RGA UK Reinsurance conducts business from approximately 3,000 square feet of office space in London, England. The rental expenses paid by RGA UK Reinsurance under the lease during 2000 were approximately $328,000. The lease expires in 2009.
The Company's primary business is life reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individual insureds, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, voluntary surrenders of underlying life insurance policies, lapses of underlying policies, deaths of underlying insureds, and the exercise of recapture options by the ceding companies.
The U.S. traditional reinsurance subsegment is the oldest and largest subsegment of the Company. This subsegment provides life reinsurance to domestic clients for a variety of life products through yearly renewable term agreements, coinsurance, and modified coinsurance arrangements. These reinsurance arrangements may be either facultative or automatic agreements. During 2000, production totaled $115.7 billion of new assumed in-force business, compared to $121.3 billion in 1999 and $102.7 billion in 1998. The decrease in 2000 can be attributed to more in-force blocks of business being reinsured in 1999 compared to 2000. This decrease was somewhat offset by continued strong production on new and existing treaties. Management believes industry consolidation, demutualizations, and the trend toward reinsuring mortality risks should continue to provide reinsurance opportunities.
expense was recorded for the 20% not owned by the Company. Subsequent to the end of the third quarter, the Company acquired the remaining 20% interest and changed the name of RGA/Swiss to RGA Financial Group, L.L.C. ("RGA Financial Group") Financial reinsurance agreements represent low mortality risk business that the Company assumes and subsequently retrocedes with a net fee earned on the transaction. The fees earned from the assumption of the financial reinsurance contracts are reflected in other revenues and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses.
During 2000, business was generated from reinsurance in the Latin America region through RGA Reinsurance and also through direct operations in Argentina and Chile. Historically, the Latin America reinsurance operations have derived revenue primarily from the reinsurance of privatized pension products in Argentina. Since 1999, the Company has reduced its participation in these types of treaties and is more actively marketing additional types of reinsurance in the region such as traditional individual life, credit, and group life insurance as well as non-traditional reinsurance transactions in Argentina and Mexico. It is anticipated that the mix of business will continue to evolve in the upcoming years.
Net premiums increased to $29.7 million in 2000 compared to $24.7 million for 1999. While the majority of the net premium for 2000 was a result of business generated from an automatic treaty with a United Kingdom client, the Company's operation in South Africa also was a significant contributor mainly through the facultative market. Investment income for the segment is allocated on the basis of average net capital, and the investment performance varies with the composition of the assets. Other revenue in 2000 represents fees associated with asset management consulting services provided by RGA Financial Products and other income from participation in the Lloyd's life syndicate.
Consolidated interest expense increased 59.7% during 2000 and 25.2% during 1999. Interest expense relates primarily to borrowings outstanding under the Credit Agreement, the GA Note, and Senior Notes. Interest expense for 2000, 1999, and 1998, was $17.6 million, $11.0 million, and $8.8 million, respectively.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but carries over most of the provisions of SFAS No. 125. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Adoption of the provisions of SFAS No. 140 effective for the year ended December 31, 2000 did not have a material effect on the Company's consolidated financial statements. The Company is in the process of quantifying the impact, if any, of the provisions of SFAS No. 140 effective for future periods.
Impairments in the value of securities held by the Company, considered to be other than temporary, are recorded as a reduction of the carrying value of the security, and a corresponding realized capital loss is recognized in the consolidated statements of income. The Company's policy is to recognize such impairment when the projected cash flows of these securities have been reduced on other than a temporary basis so that the realizable value is reduced to an amount less than the carrying value.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an Amendment to FASB Statement No. 133". This Statement addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS 133. SFAS 138 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. It also requires that gains or losses resulting from changes in the values of those derivatives be reported depending on the use of the derivative and whether it qualifies for hedge accounting. Initial application for the Company will be January 1, 2001. The Company has determined that initial application of the accounting provisions of SFAS Nos. 138 and 133 will not have a material impact on the Company's financial condition or results of operations.
There were no investments in any entity in excess of 10% of stockholders' equity at December 31, 2000 or 1999, other than investments issued or guaranteed by the U.S. government.
All the Company's mortgage loans are amortizing loans. As of December 31, 2000 and 1999, the Company's mortgage loans were distributed as follows (in thousands):
The total capital and surplus positions of RGA Reinsurance and RGA Canada exceed the risk based capital requirements of the applicable regulatory bodies. RGA Reinsurance is subject to statutory provisions that restrict the payment of dividends. It may not pay dividends in any 12-month period in excess of the greater of the prior year's statutory operating income or 10% of capital and
The following table presents the components of the Company's other comprehensive income for the years ending December 31, 2000, 1999 and 1998 (in thousands):