in my opinion need to be specifically addressed in relation to this transfer ofbusiness.
Under the Irish regulatory regime, the equivalent concept is known as Policyholders
Reasonable Expectations (“PRE”), which was the term used in the UK prior to theadoption of TCF. Essentially the two concepts are very similar, although TCF is more
codified in the regulatory rules in the UK as compared with Ireland. The focus of theregulators in relation to TCF/PRE is more towards direct writing insurers as opposed toreinsurers, but the concepts still apply nevertheless.

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Several aspects of TCF have already been covered in preceding sections, but for the
avoidance of doubt, these are included below. Each is relevant to the transferring
policyholders of RGA UK.

6.3.1

Reinsurance treaty terms and conditions
There will be no change to any treaty terms and conditions of the transferred business.

6.3.2

Service standards
I have discussed the issue of service standards with the management of RGA UK and
RGA IRE, who have stated that the range of services and level of service currently
offered to RGA UK’s policyholders will remain unchanged after the transfer. In practice,
the UK policyholders will still be serviced by UK RGA staff operating out of RGA’s
London offices, using the same systems and processes. I am therefore satisfied that RGA
UK’s policyholders will not experience any change to their service standards as a result of
the transfer.

6.3.3

Reinsurance premium review
Although under some treaties the reinsurance premium rates payable by the cedant are
guaranteed not to increase once a policy is placed under the treaty, for other treaties thepremium rates are reviewable. This allows RGA UK to alter the premium rates if theclaims experience (or in some cases other aspects as well) under the treaty is different
from that which was originally expected. The absence of any guarantee allows RGA UK
to offer keener initial rates, as it will be able to increase rates if experience deteriorates,
either in the market generally or on the specific treaty in question.
The treaty typically sets out an initial guaranteed period for the premium rates and thedates on which future premium reviews will be carried. Before a review is due, RGA UK
will contact the client to inform them that the review will take place. This will befollowed by the actual review process where RGA UK will carry out an analysis of theexperience in comparison with the assumptions used in the original pricing basis. A
decision will be made and approved by Management based on the results of this analysis.
Any change to premium rates will then be proposed to the client and a negotiation process
will take place. The cedant has the option to accept or decline the proposal. In theextreme case that RGA UK and the cedant cannot reach an agreement, the treaty will berecaptured (ie discontinued) by the cedant and cease to be in force. In practice, anagreement is normally reached following the negotiations.
Based on my discussions with RGA UK and RGA IRE management, the same approachand processes for premium rate reviews will be used going forwards following transfer.
In particular, and consistent with section 6.3.2 above, the premium rate reviews will be
continue to be carried out by UK RGA staff in London.

6.3.4

Profit sharing treaties
As a variation on the guaranteed/non-guaranteed premium rates issue described above,some reinsurance treaties are subject to profit sharing clauses. Under such treaties, part ofany underwriting profit made by the reinsurer under the treaty may be refunded back to
the cedant. The mechanism for determining the profit and relevant part to be refunded is

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normally set out in some detail within the treaty. RGA UK currently does not have any
profit sharing treaties in its in-force business and hence profit sharing mechanism is not
an issue under the transfer.

6.4

Investment management
I have confirmed with the management of RGA UK that the investment management of
the assets in RGA UK’s investment portfolio will not be affected by the transfer.
Following the transfer, the assets will be part of RGA IRE(UK), but will still bedenominated in Sterling and managed in the same way by the same investment managers.
This consideration is relevant both to the transferring policyholders of RGA UK and to
the existing policyholders of RGA IRE as it affects the ongoing asset and liability
matching by currency in RGA IRE post transfer.

6.5

Expense levels
Although it is to be expected that there will be some immediate ongoing expense savings
as a result of having one reinsurance company as opposed to two, it is difficult to predict
exactly what the savings will initially be. Longer term, the savings are expected to besignificant given that RGA UK is not writing any new treaties, and will thus in due course
suffer from diseconomies of scale. I am content that the ongoing expense levels areunlikely to be adversely affected as a result of the transfer, and I believe that this is asufficient conclusion for current purposes. This consideration is relevant both to thetransferring policyholders of RGA UK and the existing policyholders of RGA IRE as it
affects the ongoing solvency and expense efficiency of RGA IRE post transfer.

6.6

Retrocession parties
As indicated in section 4.1 above, the Scheme will also transfer, to RGA IRE, theoutwards retrocession arrangements which RGA UK has in force. This applies both tothe arrangements with other RGA subsidiaries and to the arrangements with non-RGA
organisations. In addition, there are also outwards retrocession arrangements from RGA
IRE, again both to other RGA subsidiaries and to non-RGA organisations. For RGA IRE
the amount of outwards retrocession to non-RGA organisations is not material.
None of the terms of the outward retrocession arrangements is being changed by thetransfer. Following the transfer, the liability of the outwards retrocession providers to
RGA UK will instead be to RGA IRE, but the amounts of the liabilities and thecircumstances under which the liabilities are payable will not change.
I can thus conclude that there will be no adverse effect on the position of any of theoutwards retrocession providers involved, with this conclusion applying both to the other
RGA subsidiaries and the non-RGA organisations. This consideration is relevant both tothe transferring policyholders of RGA UK and the existing policyholders of RGA IRE as
it affects the ongoing risk management and solvency position of RGA IRE post transfer.

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7

Other risk considerations

7.1

Credit risk
As the analyses in section 5 above have shown, both RGA UK and RGA IRE havematerial deductions from their gross liabilities in respect of outwards retrocessions, both
intra-group and (in the case of RGA UK) external to the group. This gives rise to credit
risk in the event that the other party defaults on its obligations.
I understand that third party letters of credit or assets held in trust arrangements are used
by RGA UK as the mechanisms to mitigate this risk, and I note that this is a common
practice. These arrangements will be transferred (by legal means separate to the Scheme
itself) and will thus continue to apply.
The current mechanism in place to mitigate the credit risk in respect of the outwards
retrocession arrangements between RGA IRE and other RGA entities takes the form of aparental guarantee letter. This will remain unchanged following the transfer.
Some of RGA UK’s cedants have requested and been provided with parental guarantee
letters from RGA. These have been issued either by RGA, Inc, or by RGA Global Re(which is an RGA reinsurance subsidiary based in Bermuda). The purpose of such letters
is to confirm that RGA, Inc or RGA Global Re will meet the relevant liabilities should
RGA UK default.
I have reviewed samples of the parental guarantee letters issued by RGA, Inc and RGA
Global Re, and I have requested and reviewed the list of cedants and treaties which are
subject to such letters.
I have been informed that RGA, Inc and RGA Global Re will each execute a deed poll
which will declare that, as from the Effective Date, the parental guarantee letters will
instead operate in relation to the performance of RGA IRE under the relevant treaties, as
opposed to RGA UK. Thus no cedant of RGA UK will suffer any loss of protection as aresult of the transfer. I have requested and received an opinion letter from RGA UK’sand RGA IRE’s legal advisers, Hogan Lovells, which confirms their opinion that thisdeed poll arrangement will be legally effective in transferring the parental guarantee
letters such that they relate to the performance of RGA IRE as opposed to RGA UK. A
copy of this letter is included in Appendix 2 to this report.
For completeness, I note that the regulatory rules in the UK require a company reinsuring
outwards more than 20% of its risks (as measured by premiums) to any one reinsurer (orto a group of related reinsurers) to provide evidence to the FSA of how the corresponding
credit risk is being managed. No such specific requirement exists in Ireland. However,the protection arrangements referred to above (and being transferred across to RGA IRE)
are commonly used by companies to address this requirement.
It is further relevant to note that reinsurance is a highly international business, and it iscommon for major global reinsurance groups such as RGA to retrocede liabilities around

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the group. This acts to spread and diversify risk. It is relevant to note that thepolicyholders of RGA UK and RGA IRE are, in the main knowledgeable direct writing
insurance companies who are likely to aware that reinsurance groups such as RGA
retrocede liabilities internationally.
It is expected that the legal arrangements to implement the effective transfer of theprotection arrangements referred to above will be in place by the time of mysupplementary report, and I will confirm whether this has in fact taken place within mysupplementary report.

7.2

Operational risk
When a transfer of long term business takes place, there is scope for operational risks tooccur and for example administrative errors to arise. The scope for such errors is greatest
when the operation of complex processes or IT systems is moved from one group ofpeople to another. An example would be unit pricing process for unit-linked business.
For reinsurance business, a key concern of cedants would be to ensure that the premiums
and claims accounting under each treaty continues to be carried out accurately by thereinsurer.
In the case of this transfer, the processes and IT systems under which the RGA UK treaty
premium and claims accounting will be carried out will remain in RGA’s London offices
and will continue to be operated by the same people.
It is further the case that the operation of reinsurance treaties does not (unlike for example
unit pricing) take place in real time, and the correction or errors is normallystraightforward.
I can therefore conclude that I see no material change in the ongoing position as regards
operational risk, and that the potential for operational risk to occur at the point of transfer
and cause a material problem for cedants is limited.

7.3

Legal risk
In considering the issue of legal risks, I have relied on the fact that RGA UK and RGA
IRE have followed the advice of their legal advisers and Counsel in finalising the legal
agreements in relation to this transfer, both in the UK and in Ireland.
I understand RGA UK’s inwards reinsurance treaties and outwards retrocessions are all
governed by English law and that this will continue to be the case after the transfer to
RGA IRE(UK).
Thus in my opinion, all reasonable steps have been taken to reduce the legal risks arisingfrom the Scheme to a minimum.

7.4

Regulatory risk
The main regulatory risk relates to the uncertainty in relation to the finalisation ofSolvency II, as noted in section 5.5 above. However, under the Solvency II regime, the

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same risk based assessment approach will be used across the EU and thus the finalisationof the initial regime and any ongoing changes will have the same effect whether thetransfer proceeds or whether RGA UK and RGA IRE remain separate.
There is the risk that the implementation of Solvency II is delayed, and that during thedelay period the UK and Irish regimes for regulating reinsurance companies diverges.
However, it must be acknowledged that there is scope for different regulatory approaches
to apply, and that the CBI is an experienced regulator of reinsurance companies. See also
section 7.6 below.
In the event of a regulatory risk materialising, often the outcome is that more shareholder
capital would be required in the companies. Clearly, this may not always be the case, but
in most cases regulatory standards and changes to them have a direct impact on thecapital required. As is the case with most large insurance and reinsurance groups, themain source of additional capital is from within the group. Although there can be no
guarantee of future capital being made available, the desire to avoid reputational risks
arising does provide a strong incentive for groups to provide the additional capital to theiroperating subsidiaries where necessary. Thus, in most circumstances, regulatory risk isnormally more of a concern for shareholders, as opposed to being a direct risk forpolicyholders. Further, as RGA UK and RGA IRE are similar companies in their nature,
any change is likely to affect both companies similarly and, since both companies are partof the same group, the availability of additional shareholder capital will be similar before
and after the transfer.

7.5

Tax risk
My understanding is that the relevant tax clearances have been or are expected to beobtained and in particular, that no stamp duty will crystallise from the transfer of assets
from RGA UK to RGA IRE. Although corporate tax rates are currently lower in Irelandthan in the UK, my understanding is that the profits of RGA IRE(UK) (ie the UK branch)will be taxed under the UK tax regime.

7.6

Change of regulator
Following the transfer, the Transferred Business would no longer be regulated by the FSA
and would be regulated by the CBI.
As noted above, the current Pillar 1 regimes are similar as between the UK and Ireland.
There is however a difference in how actuarial advice is formally used between the UK
and Ireland as far as reinsurance companies are concerned. In the UK, RGA UK isrequired to appoint an Actuarial Function Holder to advise the Board of Directors on thedetermination of the Pillar 1 liabilities in line with the relevant requirements, with theBoard being responsible for the final decisions. In Ireland, RGA IRE is required toappoint a Signing Actuary, who certifies to the CBI that the Pillar 1 liabilities have been
determined in accordance with the relevant requirements. Although there are clearly
differences between the two approaches from a governance perspective, each regime
requires an individual actuary to take responsibility for advising in relation to thedetermination of the liabilities in accordance with the relevant requirements. I note

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further that it is currently unclear as to what (if any) formal role actuaries will have under
the Solvency II requirements.
The position under Pillar 2 and Solvency II has been covered in preceding sections of thisreport.
Overall, I can see no reason why the security of policyholder benefits will be adversely
affected as a result of being regulated by the CBI as opposed to the FSA.

7.7

CJEU ruling on gender discrimination
The Court of Justice of the EU (“CJEU”) has recently ruled that gender discrimination in
the pricing of insurance will not be allowed from 21 December 2012. Although thedetails of how this new ruling will be implemented are not yet known, it is generally
accepted within the life insurance industry that the ruling is not retrospective , and is only
applicable to direct writing insurance companies and not to contracts between suchcompanies and their reinsurers. It remains to be seen whether, from 2013, direct writing
insurance companies seek to arrange new reinsurances on gender specific or gender
neutral premium rates. The position here could vary between direct insurers and between
the markets in each of the EU countries in which RGA IRE operates. Further, theapproach to the detailed implementation of the ruling into local legislation could vary by
EU country.
There is clearly some uncertainty in relation to this issue, but my conclusion is that thislevel of uncertainty exists both before and after the proposed transfer, and that carryingout the proposed transfer will not result in the position being materially different for anyof the policyholders concerned.

7.8

Eurozone uncertainty
Ireland is a member of the Eurozone, and it is common knowledge that the Irish
government has been provided with financial assistance from other European states. Irish
banks have been particularly adversely affected by the credit crisis events of the last few
years. I have thus considered whether there is any material disadvantage arising as aresult of this to the policyholders of RGA UK who will be transferred into RGA IRE.
I note that whilst Irish banks have been particularly adversely affected by the credit crisis,
the insurance market in Ireland has been far less affected. Insurance regulation in Ireland
is regarded as being highly effective, and the CBI has significant experience of regulating
pure reinsurance companies.
A branch structure will be operated, and the policyholders of RGA UK will be transferred
into RGA IRE(UK), ie the UK branch. As noted previously in this report, newreinsurance treaties written with UK cedants since July 2010 have already been written
into RGA IRE(UK). The assets of the enlarged UK branch will continue to be invested in
Sterling denominated assets, with a significant amount invested (some 70%) in UK
government securities. A similar approach is followed for the other branches of RGA
IRE, ie euro denominated liabilities in a particular branch are substantially matchedwherever possible by government or high quality corporate stocks in the same EU

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country. In this way, the potential consequences of any breakup of the eurozone or thedefault by any government are limited.
Having considered this issue, my view is that risk of the RGA UK policyholders suffering
detriment as a result of any breakup of the eurozone, or through the default by any
government, is remote.

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Conclusions
My conclusions in relation to the effect of the Scheme are as follows:
1 There will be no material adverse effect on the security of benefits for any of thepolicyholders involved, namely the transferring policyholders of RGA UK and theexisting RGA IRE policyholders.
2 There will be no adverse effect on the benefit expectations of any of the policyholders
involved, with this conclusion encompassing the following aspects:othere will be no change in any treaty terms and conditions;othe RGA IRE premium rate review processes applicable to the transferring
policyholders with reviewable premium rates will be the same as those adopted by
RGA UK, and I see no reason why any policyholders will be asked to pay greater
premiums after the transfer as compared with before.

I have reviewed the FSA’s first report to the Court in respect of the transfer and I confirm
that this raises no issues for me as Independent Expert. In the event that the FSA’s final
report to the Court contains any new considerations which are relevant to my role as
Independent Expert, then I will consider these in a supplementary report to the Court.
The main Pillar 1 financial information contained within this report is as at 31 December
2010. Prior to the final Court hearing, I will provide the Court with a supplementary
report containing updated financial information as at 30 June 2011, together with an
updated Solvency II QIS5 analysis as at 31 December 2010, and I will confirm whether
this updated information has any effect on the conclusions I have reached above. My
supplementary report will also confirm (if such be the case) that the legal arrangements
referred to in section 7.1 above have been put in place.

John A Jenkins
Fellow of the Institute and Faculty of Actuaries
Partner, KPMG LLP
19 August 2011

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Appendix 1: Main documents reviewed by the
Independent Expert
RGA UK•

Annual FSA returns for the years ended 31 December 2009 and 2010•

Annual Report and Accounts for the year ending 31 December 2010•

Articles of Association•

ICA information as at 31 December 2009 and 31 December 2010•

QIS5 analysis and results•

Sample reinsurance treaties, including with reviewable premium rates

RGA Ireland•

Annual CBI returns for the years ended 31 December 2009 and 2010•

Annual Report and Accounts for the year ending 31 December 2010•

Articles of Association•

QIS5 analysis and results•

Sample reinsurance treaties, including with reviewable premium rates

Other documents•

Draft Scheme and Excluded Policies Reinsurance Agreement.

•

Solvency II QIS5 analyses for RGA UK, RGA IRE, separately and combined•

Samples of the Parental Guarantee letters.

•

List of cedants and treaties which are subject to Parental Guarantee letters.

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Appendix 2: Copy of letter received from Hogan Lovells
See following pages.

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