News Column

REINSURANCE GROUP OF AMERICA INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 5, 2014

Forward-Looking and Cautionary Statements This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words "intend," "expect," "project," "estimate," "predict," "anticipate," "should," "believe," and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company's liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company's business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company's collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company's investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company's financial strength and credit ratings and the effect of such changes on the Company's future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company's current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company's investment securities or result in the impairment of all or a portion of the value of certain of the Company's investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company's ability to make timely sales of investment securities, (12) risks inherent in the Company's risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, including ongoing uncertainties regarding the amount of United States sovereign debt and the credit ratings thereof, (17) competitive factors and competitors' responses to the Company's initiatives, (18) the success of the Company's clients, (19) successful execution of the Company's entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company's ability to successfully integrate and operate reinsurance business that the Company acquires, (22) action by regulators who have authority over the Company's reinsurance operations in the jurisdictions in which it operates, (23) the Company's dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) interruption or failure of the Company's telecommunication, information technology or other operational systems, or the Company's failure to maintain adequate security to protect the confidentiality or privacy of personal or sensitive data stored on such systems, (26) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (27) the effect of the Company's status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and (28) other risks and uncertainties described in this document and in the Company's other filings with the SEC. Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company's business, including those mentioned in this document and the cautionary statements described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company's situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A - "Risk Factors" in the 2013 Annual Report. Overview RGA is an insurance holding company that was formed on December 31, 1992. The condensed consolidated financial statements include the assets, liabilities and results of operations of RGA, RGA Reinsurance, Reinsurance Company of Missouri, Incorporated, RGA Barbados, RGA Americas, RGA Atlantic, RGA Life Reinsurance Company of Canada ("RGA Canada"), RGA Reinsurance Company of Australia, Limited and RGA International Reinsurance Company Limited as well as other subsidiaries, which are primarily wholly owned (collectively, the Company). 48



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The Company is primarily engaged in the reinsurance of individual and group coverages for traditional life and health, longevity, disability, annuity and critical illness products, and financial reinsurance. RGA and its predecessor, the Reinsurance Division of General American Life Insurance Company, a Missouri life insurance company, have been engaged in the business of life reinsurance since 1973. The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties and income earned on invested assets. The Company's primary business is life and health reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or voluntary surrenders of underlying policies, deaths of insureds, and the exercise of recapture options by ceding companies. As is customary in the reinsurance business, clients continually update, refine, and revise reinsurance information provided to the Company. Such revised information is used by the Company in preparation of its financial statements and the financial effects resulting from the incorporation of revised data are reflected in the current period. The Company's long-term profitability primarily depends on the volume and amount of death and health-related claims incurred and the ability to adequately price the risks assumed. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. The maximum amount of individual life coverage the Company retains per life varies by market and can be as high as $8.0 million. In certain limited situations the Company has retained more than $8.0 million per individual life. Exposures in excess of these retention amounts are typically retroceded to retrocessionaires; however, the Company remains fully liable to the ceding company for the entire amount of risk it assumes. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis. Effective January 1, 2014, the Company realigned certain operations and management responsibilities to better fit within its geographic-based segments. Operations in Mexico and Latin America have been moved from Europe & South Africa to the U.S. segment, which has been renamed U.S. and Latin America. Operations in India have been moved from Europe & South Africa to the Asia Pacific segment. The Europe & South Africa segment has been renamed Europe, Middle East and Africa. Prior-period amounts have been adjusted to conform to the new segment reporting structure. The Company has five geographic-based or function-based operational segments, each of which is a distinct reportable segment: U.S. and Latin America; Canada; Europe, Middle East and Africa; Asia Pacific; and Corporate and Other. The U.S. and Latin America operations are further segmented into traditional and non-traditional businesses. The U.S. and Latin America operations provide individual life, long-term care, group life and health reinsurance, annuity and financial reinsurance products. The U.S. and Latin America operations non-traditional business also issues fee-based synthetic guaranteed investment contracts, which include investment-only, stable value contracts, to retirement plans. The Canada operations reinsure traditional life products as well as creditor reinsurance, group life and health reinsurance, non-guaranteed critical illness products and longevity reinsurance. Europe, Middle East and Africa operations include a variety of life and health products, critical illness and longevity business throughout Europe and in South Africa, in addition to other markets the Company is developing. The principle types of reinsurance in Asia Pacific include life, critical illness, health, disability, superannuation and financial reinsurance. Corporate and Other includes results from, among others, RGA Technology Partners, Inc. ("RTP"), a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry, interest expense related to debt and the investment income and expense associated with the Company's collateral finance facility. The Company measures segment performance based on profit or loss from operations before income taxes. The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a consistent basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA's businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses is credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses. Results of Operations Consolidated Consolidated income before income taxes increased $375.3 million, or 502.0%, and $295.9 million, or 145.0%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in income before income taxes for the second quarter and first six months of 2014 was primarily due to the effects of a significant loss recognized in second quarter of 2013 in the Asia Pacific segment, partially offset by higher premiums, an increase in other revenues and increased investment related gains. The loss in the Asia Pacific segment in 2013 reflects an increase in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits as well as poor claims experience in the Australian operation's individual lump sum and individual disability businesses. The increase in other revenues for the second quarter and first six months 49



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is primarily due to a recapture fee of $39.3 million in the Asia Pacific segment. The increase in other revenues for the first six months is reduced somewhat by the recognition in other revenues of gains on the repurchase of collateral finance facility securities of $46.5 million in 2013. Foreign currency fluctuations relative to the prior year favorably affected income before income taxes by approximately $0.3 million for the second quarter of 2014 and unfavorably by approximately $6.4 million in the first six months of 2014, respectively, as compared to the same periods in 2013. The Company recognizes in consolidated income, any changes in the value of embedded derivatives on modco or funds withheld treaties, equity-indexed annuity treaties ("EIAs") and variable annuity products. The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in a reduction of approximately $64.8 million and $114.8 million in consolidated income before income taxes in the second quarter and first six months of 2014, respectively, as compared to the same periods in 2013. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited. The individual effect on income before income taxes for these three types of embedded derivatives is as follows: The change in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis are subject to the general accounting principles for derivatives and hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, increased income before income taxes by $6.2 million and $0.8 million in the second quarter and first six months of 2014, respectively, as compared to the same periods in 2013. Changes in risk-free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, reduced income before income taxes by $16.4 million and $21.1 million in the second quarter and first six months of 2014, respectively, as compared to the same periods in 2013. The change in the Company's liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, reduced income before income taxes by $54.7 million and $94.5 million in the second quarter and first six months of 2014, respectively, as compared to the same periods in 2013. Consolidated net premiums increased $148.0 million, or 7.3%, and $268.9 million, or 6.7%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013, primarily due to growth in life reinsurance partially offset by foreign currency fluctuations. Foreign currency fluctuations unfavorably affected net premiums by approximately $5.1 million and $55.5 million for the three and six months ended June 30, 2014, as compared to the same periods in 2013. Consolidated assumed insurance in force increased to $3,034.4 billion as of June 30, 2014 from $2,823.8 billion as of June 30, 2013 due to new business production. Foreign currency fluctuations contributed $57.6 billion to the increase in assumed life insurance in force from June 30, 2013. The Company added new business production, measured by face amount of insurance in force, of $118.4 billion and $104.0 billion during the second quarter of 2014 and 2013, respectively, and $217.3 billion and $199.9 billion during the first six months of 2014 and 2013, respectively. Management believes industry consolidation and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced in some markets. Consolidated investment income, net of related expenses, decreased $33.6 million, or 7.6%, and $54.4 million, or 6.3%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The decreases are primarily due to the decrease in market value changes related to the Company's funds withheld at interest investment associated with the reinsurance of certain EIAs which contributed to the decreases in investment income by $45.1 million and $65.7 million in the second quarter and first six months of 2014, respectively. The effect on investment income of the EIA's market value changes is substantially offset by a corresponding change in interest credited to policyholder account balances resulting in an insignificant effect on net income. The decrease in the first six months also reflects a lower effective investment portfolio yield somewhat offset by a larger average invested asset base, excluding spread business. Average invested assets at amortized cost, excluding spread business, for the six months ended June 30, 2014 totaled $19.8 billion, a 10.4% increase over June 30, 2013. The average yield earned on investments, excluding funds withheld and other spread business, was 4.79% and 4.77% for the second quarter of 2014 and 2013, respectively, and 4.76% and 4.80% for the six months ended June 30, 2014 and 2013, respectively. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments. While there has recently been some improvement, a continued low interest rate environment in the U.S. and Canada is expected to put downward pressure on this yield in future reporting periods. Total investment related gains (losses), net increased by $70.3 million and $60.5 million for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increases are primarily due to an increase in the fair value of derivatives used to hedge the embedded derivative liabilities associated with guaranteed minimum living benefits of $55.3 million and $131.5 50



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million, and a favorable change in the embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis of $31.1 million and $18.1 million, in the second quarter and first six months of 2014, respectively. Offsetting these increases was an unfavorable change in the embedded derivatives related to guaranteed minimum living benefits of $41.0 million and $116.0 million in the second quarter and first six months of 2014, respectively. In addition, investment related gains from asset repositioning related to a payout annuity reinsurance transaction, executed in the second quarter of 2014, contributed $12.2 million to the increase in the second quarter and first six months of 2014, and investment impairments on fixed maturity and equity securities decreased by $9.2 million and $9.1 million in the second quarter and first six months of 2014, respectively. See Note 4 - "Investments" and Note 5 - "Derivative Instruments" in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives. Investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment operations. The effective tax rate on a consolidated basis was 34.0% and 33.6% for the second quarter of 2014 and 2013, respectively, and 33.0% and 33.4% for the first six months of 2014 and 2013, respectively. The second quarter and first six months of 2014 effective tax rates were lower than the U.S. statutory rate of 35.0% primarily as a result of income in non-U.S. jurisdictions with lower tax rates than the U.S., and the release of a valuation allowance in the first quarter on tax benefits associated with claims experience on certain treaties, which were partially offset by a tax accrual related to the Active Financing Exception business extender provision that the U.S. Congress did not pass prior to the end of the quarter. The second quarter and first six months of 2013 effective tax rates were lower than the U.S. statutory rate of 35.0% primarily as a result of income in non-U.S. jurisdictions with lower tax rates than the U.S., and differences in tax basis in foreign jurisdictions, which was partially offset by the establishment of a valuation allowance on a portion of Australia's deferred tax asset. Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, results of operations and financial position as reported in the condensed consolidated financial statements could change significantly. Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates and assumptions: Premiums receivable; Deferred acquisition costs; Liabilities for future policy benefits and incurred but not reported claims; Valuation of investments and other-than-temporary impairments to specific investments; Valuation of embedded derivatives; and Income taxes. A discussion of each of the critical accounting policies may be found in the Company's 2013 Annual Report under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies." Further discussion and analysis of the results for 2014 compared to 2013 are presented by segment. 51



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U.S. and Latin America Operations U.S. and Latin America operations consist of two segments: Traditional and Non-Traditional. The Traditional segment primarily specializes in individual mortality-risk reinsurance and to a lesser extent, group, health and long-term care reinsurance. The Non-Traditional segment consists of Asset-Intensive and Financial Reinsurance. Asset-Intensive within the Non-Traditional segment also issues fee-based synthetic guaranteed investment contracts which include investment-only, stable value contracts, to retirement plans. For the three months ended June 30, 2014:



Non-Traditional

(dollars in thousands) Financial Total U.S. and Traditional Asset-Intensive Reinsurance Latin America Revenues: Net premiums $ 1,189,822 $ 4,984 $ - $ 1,194,806 Investment income, net of related expenses 137,404 149,159 1,086 287,649 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (871 ) - - (871 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income - - - - Other investment related gains (losses), net 5,905 86,998 68 92,971 Total investment related gains (losses), net 5,034 86,998 68 92,100 Other revenues 767 29,376 21,777 51,920 Total revenues 1,333,027 270,517 22,931 1,626,475 Benefits and expenses: Claims and other policy benefits 1,045,030 4,713 - 1,049,743 Interest credited 12,818 96,953 - 109,771 Policy acquisition costs and other insurance expenses 156,270 83,241 6,944 246,455 Other operating expenses 24,921 3,813 2,310 31,044 Total benefits and expenses 1,239,039 188,720 9,254 1,437,013 Income before income taxes $ 93,988 $ 81,797



$ 13,677$ 189,462

For the three months ended June 30, 2013:



Non-Traditional

(dollars in thousands) Financial Total U.S. and Traditional Asset-Intensive Reinsurance Latin America Revenues: Net premiums $ 1,136,742 $ 11,129 $ - $ 1,147,871 Investment income, net of related expenses 133,544 200,837 819 335,200 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (8,085 ) - - (8,085 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income (253 ) - - (253 ) Other investment related gains (losses), net 12,049 43,063 (100 ) 55,012 Total investment related gains (losses), net 3,711 43,063 (100 ) 46,674 Other revenues 1,334 29,937 16,306 47,577 Total revenues 1,275,331 284,966 17,025 1,577,322 Benefits and expenses: Claims and other policy benefits 981,768 11,083 - 992,851 Interest credited 13,590 104,263 - 117,853 Policy acquisition costs and other insurance expenses 166,742 97,533 3,602 267,877 Other operating expenses 23,018 2,878 1,636 27,532 Total benefits and expenses 1,185,118 215,757 5,238 1,406,113 Income before income taxes $ 90,213 $ 69,209 $ 11,787$ 171,209 52



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For the six months ended June 30, 2014:



Non-Traditional

(dollars in thousands) Financial Total U.S. and Traditional Asset-Intensive Reinsurance Latin America Revenues: Net premiums $ 2,331,727 $ 10,164 $ - $ 2,341,891 Investment income, net of related expenses 270,780 307,561 2,333 580,674 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (918 ) - - (918 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income - - - - Other investment related gains (losses), net 8,721 163,333 151 172,205 Total investment related gains (losses), net 7,803 163,333 151 171,287 Other revenues 1,409 57,652 40,875 99,936 Total revenues 2,611,719 538,710 43,359 3,193,788 Benefits and expenses: Claims and other policy benefits 2,078,737 8,973 - 2,087,710 Interest credited 25,090 192,037 - 217,127 Policy acquisition costs and other insurance expenses 312,270 177,381 12,686 502,337 Other operating expenses 50,662 7,907 4,487 63,056 Total benefits and expenses 2,466,759 386,298 17,173 2,870,230 Income before income taxes $ 144,960 $ 152,412



$ 26,186$ 323,558

For the six months ended June 30, 2013:



Non-Traditional

(dollars in thousands) Financial Total U.S. and Traditional Asset-Intensive Reinsurance Latin America Revenues: Net premiums $ 2,193,170 $ 14,967 $ - $ 2,208,137 Investment income, net of related expenses 266,079 380,206 1,416 647,701 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (8,247 ) - - (8,247 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income (253 ) - - (253 ) Other investment related gains (losses), net 19,520 131,647 (66 ) 151,101 Total investment related gains (losses), net 11,020 131,647 (66 ) 142,601 Other revenues 1,986 58,818 29,103 89,907 Total revenues 2,472,255 585,638 30,453 3,088,346 Benefits and expenses: Claims and other policy benefits 1,918,649 14,671 - 1,933,320 Interest credited 29,740 213,048 - 242,788 Policy acquisition costs and other insurance expenses 306,814 192,196 7,042 506,052 Other operating expenses 47,296 6,991 3,583 57,870 Total benefits and expenses 2,302,499 426,906 10,625 2,740,030 Income before income taxes $ 169,756 $ 158,732



$ 19,828$ 348,316

Income before income taxes for the U.S. and Latin America operations segment increased by $18.3 million, or 10.7%, and decreased by $24.8 million, or 7.1%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in income before income taxes in the second quarter was primarily driven by the Asset-Intensive segment and related in part to an increase in investment related gains, net of deferred acquisition expenses and favorable changes in credit spreads on the fair value of embedded derivatives associated with treaties written on a modified coinsurance or funds withheld basis. The decrease in the first six months can be largely attributed to the Traditional segment. Unfavorable mortality experience resulted in an increase in the loss ratio to 89.2% for the first six months of 2014 compared to 87.5% in the same period in 2013. 53



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Traditional Reinsurance The U.S. and Latin America Traditional segment provides life and health reinsurance to domestic clients for a variety of products through yearly renewable term, coinsurance and modco agreements. These reinsurance arrangements may involve either facultative or automatic agreements. Income before income taxes for the U.S. and Latin America Traditional segment increased by $3.8 million, or 4.2% and decreased by $24.8 million, or 14.6%, for the three and six months ended June 30, 2014, as compared to the same period in 2013. Quarter over quarter underwriting experience is relatively in line with management's expectations. However, the unfavorable mortality experience seen in the first quarter of 2014 continues to drive down year over year results for the six months ended June 30, 2014. Net premiums increased $53.1 million, or 4.7% and $138.6 million, or 6.3%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in net premiums was driven in part by growth in the health and group related coverages which contributed $31.0 million and $59.4 million to the increase for the second quarter and first six months of 2014, respectively. In addition, the segment added new individual life business production, measured by face amount of insurance in force of $21.8 billion and $22.8 billion during the second quarters, and $42.2 billion and $52.2 billion during the first six months of 2014 and 2013, respectively. Net investment income increased $3.9 million, or 2.9%, and $4.7 million, or 1.8%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increases are due to an increase in the average invested asset base offset by lower yield rates. Investment related gains (losses), net increased $1.3 million and decreased $3.2 million, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. A portion of investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. Claims and other policy benefits as a percentage of net premiums ("loss ratios") were 87.8% and 86.4% for the second quarter of 2014 and 2013, respectively, and 89.2% and 87.5% for the six months ended June 30, 2014 and 2013, respectively. The increase in the loss ratios for the second quarter and first six months was due, in part, to higher than normal volatility in large facultative individual mortality claims. Although reasonably predictable over a period of years, claims can be volatile over short-term periods. Interest credited expense decreased $0.8 million, or 5.7%, and $4.7 million, or 15.6%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. This expense relates primarily to one treaty in which the related investment income decreased proportionately. Interest credited in this segment relates to amounts credited on cash value products which also have a significant mortality component. Income before income taxes is affected by the spread between the investment income and the interest credited on the underlying products. A treaty amendment in the fourth quarter of 2013 reduced the spread earned on this treaty by 25 basis points. Interest earned rates and related interest crediting rates are index driven. Policy acquisition costs and other insurance expenses as a percentage of net premiums were 13.1% and 14.7% for the second quarter of 2014 and 2013, respectively, and 13.4% and 14.0% for the six months ended June 30, 2014 and 2013, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to period. Other operating expenses increased $1.9 million, or 8.3%, and $3.4 million, or 7.1%, for the three and six months ended June 30, 2014, as compared to the same period in 2013. Other operating expenses, as a percentage of net premiums were 2.1% and 2.0% for the second quarter of 2014 and 2013 and 2.2% for both six month periods ended June 30, 2014 and 2013, respectively. Non-Traditional - Asset-Intensive Reinsurance Non-Traditional Asset-Intensive Reinsurance primarily assumes investment risk within underlying annuities and corporate-owned life insurance policies. Most of these reinsurance agreements are coinsurance, coinsurance with funds withheld or modco whereby the Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities, as well as fees associated with variable annuity account values. 54



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Impact of certain derivatives: Income for the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modco basis or funds withheld basis, as well as embedded derivatives associated with the Company's reinsurance of equity-indexed annuities and variable annuities with guaranteed minimum benefit riders. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues), and interest credited. These fluctuations are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented. Revenues before certain derivatives, benefits and expenses before certain derivatives, and income before income taxes and certain derivatives, should not be viewed as substitutes for GAAP revenues, GAAP benefits and expenses, and GAAP income before income taxes. (dollars in thousands) Three months ended June 30,



Six months ended June 30,

2014 2013 2014 2013 Revenues: Total revenues $ 270,517$ 284,966$ 538,710$ 585,638 Less: Embedded derivatives - modco/funds withheld treaties 79,769 46,326 158,465 136,527 Guaranteed minimum benefit riders and related free standing derivatives 6,815 (7,473 ) 7,052 (8,513 ) Revenues before certain derivatives 183,933 246,113 373,193 457,624 Benefits and expenses: Total benefits and expenses 188,720 215,757 386,298 426,906 Less: Embedded derivatives - modco/funds withheld treaties 51,201 26,316 100,628 83,306 Guaranteed minimum benefit riders and related free standing derivatives 2,129 (3,034 ) 2,768 (4,446 ) Equity-indexed annuities 3,631 (12,727 ) 1,501 (19,573 ) Benefits and expenses before certain derivatives 131,759 205,202 281,401 367,619 Income before income taxes: Income before income taxes 81,797 69,209 152,412 158,732 Less: Embedded derivatives - modco/funds withheld treaties 28,568 20,010 57,837 53,221 Guaranteed minimum benefit riders and related free standing derivatives 4,686 (4,439 ) 4,284 (4,067 ) Equity-indexed annuities (3,631 ) 12,727 (1,501 ) 19,573 Income before income taxes and certain derivatives $ 52,174$ 40,911



$ 91,792$ 90,005

Embedded Derivatives - Modco/Funds Withheld Treaties - Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis. The fair value changes of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. Changes in the fair value of the embedded derivative are driven by changes in investment credit spreads, including the Company's own credit risk. Generally, an increase in investment credit spreads, ignoring changes in the Company's own credit risk, will have a negative impact on the fair value of the embedded derivative (decrease in income). Changes in fair values of these embedded derivatives are net of a decrease in revenues of $0.5 million and $0.4 million for the second quarter, and $1.3 million and $2.1 million for the six months ended June 30, 2014 and 2013, respectively, associated with the Company's own credit risk. A 10% increase in the Company's own credit risk rate would have increased revenues for the six months ended June 30, 2014 by approximately $0.1 million. Conversely, a 10% decrease in the Company's own credit risk rate would have decreased revenues for the six months ended June 30, 2014 by approximately $0.1 million. 55



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In the second quarter of 2014, the change in fair value of the embedded derivative increased revenues by $79.8 million and related deferred acquisition expenses increased benefits and expenses by $51.2 million, for a positive pre-tax income impact of $28.6 million. During the second quarter of 2013, the change in fair value of the embedded derivative increased revenues by $46.3 million and related deferred acquisition expenses increased benefits and expenses by $26.3 million, for a positive pre-tax income impact of $20.0 million. In the first six months of 2014, the change in fair value of the embedded derivative increased revenues by $158.5 million and related deferred acquisition expenses increased benefits and expenses by $100.6 million, for a positive pre-tax income impact of $57.8 million. During the first six months of 2013, the change in fair value of the embedded derivative increased revenues by $136.5 million and related deferred acquisition expenses increased benefits and expenses by $83.3 million, for a positive pre-tax income impact of $53.2 million. Guaranteed Minimum Benefit Riders - Represents the impact related to guaranteed minimum benefits associated with the Company's reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives purchased by the Company to partially hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in expenses. Changes in fair values of these embedded derivatives are net of an increase (decrease) in revenues of $0.1 million and $(0.2) million for the three months, and $0.5 million and $(4.9) million for the six months ended June 30, 2014 and 2013, respectively, associated with the Company's own credit risk. A 10% increase in the Company's own credit risk rate would have increased revenues for the six months ended June 30, 2014 by approximately $0.5 million. Conversely, a 10% decrease in the Company's own credit risk rate would have decreased revenues for the six months ended June 30, 2014 by approximately $0.5 million. In the second quarter of 2014, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, increased revenues by $6.8 million and deferred acquisition expenses increased benefits and expenses by $2.1 million for a positive pre-tax income impact of $4.7 million. In the second quarter of 2013, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives decreased revenues by $7.5 million and deferred acquisition expenses decreased benefits and expenses by $3.0 million for a negative pre-tax income impact of $4.4 million. In the first six months of 2014, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, increased revenues by $7.1 million and deferred acquisition expenses increased benefits and expenses by $2.8 million for a positive pre-tax income impact of $4.3 million. In the first six months of 2013, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives decreased revenues by $8.5 million and deferred acquisition expenses decreased benefits and expenses by $4.4 million for a negative pre-tax income impact of $4.1 million. Equity-Indexed Annuities - Represents the impact of changes of the fair value of embedded derivative liabilities associated with equity-indexed annuities, after adjustments for related deferred acquisition expenses. In the second quarter of 2014 and 2013, expenses increased $3.6 million and decreased $12.7 million, respectively. In the first six months of 2014 and 2013, expenses increased $1.5 million and decreased $19.6 million, respectively. The changes in derivatives discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including benchmark rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues) and interest credited. Discussion and analysis before certain derivatives: Income before income taxes and certain derivatives increased by $11.3 million and $1.8 million in the second quarter and first six months of 2014, as compared to the same periods in 2013. The increase in the second quarter was primarily due to favorable interest margin related to a large fixed deferred annuity transaction, coupled with a favorable variable and fixed equity annuities results, in large part due to the favorable equity market experience during the second quarter of 2014 compared to the second quarter of 2013. Also contributing to the increase in income during the second quarter and first six months of 2014 compared to the same periods in 2013 were deferred acquisition expenses related to investment related gains and losses associated with funds withheld and coinsurance portfolios. Funds withheld capital gains and losses are reported through investment income while coinsurance activity is reflected in investment related gains (losses), net. Revenue before certain derivatives decreased by $62.2 million and $84.4 million in the second quarter and first six months of 2014 compared to 2013. The negative variance was primarily a result of changes in investment income related to equity options held in a funds withheld portfolio associated with equity-indexed annuity treaties, coupled with net changes in investment related gains and losses associated with funds withheld and coinsurance portfolios. The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited expense. 56



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Benefits and expenses before certain derivatives decreased by $73.4 million and $86.2 million in the second quarter and first six months of 2014, as compared to the same period in 2013. The variance is primarily related to a decrease in interest credited related to equity options held in funds withheld portfolio associated with equity-indexed annuity treaties. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income. Additionally, deferred acquisition expenses related to investment related gains and losses associated with funds withheld and coinsurance portfolios decreased, for both the three and six months ended June 30, 2014. The invested asset base supporting this segment decreased to $11.0 billion in the second quarter of 2014 from $11.2 billion in the second quarter of 2013. The decrease in the asset base was due primarily to one large closed-block transaction in which the business continues to run-off, as anticipated. As of June 30, 2014, $4.3 billion of the invested assets were funds withheld at interest, of which greater than 90% is associated with one client. Non-Traditional - Financial Reinsurance Non-Traditional Financial Reinsurance income before income taxes consists primarily of net fees earned on financial reinsurance transactions. Financial reinsurance risks are assumed by the U.S. and Latin America segment and a portion is retroceded to other insurance companies or brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts and brokered business are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses. Income before income taxes increased $1.9 million, or 16.0%, and $6.4 million, or 32.1%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in 2014 was the result of additional surplus relief provided as compared to the same periods in 2013. At June 30, 2014 and 2013, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was $5.6 billion and $3.1 billion, respectively. The increase was primarily due to a number of new transactions entered into since June 30, 2013, as well as organic growth on existing transactions. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period. Canada Operations The Company conducts reinsurance business in Canada primarily through RGA Canada, a wholly-owned subsidiary. RGA Canada assists clients with capital management activity and mortality and morbidity risk management, and is primarily engaged in traditional individual life reinsurance, as well as creditor, group life and health, critical illness, and longevity reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance. (dollars in thousands) For the three months ended June 30, For the six months ended June 30, 2014 2013 2014 2013 Revenues: Net premiums $ 253,577 $ 239,633 $ 484,421 $ 482,904 Investment income, net of related expenses 50,080 51,642 97,683 102,197 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities - - - - Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income - - - - Other investment related gains (losses), net 4,193 3,748 2,534 6,803 Total investment related gains (losses), net 4,193 3,748 2,534 6,803 Other revenues 1,263 302 2,224 510 Total revenues 309,113 295,325 586,862 592,414 Benefits and expenses: Claims and other policy benefits 203,293 196,584 398,049 386,282 Interest credited 9 6 9 18 Policy acquisition costs and other insurance expenses 60,837 52,134 113,941 112,966 Other operating expenses 9,954 10,942 19,779 21,181 Total benefits and expenses 274,093 259,666 531,778 520,447 Income before income taxes $ 35,020 $ 35,659 $ 55,084 $ 71,967 57



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Income before income taxes decreased by $0.6 million, or 1.8%, and $16.9 million, or 23.5%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The decrease in income in the first six months was primarily due to unfavorable traditional individual life mortality experience compared to the prior year and a decline of $4.3 million in net investment related gains, (losses), net. Additionally, a weaker Canadian dollar resulted in a decrease in income before income taxes of $2.2 million and $4.4 million for the second quarter and first six months of 2014, as compared to the same periods in 2013. Net premiums increased $13.9 million, or 5.8%, and $1.5 million, or 0.3%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net premiums of approximately $16.4 million and $38.2 million for the second quarter and first six months of 2014, respectively, as compared to the same periods in 2013. Ignoring foreign currency exchange, premiums increased 12.7% and 8.2% in the second quarter and first six months of 2014, respectively, due to new business from both new and existing treaties. Also contributing to the increase in net premiums is an increase from creditor treaties of $15.3 million and $6.0 million for the second quarter and first six months of 2014, respectively, as compared to the same periods in 2013. Excluding the impact of foreign currency exchange, reinsurance in force at June 30, 2014 increased 6.7% over June 30, 2013. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period. Net investment income decreased $1.6 million, or 3.0%, and $4.5 million, or 4.4%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net investment income of approximately $3.3 million and $7.8 million in the second quarter and first six months of 2014, as compared to the same periods in 2013. A portion of investment income and investment related gains and losses are allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. Other revenues increased $1.0 million, or 318.2%, and $1.7 million or 336.1%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in other revenues in the second quarter and the first six months is primarily due to fees associated with financial reinsurance. Loss ratios for this segment were 80.2% and 82.0% for the second quarter of 2014 and 2013, and 82.2% and 80.0% for the six months ended June 30, 2014 and 2013, respectively. Loss ratios for the traditional individual life mortality business were 97.5% and 94.1% for the second quarter of 2014 and 2013, and 98.6% and 94.6% for the six months ended June 30, 2014 and 2013, respectively. Excluding creditor business, claims as a percentage of net premiums for this segment were 96.5% and 94.5% for the second quarter of 2014 and 2013, and 97.2% and 93.9% for the six months ended June 30, 2014 and 2013, respectively. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of long-term permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year claims costs to fund claims in later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. Excluding creditor business, claims and other policy benefits, as a percentage of net premiums and investment income were 76.7% and 74.4% for the second quarter of 2014 and 2013, and 77.2% and 73.7% for the six months ended June 30, 2014 and 2013, respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums were 24.0% and 21.8% for the second quarter of 2014 and 2013, and 23.5% and 23.4% for the six months ended June 30, 2014 and 2013, respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums for traditional individual life business were 11.2% and 12.3% for the second quarter of 2014 and 2013, and 12.9% and 12.6% for the six months ended June 30, 2014 and 2013, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels and product mix. In addition, the amortization patterns of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Other operating expenses decreased by $1.0 million, or 9.0%, and $1.4 million, or 6.6%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in operating expenses of approximately $0.5 million and $1.2 million for the second quarter and first six months of 2014, as compared to the same periods in 2013. Other operating expenses as a percentage of net premiums were 3.9% and 4.6% for the second quarter of 2014 and 2013, and 4.1% and 4.4% for the six months ended June 30, 2014 and 2013, respectively. 58



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Europe, Middle East and Africa Operations The Europe, Middle East and Africa segment includes operations in the United Kingdom ("UK"), South Africa, France, Germany, Ireland, Italy, the Netherlands, Poland, Spain, Turkey and the United Arab Emirates. The segment provides reinsurance for a variety of life and health products through yearly renewable term and coinsurance agreements, critical illness coverage and longevity risk related to payout annuities. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and, in some markets, group risks. (dollars in thousands) Three months ended June 30, Six months ended June 30, 2014 2013 2014 2013 Revenues: Net premiums $ 340,884$ 292,180$ 681,627$ 584,989 Investment income, net of related expenses 20,671 13,623 34,040 25,052 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities - - - - Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income - - - - Other investment related gains (losses), net 21,824 440 25,646 2,212 Total investment related gains (losses), net 21,824 440 25,646 2,212 Other revenues 7,939 3,926 15,862 5,503 Total revenues 391,318 310,169 757,175 617,756 Benefits and expenses: Claims and other policy benefits 282,546 262,443 589,887 522,701 Interest credited 5,750 - 8,536 - Policy acquisition costs and other insurance expenses 11,492 9,396 24,757 21,003 Other operating expenses 30,208 26,381 57,468 51,140 Total benefits and expenses 329,996 298,220 680,648 594,844 Income before income taxes $ 61,322$ 11,949$ 76,527$ 22,912 Income before income taxes increased by $49.4 million, or 413.2%, and $53.6 million, or 234.0%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in income before income taxes for the second quarter and first six months was primarily due to increased business volumes, most notably in fee income treaties, and by favorable claims experience. In addition, investment related gains increased $21.4 million and $23.4 million in the second quarter and first six months of 2014, respectively, largely due to asset repositioning related to a payout annuity reinsurance transaction executed in the second quarter of 2014. Favorable foreign currency exchange fluctuations contributed to the increase in income before income taxes totaling $5.2 million and $5.7 million for the second quarter and first six months ended June 30, 2014, as compared to the same periods in 2013. Net premiums increased $48.7 million, or 16.7%, and $96.6 million, or 16.5%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. Net premiums increased as a result of new business from both new and existing treaties including an increase associated with reinsurance of longevity risk in the UK of $26.2 million and $46.7 million in the second quarter and first six months of 2014, respectively. Favorable foreign currency exchange fluctuations, particularly with the British pound and the Euro strengthening against the U.S. dollar, increased net premiums by approximately $21.2 million and $29.9 million for the second quarter and first six months of 2014, as compared to the same periods in 2013. A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled $66.3 million and $63.7 million for the second quarter of 2014 and 2013 and $131.9 million and $126.9 million for the first six months of 2014 and 2013, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period. Net investment income increased $7.0 million, or 51.7%, and $9.0 million, or 35.9%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. These increases were primarily due to an increase in the invested asset base, of which $1.6 billion is related an invested asset transfer associated with a new payout annuity reinsurance transaction in the UK in the second quarter of 2014, partially offset by a decrease in investment yield. A portion of investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. Other revenues increased by $4.0 million, or 102.2%, and $10.4 million, or 188.2%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in other revenues relates to an increased number of fee income treaties. At June 30, 2014 and 2013, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory 59



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surplus, risk based capital and other financial reinsurance structures was $0.9 billion and $0.2 billion, respectively. The increase was primarily due to a transaction in Continental Europe executed in the last half of 2013. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period. Loss ratios for this segment were 82.9% and 89.8% for the second quarter of 2014 and 2013 and 86.5% and 89.4%, for the first six months ended June 30, 2014 and 2013, respectively. The decrease in the loss ratios is attributable to favorable individual life claims experience over the prior year, primarily in the UK market. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business. Interest credited expense increased by $5.8 million and $8.5 million for the three and six months ended June 30, 2014, as compared to the same period in 2013. Interest credited in this segment relates to amounts credited to the contractholders of unit-linked products associated with the Company's acquisition of Leidsche Verzekeringen Maatschappij N.V. in the third quarter of 2013. The effect on interest credited related to unit-linked products is substantially offset by a corresponding change in investment income and investment related gains (losses), net. Policy acquisition costs and other insurance expenses as a percentage of net premiums were 3.4% and 3.2% for the second quarter of 2014 and 2013 and 3.6% for both six month periods ended June 30, 2014 and 2013, respectively. These percentages fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business. In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums. Other operating expenses increased $3.8 million, or 14.5%, and $6.3 million, or 12.4%, for the three and six months ended June 30, 2014, as compared to the same period in 2013. Other operating expenses as a percentage of net premiums totaled 8.9% and 9.0% for the second quarter of 2014 and 2013, respectively, and 8.4% and 8.7% for the six months ended June 30, 2014 and 2013, respectively. Asia Pacific Operations The Asia Pacific segment includes operations in Australia, Hong Kong, India, Japan, Malaysia, Singapore, New Zealand, South Korea, Taiwan and mainland China. The principal types of reinsurance include life, critical illness, disability, superannuation, and financial reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and, in addition, offer life and disability insurance coverage. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks. (dollars in thousands) Three months ended June 30,



Six months ended June 30,

2014 2013 2014 2013 Revenues: Net premiums $ 393,687$ 355,211$ 775,437$ 739,535 Investment income, net of related expenses 26,325 21,951 50,967 44,581 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities - - - - Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income - - - - Other investment related gains (losses), net 6,285 (4,137 ) 8,799 (8,576 ) Total investment related gains (losses), net 6,285 (4,137 ) 8,799 (8,576 ) Other revenues 56,874 10,953 62,997 18,289 Total revenues 483,171 383,978 898,200 793,829 Benefits and expenses: Claims and other policy benefits 306,320 578,808 609,916 877,209 Interest credited 234 274 480 585 Policy acquisition costs and other insurance expenses 107,909 60,171 162,198 122,257 Other operating expenses 33,780 32,070 64,367 62,881 Total benefits and expenses 448,243 671,323 836,961 1,062,932



Income (loss) before income taxes $ 34,928$ (287,345 ) $

61,239 $ (269,103 ) 60



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Income before income taxes increased by $322.3 million and $330.3 million for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in income before income taxes for the second quarter and first six months is primarily due to an increase of $274.1 million in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits recognized in the second quarter of 2013. Also contributing to the increase in income before taxes for the second quarter and first six months was income associated with the recapture of a previously assumed individual lump sum treaty in Australia. Foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling approximately $1.4 million and $4.6 million for the three and six months of 2014, as compared to the same periods in 2013. Net premiums increased $38.5 million, or 10.8%, and $35.9 million, or 4.9% for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase was driven by both new and existing business written throughout the segment. A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the Asia Pacific segment is offered primarily in South Korea, Australia and Hong Kong. Net premiums earned from this coverage totaled $71.9 million and $51.5 million in the second quarter of 2014 and 2013, and $132.3 million and $106.4 million for the first six months ended June 30, 2014 and 2013, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period. Net investment income increased $4.4 million, or 19.9%, and $6.4 million, or 14.3%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase was primarily due to an increase in the invested asset base offset slightly by lower investment yields. The increase was also offset by an unfavorable change in foreign currency exchange fluctuations of $1.2 million and $4.1 million for the three and six months of 2014, as compared to the same periods in 2013. A portion of investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. Other revenues increased by $45.9 million, or 419.3%, and $44.7 million, or 244.5%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in other revenues is primarily due to a recapture fee associated with an individual lump sum treaty in Australia along with fees associated with the reinstatement and conversion of an existing treaty in Japan. At June 30, 2014 and 2013, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was $1.1 billion and $1.8 billion, respectively. The decrease was primarily due to several financial reinsurance agreements, which are performing as expected, where the amount of reinsurance assumed from the client decreases over time. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period. Loss ratios for this segment were 77.8% and 162.9% for the second quarter of 2014 and 2013 and 78.7% and 118.6% for the six months ended June 30, 2014 and 2013, respectively. The decrease in the loss ratios is primarily due to a $274.1 million increase in Australian group claims liabilities as well as poor claims experience in the Australian operation's individual lump sum and individual disability businesses recognized in the second quarter of 2013. The decrease in liabilities is reflected in the table above in claims and other policy benefits. Excluding the Australia operation, loss ratios for this segment were 76.5% and 78.1% for the three and six months ended June 30, 2013, respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums were 27.4% and 16.9% for the second quarter of 2014 and 2013, and 20.9% and 16.5% for the six months ended June 30, 2014 and 2013, respectively. The increase in the ratios was primarily attributable to the recognition of the DAC relating to the aforementioned individual lump sum treaty recapture in Australia. The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does fluctuate periodically due to timing of client company reporting and variations in the mixture of business. Other operating expenses increased $1.7 million, or 5.3%, and $1.5 million, or 2.4%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. Other operating expenses as a percentage of net premiums totaled 8.6% and 9.0% for the second quarter of 2014 and 2013, and 8.3% and 8.5% for the six months ended June 30, 2014 and 2013, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time. 61



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Corporate and Other Corporate and Other revenues include primarily investment income and investment related gains and losses from unallocated invested assets. Corporate and Other benefits and expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance income line item, unallocated overhead and executive costs, interest expense related to debt, and the investment income and expense associated with the Company's collateral finance facility. Additionally, Corporate and Other includes results from, among others, RTP, a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry. (dollars in thousands) Three months ended June 30,



Six months ended June 30,

2014 2013 2014 2013 Revenues: Net premiums $ 206 $ 261 $ 421 $ (716 ) Investment income, net of related expenses 25,882 21,818 51,618 49,834 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities 1 (1,718 ) (255 ) (1,758 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income - (53 ) - (53 ) Other investment related gains (losses), net (5,876 ) 3,289 (4,913 ) 1,385 Total investment related gains (losses), net (5,875 ) 1,518 (5,168 ) (426 ) Other revenues 2,730 251 7,297 50,707 Total revenues 22,943 23,848 54,168 99,399 Benefits and expenses: Claims and other policy benefits (17 ) (112 ) - (28 ) Interest credited 198 212 404 437 Policy acquisition costs and other insurance income (17,319 ) (19,073 ) (38,986 ) (34,416 ) Other operating expenses 22,476 16,483 33,728 39,837 Interest expense 35,211 29,918 70,295 58,404 Collateral finance facility expense 2,591 2,650 5,160 5,188 Total benefits and expenses 43,140 30,078 70,601 69,422



Income (loss) before income taxes $ (20,197 )$ (6,230 )

$ (16,433 )$ 29,977

Income (loss) before income taxes decreased by $14.0 million, or 224.2%, and $46.4 million, or 154.8%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The decrease for the second quarter is primarily due to a decrease of $7.4 million in investment related gains (losses), net, an increase of a $6.0 million in other operating expenses and a $5.3 million increase in interest expense, slightly offset by an increase in investment income, net of related expenses of $4.1 million. The decrease in the first six months is primarily due to a $43.4 million decrease to other revenues and an increase of $11.9 million in interest expense, slightly offset by a decrease in other operating expenses of $6.1 million. Total revenues decreased by $0.9 million, or 3.8%, and $45.2 million, or 45.5%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The decrease for the second quarter is primarily due to a decrease of $7.4 million in investment related gains (losses), net due to a decrease in investment related gains on other invested assets, partially offset by a $4.1 million increase in investment income, net of related expenses due to higher investment yields. The decrease in the first six months is primarily due to a decrease in other revenues of $43.4 million related to a $46.5 million gain on repurchase of collateral finance facility securities recognized in the first quarter of 2013. Total benefits and expenses increased by $13.1 million, or 43.4%, and $1.2 million, or 1.7%, for the three and six months ended June 30, 2014, as compared to the same periods in 2013. The increase in the second quarter is primarily due to a $6.0 million increase in other operating expenses primarily relating to employee incentive compensation and a $5.3 million increase in interest expense due to a higher level of outstanding debt. The increase in the first six months is primarily due to an increase of $11.9 million in interest expense due to a higher level of outstanding debt, offset by a decrease in other operating expenses of $6.1 million primarily relating to employee incentive compensation and an increase of $4.6 million in policy acquisition costs and other insurance income primarily related to the offset to capital charges allocated to the operating segments. 62



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Liquidity and Capital Resources Current Market Environment The average investment yield, excluding spread business, decreased 4 basis points for the six months ended June 30, 2014 as compared to the same period in 2013. In addition, the Company's insurance liabilities, in particular its annuity products, are sensitive to changing market factors. Lower interest rates and tightening credit spreads have increased gross unrealized gains on fixed maturity and equity securities available-for-sale, which were $2,225.0 million and $1,838.2 million at June 30, 2014 and 2013, respectively. Gross unrealized losses totaled $112.3 million and $310.7 million at June 30, 2014 and 2013, respectively. The Company continues to be in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer. As indicated above, gross unrealized gains on investment securities of $2,225.0 million are well in excess of gross unrealized losses of $112.3 million as of June 30, 2014. Historically low interest rates continued to put pressure on the Company's investment yield. The Company does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future. The Company projects its reserves to be sufficient and it would not expect to write down deferred acquisition costs or be required to take any actions to augment capital, even if interest rates remain at current levels for the next five years, assuming all other factors remain constant. While the Company has felt the pressures of sustained low interest rates and volatile equity markets and may continue to do so, its business operations are not overly sensitive to these risks. Although management believes the Company's current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape. The Holding Company RGA is an insurance holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid to its shareholders, repurchase of common stock and interest payments on its indebtedness. RGA recognized interest expense of $89.2 million and $77.4 million for the six months ended June 30, 2014 and 2013, respectively. RGA made capital contributions to subsidiaries of $115.0 million and $17.0 million for the six months ended June 30, 2014 and 2013, respectively. Dividends to shareholders were $42.0 million and $35.2 million for the six months ended June 30, 2014 and 2013, respectively. There were no principal payments on RGA's debt for the six months ended June 30, 2014 and 2013. The primary sources of RGA's liquidity include proceeds from its capital raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes issued by its subsidiaries and dividends from subsidiaries. RGA recognized interest and dividend income of $49.1 million and $51.2 million for the six months ended June 30, 2014 and 2013, respectively. There was no issuance of unaffiliated or affiliated long-term debt for the six months ended June 30, 2014 and 2013. As the Company continues its business operations, RGA will continue to be dependent upon these sources of liquidity. As of June 30, 2014 and December 31, 2013, RGA held $564.9 million and $788.4 million, respectively, of cash and cash equivalents, short-term and other investments and fixed maturity investments. RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third-parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third-parties have recourse to RGA should the subsidiary fail to provide the required funding, however, as of June 30, 2014, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. See Note 8 - "Commitments and Contingent Liabilities" in the Notes to Condensed Consolidated Financial Statements for a table that presents the commitments by period and maximum obligation. RGA has established an intercompany revolving credit facility where certain subsidiaries can lend to or borrow from each other and from RGA in order to manage capital and liquidity more efficiently. The intercompany revolving credit facility, which is a series of demand loans among RGA and its affiliates, is permitted under applicable insurance laws. This facility reduces overall borrowing costs by allowing RGA and its operating companies to access internal cash resources instead of incurring third-party transaction costs. The statutory borrowing and lending limit for RGA's Missouri-domiciled insurance subsidiaries is currently 3% of the insurance company's admitted assets as of its most recent year-end. There was $91.0 million and $50.0 million outstanding under the intercompany revolving credit facility as of June 30, 2014 and December 31, 2013, respectively. In addition to loans associated with the intercompany revolving credit facility, RGA and its subsidiary, RGA Capital LLC, each provided a loan to RGA Australian Holdings Pty Limited, another RGA subsidiary, with both loans having an outstanding balance of $56.6 million and $26.8 million as of June 30, 2014 and December 31, 2013, respectively. 63



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The Company believes that it has sufficient liquidity for the next 12 months to fund its cash needs under various scenarios that include the potential risk of early recapture of reinsurance treaties and higher than expected death claims. Historically, the Company has generated positive net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, preferred securities or common equity and, if necessary, the sale of invested assets subject to market conditions. In July 2014, the Company's quarterly dividend increased to $0.33 per share from $0.30 per share. All future payments of dividends are at the discretion of RGA's board of directors and will depend on the Company's earnings, capital requirements, insurance regulatory conditions, operating conditions, and other such factors as the board of directors may deem relevant. The amount of dividends that RGA can pay will depend in part on the operations of its reinsurance subsidiaries. See Note 12 - "Stock Transactions" in the Notes to Condensed Consolidated Financial Statements for information on the Company's share repurchase program. Cash Flows The Company's principal cash inflows from its reinsurance operations include premiums and deposit funds received from ceding companies. The primary liquidity concerns with respect to these cash flows are early recapture of the reinsurance contract by the ceding company and lapses of annuity products reinsured by the Company. The Company's principal cash inflows from its invested assets result from investment income and the maturity and sales of invested assets. The primary liquidity concern with respect to these cash inflows relates to the risk of default by debtors and interest rate volatility. The Company manages these risks very closely. See "Investments" and "Interest Rate Risk" below. Additional sources of liquidity to meet unexpected cash outflows in excess of operating cash inflows and current cash and equivalents on hand include selling short-term investments or fixed maturity securities and drawing funds under a revolving credit facility, under which the Company had availability of $619.4 million as of June 30, 2014. The Company also has $484.3 million of funds available through collateralized borrowings from the Federal Home Loan Bank of Des Moines ("FHLB"). The Company's principal cash outflows relate to the payment of claims liabilities, interest credited, operating expenses, income taxes, and principal and interest under debt and other financing obligations. The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts (See Note 2, "Summary of Significant Accounting Policies" of the Company's 2013 Annual Report). The Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires nor to the recoverability of future claims. The Company's management believes its current sources of liquidity are adequate to meet its cash requirements for the next 12 months. Summary of Primary Sources and Uses of Liquidity and Capital The Company's primary sources and uses of liquidity and capital are summarized as follows: For the six months ended June 30, 2014 2013 (Dollars in thousands) Sources: Net cash provided by operating activities $



907,810 $ 805,121

Net cash provided by short-term debt issuances



110,000 120,000

Excess tax benefits from share-based payment arrangement



1,268 2,420

Exercise of stock options, net



9,578 11,439

Change in securities sold under agreements to repurchase

and cash

collateral for derivative positions 47,561 - Effect of exchange rate changes on cash 18,483 - Total sources 1,094,700 938,980 Uses: Net cash used in investing activities



95,373 407,978

Dividends to stockholders



41,955 35,169

Repurchase and repayment of collateral finance facility

securities



- 112,000

Purchases of treasury stock



179,592 234,690

Change in securities sold under agreements to repurchase

and cash

collateral for derivative positions



- 31,858

Cash used for changes in universal life and other

investment type policies and contracts



323,310 357,327

Effect of exchange rate changes on cash



- 46,231

Total uses



640,230 1,225,253 Net increase (decrease) in cash and cash equivalents $ 454,470$ (286,273 )

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Cash Flows from Operations - The principal cash inflows from the Company's insurance activities come from insurance premiums, annuity considerations and deposit funds. The principal cash outflows relate to the liabilities associated with various life and health insurance, annuity and disability products, operating expenses, income tax and interest on outstanding debt obligations. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal. Cash Flows from Investments - The principal cash inflows from the Company's investment activities come from repayments of principal on invested assets, proceeds from maturities of invested assets, sales of invested assets, settlements of freestanding derivatives and net investment income. The principal cash outflows relate to purchases of investments, issuances of policy loans and settlements of freestanding derivatives. The Company typically has a net cash outflow from investing activities because cash inflows from insurance operations are reinvested in accordance with its asset/liability management discipline to fund insurance liabilities. The Company closely monitors and manages these risks through its credit risk management process. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. Financing Cash Flows - The principal cash inflows from the Company's financing activities come from issuances of RGA debt and equity securities, and deposit funds associated with universal life and other investment type policies and contracts. The principal cash outflows come from repayments of debt, payments of dividends to stockholders, purchases of treasury stock, and withdrawals associated with universal life and other investment type policies and contracts. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal. Debt Certain of the Company's debt agreements contain financial covenant restrictions related to, among others, liens, the issuance and disposition of stock of restricted subsidiaries, minimum requirements of consolidated net worth, maximum ratios of debt to capitalization and change of control provisions. The Company is required to maintain a minimum consolidated net worth, as defined in the debt agreements, of $2.8 billion, calculated as of the last day of each fiscal quarter. Also, consolidated indebtedness, calculated as of the last day of each fiscal quarter, cannot exceed 35% of the sum of the Company's consolidated indebtedness plus adjusted consolidated net worth. A material ongoing covenant default could require immediate payment of the amount due, including principal, under the various agreements. Additionally, the Company's debt agreements contain cross-default covenants, which would make outstanding borrowings immediately payable in the event of a material uncured covenant default under any of the agreements, including, but not limited to, non-payment of indebtedness when due for an amount in excess of $100.0 million, bankruptcy proceedings, or any other event which results in the acceleration of the maturity of indebtedness. As of June 30, 2014 and December 31, 2013, the Company had $2,324.7 million and $2,214.4 million, respectively, in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. The ability of the Company to make debt principal and interest payments depends on the earnings and surplus of subsidiaries, investment earnings on undeployed capital proceeds, available liquidity at the holding company, and the Company's ability to raise additional funds. Scheduled repayments of debt over the next five years total $110.0 million in 2014 and $300.0 million in 2017. The Company enters into derivative agreements with counterparties that reference either the Company's debt rating or its financial strength rating. If either rating is downgraded in the future, it could trigger certain terms in the Company's derivative agreements, which could negatively affect overall liquidity. For the majority of the Company's derivative agreements, there is a termination event should the long-term senior debt ratings drop below either BBB+ (S&P) or Baa1 (Moody's) or the financial strength ratings drop below either A- (S&P) or A3 (Moody's). The Company may borrow up to $850.0 million in cash and obtain letters of credit in multiple currencies on its revolving credit facility that expires in December 2015. As of June 30, 2014, the Company had no cash borrowings outstanding and $230.6 million in issued, but undrawn, letters of credit under this facility. As of June 30, 2014 and December 31, 2013, the average interest rate on short-term and long-term debt outstanding was 5.50% and 5.76%, respectively. Based on the historic cash flows and the current financial results of the Company, management believes RGA's cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months. Collateral Finance Facilities and Statutory Reserve Funding The Company uses various internal and third-party reinsurance arrangements and funding sources to manage statutory reserve strain, including reserves associated with Regulation XXX, and collateral requirements. Assets in trust and letters of credit are often used as collateral in these arrangements. Regulation XXX, implemented in the U.S. for various types of life insurance business beginning January 1, 2000, significantly increased the level of reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level premium term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. In situations where primary insurers have reinsured business to reinsurers that are unlicensed and unaccredited in the U.S., the reinsurer must 65



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provide collateral equal to its reinsurance reserves in order for the ceding company to receive statutory financial statement credit. In order to manage the effect of Regulation XXX on its statutory financial statements, RGA Reinsurance has retroceded a majority of Regulation XXX reserves to unaffiliated and affiliated unlicensed reinsurers. RGA Reinsurance's statutory capital may be significantly reduced if the unaffiliated or affiliated reinsurer is unable to provide the required collateral to support RGA Reinsurance's statutory reserve credits and RGA Reinsurance cannot find an alternative source for collateral. In 2006, RGA's subsidiary, Timberlake Financial L.L.C. ("Timberlake Financial"), issued $850.0 million of Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance and retroceded to Timberlake Reinsurance Company II ("Timberlake Re"). Proceeds from the notes, along with a $112.8 million direct investment by the Company, were deposited into a series of accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. Interest on the notes accrues at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly. The payment of interest and principal on the notes is insured through a financial guaranty insurance policy by a monoline insurance company whose parent company emerged from Chapter 11 bankruptcy in 2013. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries. Timberlake Financial relies primarily upon the receipt of interest and principal payments on a surplus note and dividend payments from its wholly-owned subsidiary, Timberlake Re, a South Carolina captive insurance company, to make payments of interest and principal on the notes. The ability of Timberlake Re to make interest and principal payments on the surplus note and dividend payments to Timberlake Financial is contingent upon the South Carolina Department of Insurance's regulatory approval. Approval to pay interest on the surplus note was granted through March 30, 2015. The Company's condensed consolidated balance sheets include the assets of Timberlake Financial, a wholly-owned subsidiary, recorded as fixed maturity investments and other invested assets, which consists of restricted cash and cash equivalents, with the liability for the notes recorded as collateral finance facility. The Company's consolidated statements of income include the investment return of Timberlake Financial as investment income and the cost of the facility is reflected in collateral finance facility expense. In order to enhance liquidity and capital efficiency within the group, various operating subsidiaries have purchased $500.0 million of RGA subordinated debt. Similarly, RGA also purchased $475.0 million of surplus notes issued by its subsidiary Rockwood Re. These intercompany debt securities are eliminated for consolidated financial reporting. Based on the growth of the Company's business and the pattern of reserve levels under Regulation XXX associated with term life business and other statutory reserve requirements, the amount of ceded reserve credits is expected to grow. This growth will require the Company to obtain additional letters of credit, put additional assets in trust, or utilize other funding mechanisms to support the reserve credits. If the Company is unable to support the reserve credits, the regulatory capital levels of several of its subsidiaries may be significantly reduced. The reduction in regulatory capital would not directly affect the Company's consolidated shareholders' equity under GAAP; however, it could affect the Company's ability to write new business and retain existing business. The National Association of Insurance Commissioners has been analyzing the insurance industry's use of affiliated captive reinsurers to satisfy certain reserve requirements and considering ways to promote uniformity in both the approval and supervision of such reinsurers. Affiliated captives are commonly used in the insurance industry to help reduce statutory reserve and collateral requirements and are often domiciled in the same state as the insurance company that sponsors the captive. If a state insurance regulator that regulates any of the Company's domestic insurance companies restricts the use of captive reinsurers or makes them less effective, the Company's ability to reinsure certain products, maintain risk based capital ratios and deploy excess capital could be adversely affected. As a result, the Company may need to alter the type and volume of business it reinsures, increase prices on those products, raise additional capital to support higher regulatory reserves or implement higher cost strategies, all of which could adversely impact the Company's competitive position and its results of operations. No changes in the use or regulation of captives have been adopted and it is too early to predict the extent of any changes that may be made. Accordingly, the Company expects to continue its strategy of using captives to enhance its capital efficiency and competitive position while it monitors the regulations related to captives and any proposed changes in such regulations. The Company cannot estimate the impact of discontinuing or altering its captive strategy in response to potential regulatory changes due to many unknown variables such as the cost and availability of alternative capital, potential changes in regulatory reserving requirements under a principle-based reserving approach which would likely reduce required collateral, changes in acceptable collateral for statutory reserves, the potential introduction of the concept of a "certified reinsurer" in the laws and regulations in certain jurisdictions where the Company operates, the potential for increased pricing of products offered by the Company and the potential change in mix of products sold and/or offered by the Company and/or its clients. 66



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Asset / Liability Management The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis. The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality. The Company's asset-intensive products are primarily supported by investments in fixed maturity securities reflected on the Company's balance sheet and under funds withheld arrangements with the ceding company. Investment guidelines are established to structure the investment portfolio based upon the type, duration and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. The Company manages the asset-intensive business to provide a targeted spread between the interest rate earned on investments and the interest rate credited to the underlying interest-sensitive contract liabilities. The Company periodically reviews models projecting different interest rate scenarios and their effect on profitability. Certain of these asset-intensive agreements, primarily in the U.S. and Latin America operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company. The Company's liquidity position (cash and cash equivalents and short-term investments) was $1,423.7 million and $1,063.0 million at June 30, 2014 and December 31, 2013, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of $104.0 million and $51.0 million as of June 30, 2014 and December 31, 2013, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is included in other liabilities in the Company's condensed consolidated balance sheets. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs. The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company's condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company's condensed consolidated balance sheets. See "Securities Borrowing and Other" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for information related to the Company's repurchase/reverse repurchase program. In addition to its security agreements with third parties, certain RGA's subsidiaries have entered into intercompany securities lending agreements to more efficiently source securities for lending to third parties and to provide for more efficient regulatory capital management. RGA Reinsurance is a member of the Federal Home Loan Bank of Des Moines ("FHLB") and holds $38.4 million of FHLB common stock, which is included in other invested assets on the Company's condensed consolidated balance sheets. Membership provides RGA Reinsurance access to borrowing arrangements ("advances") and funding agreements, discussed below, with the FHLB. RGA Reinsurance had $110.0 million in outstanding advances with the FHLB at June 30, 2014 which is shown as short-term debt on the Company's condensed consolidated balance sheets. RGA Reinsurance did not have advances at December 31, 2013. RGA Reinsurance's average outstanding balance of advances was $106.4 million and $59.3 million during the second quarter and first six months of 2014, respectively, and $17.0 million and $8.5 million during the second quarter and first six months of 2013, respectively. Interest on advances is reflected in interest expense on the Company's condensed consolidated statements of income. In addition, RGA Reinsurance has also entered into funding agreements with the FHLB under guaranteed investment contracts whereby RGA Reinsurance has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on RGA Reinsurance's commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize RGA Reinsurance's obligations under the funding agreements. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB's recovery is limited to the amount of RGA Reinsurance's liability under the outstanding funding agreements. The amount of the RGA Reinsurance's liability for the funding agreements with the FHLB under guaranteed investment contracts was $601.1 million and $597.1 million at June 30, 2014 and December 31, 2013, respectively, which is included in interest sensitive contract liabilities on the Company's condensed consolidated balance sheets. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities and commercial mortgage loans. The amount of collateral exceeds the liability and is dependent on the type of assets collateralizing the guaranteed investment contracts. 67



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Investments

Management of Investments The Company's investment and derivative strategies involve matching the characteristics of its reinsurance products and other obligations and to seek to closely approximate the interest rate sensitivity of the assets with estimated interest rate sensitivity of the reinsurance liabilities. The Company achieves its income objectives through strategic and tactical asset allocations, security and derivative strategies within an asset/liability management and disciplined risk management framework. Derivative strategies are employed within the Company's risk management framework to help manage duration, currency, and other risks in assets and/or liabilities and to replicate the credit characteristics of certain assets. For a discussion of the Company's risk management process see "Market Risk" in the "Enterprise Risk Management" section below. The Company's portfolio management groups work with the Enterprise Risk Management function to develop the investment policies for the assets of the Company's domestic and international investment portfolios. All investments held by the Company, directly or in a funds withheld at interest reinsurance arrangement, are monitored for conformance with the Company's stated investment policy limits as well as any limits prescribed by the applicable jurisdiction's insurance laws and regulations. See Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company's investments. Portfolio Composition The Company had total cash and invested assets of $36.8 billion and $33.4 billion at June 30, 2014 and December 31, 2013, respectively, as illustrated below (dollars in thousands): December 31, June 30, 2014 % of Total 2013 % of Total Fixed maturity securities, available-for-sale $ 24,480,396 66.6 % $ 21,474,136 64.4 % Mortgage loans on real estate 2,555,800 6.9 2,486,680 7.4 Policy loans 1,250,635 3.4 1,244,469 3.7 Funds withheld at interest 5,940,521 16.2 5,771,467 17.3 Short-term investments 45,596 0.1 139,395 0.4 Other invested assets 1,128,375 3.1 1,324,960 4.0 Cash and cash equivalents 1,378,117 3.7 923,647 2.8



Total cash and invested assets $ 36,779,440 100.0 % $ 33,364,754 100.0 %

Investment Yield The following table presents consolidated average invested assets at amortized cost, net investment income and investment yield, excluding spread related business. Spread related business is primarily associated with contracts on which the Company earns an interest rate spread between assets and liabilities. Fluctuations in the yield on spread related business is generally subject to varying degrees, by corresponding adjustments to the interest credited on the liabilities (dollars in thousands). Three months ended June 30, Six months ended June 30, Increase/ Increase/ 2014 2013 (Decrease) 2014 2013 (Decrease) Average invested assets at amortized cost $ 20,121,261$ 18,112,841 11.1 % $ 19,807,087$ 17,946,154 10.4 % Net investment income 236,604 212,047 11.6 466,248 425,369 9.6 Investment yield (ratio of net investment income to average invested assets) 4.79 % 4.77 % 2 bps 4.76 % 4.80 % (4) bps Investment yield increased for the three months ended June 30, 2014 in comparison to the same period in the prior year due to increased income from limited partnership investments. Investment yield decreased for the six months ended June 30, 2014 in comparison to the same period in the prior year due to lower yields upon reinvestment, primarily related to a lower interest rate environment on a historical basis, offset by the increased income from limited partnership investments as reflected in the second quarter yield increase. 68



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Fixed Maturity and Equity Securities Available-for-Sale See "Fixed Maturity and Equity Securities Available-for-Sale" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for tables that provide the amortized cost, unrealized gains and losses, estimated fair value of fixed maturity and equity securities, and the other-than-temporary impairments in AOCI by sector as of June 30, 2014 and December 31, 2013. The Company's fixed maturity securities are invested primarily in corporate bonds, mortgage- and asset-backed securities, and U.S. and Canadian government securities. As of June 30, 2014 and December 31, 2013, approximately 94.9% and 93.7%, respectively, of the Company's consolidated investment portfolio of fixed maturity securities were investment grade. Important factors in the selection of investments include diversification, quality, yield, call protection and total rate of return potential. The relative importance of these factors is determined by market conditions and the underlying reinsurance liability and existing portfolio characteristics. The largest asset class in which fixed maturity securities were invested was corporate securities, which represented approximately 57.8% and 56.4% of total fixed maturity securities as of June 30, 2014 and December 31, 2013, respectively. See "Corporate Fixed Maturity Securities" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for tables showing the major industry types, which comprise the corporate fixed maturity holdings at June 30, 2014 and December 31, 2013. As of June 30, 2014, the Company's investments in Canadian and Canadian provincial government securities represented 15.3% of the fair value of total fixed maturity securities compared to 15.7% of the fair value of total fixed maturity securities at December 31, 2013. These assets are primarily high quality, long duration provincial strips whose valuation is closely linked to the interest rate curve. These assets are longer in duration and held primarily for asset/liability management to meet Canadian regulatory requirements. See "Fixed Maturity and Equity Securities Available-for-Sale" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for tables showing the various sectors as of June 30, 2014 and December 31, 2013. The Company references rating agency designations in some of its investment disclosures. These designations are based on the ratings from nationally recognized rating organizations, primarily those assigned by S&P. In instances where a S&P rating is not available, the Company will reference the rating provided by Moody's and in the absence of both the Company will assign equivalent ratings based on information from the NAIC. The NAIC assigns securities quality ratings and uniform valuations called "NAIC Designations" which are used by insurers when preparing their U.S. statutory filings. Effective January 1, 2014, structured securities (mortgage-backed and asset-backed securities) held by the Company's insurance subsidiaries that maintain the NAIC statutory basis of accounting began utilizing the NAIC rating methodology. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation). The quality of the Company's available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at June 30, 2014 and December 31, 2013 was as follows (dollars in thousands): June 30, 2014 December 31, 2013 NAIC Rating Agency Estimated Estimated Designation Designation Amortized Cost Fair Value % of Total Amortized Cost Fair Value % of Total 1 AAA/AA/A $ 14,646,888$ 16,304,796 66.6 % $ 12,868,061$ 13,867,584 64.6 % 2 BBB 6,527,092 6,942,290 28.3 6,072,604 6,255,451 29.1 3 BB 669,569 706,926 2.9 725,733 740,465 3.4 4 B 362,960 364,395 1.5 387,687 400,775 1.9 5 CCC and lower 143,292 142,805 0.6 106,619 106,873 0.5 6 In or near default 23,545 19,184 0.1 110,030 102,988 0.5 Total $ 22,373,346$ 24,480,396 100.0 % $ 20,270,734$ 21,474,136 100.0 % 69



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The Company's fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at June 30, 2014 and December 31, 2013 (dollars in thousands):

June 30, 2014 December 31, 2013 Estimated Estimated Amortized Cost Fair Value Amortized Cost Fair Value Residential mortgage-backed securities: Agency $ 564,397$ 594,042$ 567,113$ 580,855 Non-agency 382,034 392,097 403,321 408,788 Total residential mortgage-backed securities 946,431 986,139 970,434 989,643 Commercial mortgage-backed securities 1,380,622 1,474,620 1,314,782 1,388,946 Asset-backed securities 993,116 1,008,375 891,751 894,832 Total $ 3,320,169$ 3,469,134$ 3,176,967$ 3,273,421 The residential mortgage-backed securities include agency-issued pass-through securities and collateralized mortgage obligations. A majority of the agency-issued pass-through securities are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments from the expected, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments from the expected. In addition, non-agency mortgage-backed securities face credit risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks. As of June 30, 2014 and December 31, 2013, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling $1,380.6 million and $1,314.8 million, and estimated fair values of $1,474.6 million and $1,388.9 million, respectively. Approximately 99.3% of the commercial mortgage-backed securities were considered investment-grade utilizing the rating methodology described above as of June 30, 2014. Commercial mortgage-backed securities with a vintage year of 2007 or prior totaled $894.2 million, or 60.6%, of the June 30, 2014, commercial mortgage-backed securities' estimated fair value balance with the concentration within the 2005 through 2007 vintage years. The Company had no other-than-temporary impairments in its investments in commercial mortgage-backed securities for the three and six months ended June 30, 2014. The Company recorded $10.1 million of other-than-temporary impairments in its investments in commercial mortgage-backed securities for the three and six months ended June 30, 2013. Asset-backed securities include credit card and automobile receivables, subprime mortgage-backed securities, home equity loans, manufactured housing bonds and collateralized debt obligations (primarily collateralized loan obligations). The Company owns floating rate securities that represent approximately 13.8% and 14.0% of the total fixed maturity securities at June 30, 2014 and December 31, 2013, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the condensed consolidated balance sheets as collateral finance facility. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities' cash flow priority in the capital structure and the inherent prepayment sensitivity of the underlying collateral. Credit risks include the adequacy and ability to realize proceeds from the collateral. Credit risks are mitigated by credit enhancements which include excess spread, over-collateralization and subordination. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace. The Company monitors its fixed maturity and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, current intent and ability to hold securities, and various other subjective factors. Based on management's judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. See "Investments - Other-than-Temporary Impairment" in Note 2 - "Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in the 2013 Annual Report for additional information. The table below summarizes other-than-temporary impairments for the three and six months ended June 30, 2014 and 2013 (dollars in thousands). 70



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Table of Contents Three months ended June 30, Six months ended June 30, Asset Class 2014 2013 2014 2013 Structured securities $ - $ 10,109 $ - $ 10,109 Corporate / Other fixed maturity securities 870 - 1,173 202 Equity securities - - - - Other impairment losses and change in mortgage loan provision 5,309 (125 ) 3,645 1,501 Total $ 6,179$ 9,984$ 4,818$ 11,812 At June 30, 2014 and December 31, 2013, the Company had $112.3 million and $324.6 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. The distribution of the gross unrealized losses related to these securities is shown below. June 30, 2014 December 31, 2013 Sector: Corporate securities 57.6 % 65.4 % Canadian and Canada provincial governments 3.5 5.2 Residential mortgage-backed securities 8.9 5.8 Asset-backed securities 8.1 4.9 Commercial mortgage-backed securities 8.0 5.4 State and political subdivisions 4.1 4.4 U.S. government and agencies 1.5 1.5



Other foreign government supranational and foreign government-sponsored enterprises

8.3 7.4 Total 100.0 % 100.0 % Industry: Finance 20.5 % 20.3 % Asset-backed 8.1 4.9 Industrial 29.5 38.8 Mortgage-backed 16.9 11.2 Government 17.4 18.5 Utility 7.6 6.3 Total 100.0 % 100.0 % See "Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for a table that presents the total gross unrealized losses for fixed maturity and equity securities at June 30, 2014 and December 31, 2013, respectively, where the estimated fair value had declined and remained below amortized cost by less than 20% or more than 20%. The Company's determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company's credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. In the Company's impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows and the deferability features of these securities. As of June 30, 2014 and December 31, 2013, there were immaterial gross unrealized losses on equity securities greater than 20 percent of the amortized cost for more than 12 months. See "Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for tables that present information related to the Company's purchases of credit impaired securities in 2014 and 2013. See "Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for tables that present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for fixed maturity and equity securities that have estimated fair values below amortized cost, by class and grade security, as well as the length of and time the related market value has remained below amortized cost as of June 30, 2014 and December 31, 2013. 71



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As of June 30, 2014 and December 31, 2013, respectively, the Company classified approximately 9.1% and 10.2% of its fixed maturity securities in the Level 3 category (refer to Note 6 - "Fair Value of Assets and Liabilities" in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities, bank loans, below investment grade commercial and residential mortgage-backed securities and subprime asset-backed securities with inactive trading markets. See "Securities Borrowing and Other" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for information related to the Company's securities borrowing program and its repurchase/reverse repurchase program. Mortgage Loans on Real Estate Mortgage loans represented approximately 6.9% and 7.5% of the Company's cash and invested assets as of June 30, 2014 and December 31, 2013, respectively. The Company's mortgage loan portfolio consists of U.S. based investments primarily in commercial offices, light industrial properties and retail locations. The mortgage loan portfolio is diversified by geographic region and property type as discussed further under "Mortgage Loans on Real Estate" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements. Valuation allowances on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses. See "Mortgage Loans on Real Estate" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for information regarding valuation allowances and impairments. Policy Loans Policy loans comprised approximately 3.4% and 3.7% of the Company's cash and invested assets as of June 30, 2014 and December 31, 2013, respectively, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. Because policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities. Funds Withheld at Interest Funds withheld at interest comprised approximately 16.2% and 17.3% of the Company's cash and invested assets as of June 30, 2014 and December 31, 2013, respectively. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company's consolidated balance sheets. In the event of a ceding company's insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed by the ceding company. Interest accrues to these assets at rates defined by the treaty terms. Additionally, under certain treaties the Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance. Ceding companies with funds withheld at interest had an average rating of "A" at June 30, 2014 and December 31, 2013. Certain ceding companies maintain segregated portfolios for the benefit of the Company. Other Invested Assets Other invested assets include equity securities, limited partnership interests, joint ventures, structured loans, derivative contracts and contractholder-directed investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate accounts. Other invested assets represented approximately 3.1% and 4.0% of the Company's cash and invested assets as of June 30, 2014 and December 31, 2013, respectively. See "Other Invested Assets" in Note 4 - "Investments" in the Notes to Condensed Consolidated Financial Statements for a table that presents the carrying value of the Company's other invested assets by type as of June 30, 2014 and December 31, 2013. The Company did not record any other-than-temporary impairments on equity securities in the first six months of 2014 or 2013. The Company recorded $4.2 million of other-than-temporary impairments on limited partnership interests in the second quarter and first six months of 2014. The Company did not record any other-than-temporary impairments on limited partnership interests in the second quarter of 2013 and recorded $2.4 million in the first six months of 2013. 72



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The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company's derivative contracts is limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company had credit exposure related to its derivative contracts, excluding futures, of $13.0 million and $9.7 million at June 30, 2014 and December 31, 2013, respectively. See "Credit Risk" in Note 5 - "Derivative Instruments" in the Notes to Condensed Consolidated Financial Statements for additional information. Contractual Obligations From December 31, 2013 to June 30, 2014, the Company's obligation related to future policy benefits increased by $1,371.8 million due to a payout annuity reinsurance transaction, executed in the second quarter of 2014. The Company's obligation related to other policy claims and benefits increased since December 31, 2013 by $425.0 million primarily due to an increase in claims pending and incurred claims not reported. The Company's obligation for payables for collateral received under derivative transactions increased by $53.0 million due to an increase in cash received as collateral on derivative positions, its obligation to fund limited partnerships increased by $51.6 million and its obligation for other investment related commitments increased by $69.8 million since December 31, 2013. In addition, since December 31, 2013, the Company's obligation for short-term debt, including interest, increased by $110.1 million due to advances from the FHLB as previously discussed. There were no other material changes in the Company's contractual obligations from those reported in the 2013 Annual Report. Enterprise Risk Management RGA maintains an Enterprise Risk Management ("ERM") program to consistently identify, assess, mitigate, monitor, and communicate all material risks facing the organization in order to effectively manage all risks, increasing protection of RGA's clients, shareholders, employees, and other stakeholders. RGA's ERM framework provides a platform to assess the risk / return profiles of risks throughout the organization, thereby enabling enhanced decision making. This includes development and implementation of mitigation strategies to reduce exposures to these risks to acceptable levels. Risk management is an integral part of the Company's culture and is interwoven in day to day activities. It includes guidelines, risk appetites, risk targets, risk limits, and other controls in areas such as mortality, morbidity, longevity, pricing, underwriting, currency, administration, investments, asset liability management, counterparty exposure, geographic exposure, financing, asset leverage, regulatory change, business continuity planning, human resources, liquidity, collateral, sovereign risks and information technology development. The Chief Risk Officer ("CRO"), aided by the Risk Management Steering Committee ("RMSC"), Business Unit Chief Risk Officers, Risk Management Officers and a dedicated ERM function, is responsible for ensuring, on an ongoing basis, that objectives of the ERM framework are met; this includes ensuring proper risk controls are in place, risks are effectively identified, assessed and managed, and key risks to which the Company is exposed are disclosed to appropriate stakeholders. For each Business Unit and key risk, a Risk Management Officer is assigned. A Risk Officer is also assigned to take overall responsibility of a specific risk across all markets to monitor and assess this risk consistently. In addition to this network of Risk Management Officers, the Company also has risk focused committees such as the Business Continuity and Information Governance Steering Committee, Consolidated Investment Committee, Derivatives Risk Oversight Committee, Asset and Liability Management Committee, Hedging Oversight Committee, Collateral and Liquidity Committee, and the Currency Risk Management Committee. These committees are comprised of various risk experts and have overlapping membership, enabling consistent and holistic management of risks. These committees report directly or indirectly to the RMSC. The RMSC, which includes senior management executives, including the Chief Executive Officer, the Chief Financial Officer ("CFO"), the Chief Operating Officer ("COO") and the CRO, is the primary risk management oversight for the Company. The RMSC approves both targets and limits for each material risk and reviews these limits annually. Exposure to these risks is calculated and presented to the RMSC at least quarterly. Any exception to established risk limits or waiver needs to be approved by the RMSC. The CRO, reports regularly to the Finance, Investment and Risk Management ("FIRM") Committee, a sub-committee of the Board of Directors responsible, among other duties, for overseeing the management of RGA's ERM programs and policies. An extensive ERM report is presented to the FIRM quarterly. The report contains information on all risks as well as qualitative and quantitative assessments. Breaches, exceptions and waivers are also included in the report. The Board of Directors has other committees, such as the Audit Committee, whose responsibilities include aspects of risk management. The CRO reports to the CFO and has direct access to the RGA Board of Directors, through the FIRM Committee. The Company has devoted significant resources to develop its ERM program, and expects continuing to do so in the future. Nonetheless, the Company's policies and procedures to identify, manage and monitor risks may not be fully effective. Many of the Company's methods for managing risk are based on historical information, which may not be a good predictor of future risk exposures, such as the risk of a pandemic causing a large number of deaths. Management of operational, legal and regulatory risk rely on policies and procedures which may not be fully effective under all scenarios. 73



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The Company categorizes its main risks as follows: Insurance Risk

Market Risk Credit Risk Operational Risk Specific risk assessments and descriptions can be found below and in Item 1A - "Risk Factors" of the 2013 Annual Report. Insurance Risk The risk of loss due to experience deviating adversely from expectations for mortality, morbidity, and policyholder behavior or lost future profits due to treaty recapture by clients. This category is further divided into mortality, morbidity, longevity, policyholder behavior, and client recapture. The Company uses multiple approaches to managing insurance risk: active insurance risk assessment and pricing appropriately for the risks assumed, transferring undesired risks, and managing the retained exposure prudently. These strategies are explained below. Insurance Risk Assessment and Pricing The Company has developed extensive expertise in assessing insurance risks which ultimately forms an integral part of ensuring that it is compensated commensurately for the risks it assumes and that it does not overpay for the risks it transfers to third parties. This expertise includes a vast array of market and product knowledge supported by a large information database of historical experience which is closely monitored. Analysis and experience studies derived from this database help form the basis for the Company's pricing assumptions which are used in developing rates for new risks. If actual mortality or morbidity experience is materially adverse, some reinsurance treaties allow for increases to future premium rates. Misestimation of any key risk can threaten the long term viability of the enterprise. Further, the pricing process is a key operational risk and significant effort is applied to ensuring the appropriateness of pricing assumptions. Some of the safeguards the Company uses to ensure proper pricing are: experience studies, strict underwriting, sensitivity and scenario testing, pricing guidelines and controls, authority limits and internal and external pricing reviews. In addition, the Global ERM function provides additional pricing oversight which includes periodic pricing audits. Risk Transfer To minimize volatility in financial results and reduce the impact of large losses, the Company transfers some of its insurance risk to third parties using vehicles such as retrocession and catastrophe coverage. Retrocession In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises (or retrocessionaires) under excess coverage and coinsurance contracts. In individual life markets, the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations the Company has retained more than $8.0 million per individual life. The Company enters into agreements with other reinsurers to mitigate the residual risk related to the over-retained policies. Additionally, due to some lower face amount reinsurance coverages provided by the Company in addition to individual life, such as group life, disability and health, under certain circumstances, the Company could potentially incur claims totaling more than $8.0 million per individual life. Catastrophe Coverage The Company accesses the markets each year for annual catastrophic coverages and reviews current coverage and pricing of current and alternate designs. Purchases vary from year to year based on the Company's perceived value of such coverages. The current policy covers events involving 10 or more insured deaths from a single occurrence and covers $100 million of claims in excess of the Company's $50 million deductible. Mitigation of Retained Exposure The Company retains most of the inbound insurance risk. The Company manages the retained exposure proactively using various mitigating factors such as diversification and limits. Diversification is the primary mitigating factor of short term volatility risk, but it also mitigates adverse impacts of changes in long term trends and catastrophic events. The Company's insured populations are dispersed globally, diversifying the insurance exposure because factors that cause actual experience to deviate materially from expectations do not affect all areas uniformly and synchronously or in close sequence. A variety of limits mitigate retained insurance risk. Examples of these limits include geographic exposure limits, which set the maximum amount of business that can be written in a given locale, and jumbo limits, which prevent excessive coverage on a given individual. 74



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In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA's mortality risk. Market Risk Market risk is the risk that net asset and liability values or revenue will be affected adversely by changes in market conditions such as market prices, exchange rates, and nominal interest rates. The Company is primarily exposed to interest rate, foreign currency, inflation and equity risks. Interest Rate Risk Interest rate risk is the potential for loss, on a net asset and liability basis, due to changes in interest rates, including both normal rate changes and credit spread changes. This risk arises from many of the Company's primary activities, as the Company invests substantial funds in interest-sensitive assets and also has certain interest-sensitive contract liabilities. The Company manages interest rate risk to maximize the return on the Company's capital effectively and to preserve the value created by its business operations. As such, certain management monitoring processes are designed to minimize the effect of sudden and/or sustained changes in interest rates on fair value, cash flows, and net interest income. The Company manages its exposure to interest rates principally by matching floating rate liabilities with corresponding floating rate assets and by matching fixed rate liabilities with corresponding fixed rate assets. On a limited basis, the Company uses equity options to minimize its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products. The Company's exposure to interest rate price risk and interest rate cash flow risk is reviewed on a quarterly basis. Interest rate price risk exposure is measured using interest rate sensitivity analysis to determine the change in fair value of the Company's financial instruments in the event of a hypothetical change in interest rates. Interest rate cash flow risk exposure is measured using interest rate sensitivity analysis to determine the Company's variability in cash flows in the event of a hypothetical change in interest rates. In order to reduce the exposure of changes in fair values from interest rate fluctuations, the Company has developed strategies to manage the interest rate sensitivity of its asset base. From time to time, the Company has utilized the swap market to manage the volatility of cash flows to interest rate fluctuations. Foreign Currency Risk The Company is subject to foreign currency translation, transaction, and net income exposure. The Company manages its exposure to currency principally by matching invested assets with the underlying liabilities to the extent possible. The Company has in place net investment hedges for a portion of its investments in its Canadian and Australian operations to reduce excess exposure to these currencies. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders' equity on the condensed consolidated balance sheets. The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). However, the Company has entered into certain interest rate swaps in which the cash flows are denominated in different currencies, commonly referred to as cross currency swaps. Those interest rate swaps have been designated as cash flow hedges. The majority of the Company's foreign currency transactions are denominated in Australian dollars, British pounds, Canadian dollars, Euros, Japanese yen, Korean won, and the South African rand. The maximum amount of assets held in a specific currency (with the exception of the U.S. Dollar) is measured relative to risk targets and is monitored regularly. Inflation Risk The primary direct effect on the Company of inflation is the increase in operating expenses. A large portion of the Company's operating expenses consists of salaries, which are subject to wage increases at least partly affected by the rate of inflation. The rate of inflation also has an indirect effect on the Company. To the extent that a government's policies to control the level of inflation result in changes in interest rates, the Company's investment income is affected. The Company reinsures annuities with benefits indexed to the cost of living. These benefits are hedged with a combination of CPI swaps and indexed government bonds. Equity Risk Equity risk is the risk that net asset and liability (e.g. variable annuities or other equity linked exposures) values or revenues will be affected adversely by changes in equity markets. The Company assumes equity risk from embedded derivatives in alternative investments, fixed indexed annuities and variable annuities. 75



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Alternative Investments Alternative Investments are investments in non-traditional asset classes that are most commonly backing capital and surplus and not liabilities. The Company generally restricts the alternative investments portfolio to non-liability supporting assets: that is, free surplus. For (re)insurance companies, alternative investments generally encompass: hedge funds, owned commercial real estate, emerging markets debt, distressed debt, commodities, infrastructure, tax credits, and equities, both public and private. The Company mitigates its exposure to alternative investments by limiting the size of the alternative investments holding. Fixed Indexed Annuities Credits for fixed indexed annuities are affected by changes in equity markets. Thus the fair value of the benefit is a function of primarily index returns and volatility. The Company hedges some of the underlying equity exposure. Variable Annuities The Company reinsures variable annuities including those with guaranteed minimum death benefits ("GMDB"), guaranteed minimum income benefits ("GMIB"), guaranteed minimum accumulation benefits ("GMAB") and guaranteed minimum withdrawal benefits ("GMWB"). Strong equity markets, increases in interest rates and decreases in volatility will generally decrease the fair value of the liabilities underlying the benefits. Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing reserves and lowering earnings. The Company maintains a customized dynamic hedging program that is designed to substantially mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits, ignoring the Company's own credit risk assessment. However, the hedge positions may not fully offset the changes in the carrying value of the guarantees due to, among other things, time lags, high levels of volatility in the equity and derivative markets, extreme swings in interest rates, unexpected contract holder behavior, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on the Company's net income, financial condition or liquidity. The table below provides a summary of variable annuity account values and the fair value of the guaranteed benefits as of June 30, 2014 and December 31, 2013. (dollars in millions) June 30, 2014 December 31, 2013 No guarantee minimum benefits $ 941 $ 961 GMDB only 84 86 GMIB only 6 6 GMAB only 50 52 GMWB only 1,741 1,752 GMDB / WB 462 467 Other 30 31 Total variable annuity account values $ 3,314 $ 3,355 Fair value of liabilities associated with living benefit riders $ 59 $ 30 There has been no significant change in the Company's quantitative or qualitative aspects of market risk during the quarter ended June 30, 2014 from that disclosed in the 2013 Annual Report. Credit Risk Credit risk is the risk of loss due to counterparty (obligor, client, retrocessionaire, or partner) credit deterioration or unwillingness to meet its obligations. Credit risk has two forms: investment credit risk (asset default and credit migration) and insurance counterparty risk. Investment Credit Risk Investment credit risk, which includes default risk, is risk of loss due to credit quality deterioration of an individual financial investment, derivative or non-derivative contract or instrument. Credit quality deterioration may or may not be accompanied by a ratings downgrade. Generally, the investment credit exposure is limited to the carrying value, net of any collateral received, at the reporting date. 76



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The Company manages investment credit risk using per-issuer investments limits. In addition to per-issuer limits, the Company also limits the total amounts of investments per rating category. An automated compliance system checks for compliance for all investment positions and sends warning messages when there is a breach. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments. The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that vary depending on the posting party's financial strength ratings. Additionally, a decrease in the Company's financial strength rating to a specified level results in potential settlement of the derivative positions under the Company's agreements with its counterparties. The Collateral and Liquidity Committee sets rules, approves and oversees all deals requiring collateral. See "Credit Risk" in Note 5 - "Derivative Instruments" in the Notes to Condensed Consolidated Financial Statements for additional information on credit risk related to derivatives. Insurance Counterparty Risk Insurance counterparty risk is the potential for the Company to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk. Run-on-the-Bank The risk that a client's in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Severely higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs. Collection Risk For clients and retrocessionaires, this includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to RGA. The Company manages insurance counterparty risk by limiting the total exposure to a single counterparty and by only initiating contracts with creditworthy counterparties. In addition, some of the counterparties have set up trusts and letters of credit, reducing the Company's exposure to these counterparties. Generally, RGA's insurance subsidiaries retrocede amounts in excess of their retention to RGA Reinsurance, Parkway Re, RGA Barbados, RGA Americas, Rockwood Re, Manor Re, RGA Worldwide or RGA Atlantic. External retrocessions are arranged through the Company's retrocession pools for amounts in excess of its retention. As of June 30, 2014, all retrocession pool members in this excess retention pool rated by the A.M. Best Company were rated "A-" or better. A rating of "A-" is the fourth highest rating out of fifteen possible ratings. For a majority of the retrocessionaires that were not rated, letters of credit or trust assets have been given as additional security. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims. Aggregate Counterparty Limits In addition to investment credit limits and insurance counterparty limits, there are aggregate counterparty risk limits which include counterparty exposures from reinsurance, financing and investment activities at an aggregated level to control total exposure to a single counterparty. Counterparty risk aggregation is important because it enables the Company to capture risk exposures at a comprehensive level and under more extreme circumstances compared to analyzing the components individually. All counterparty exposures are calculated on a quarterly basis, reviewed by management and monitored by the ERM function. 77



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Operational Risk Operational risk is the risk of loss due to inadequate or failed internal processes, people or systems, or external events. These risks are sometimes residual risks after insurance, market and credit risks have been identified. Operational risk is further divided into: Process, Legal/Regulatory, Financial, and Intangibles. The Company's financial risk includes liquidity risk, which is risk that cash resources are insufficient to meet the Company's cash demands without incurring unacceptable costs. Liquidity demands come primarily from payment of claims, expenses and investment purchases, all of which are known or can be reasonably forecasted. Contingent liquidity demands exist and require the Company to inventory and estimate likely and potential liquidity demands stemming from stress scenarios. The Company maintains cash, cash equivalents, credit facilities, and short-term liquid investments to support its current and future anticipated liquidity requirements. The Company may also borrow via the reverse repo market, and holds a large pool of unrestricted, FHLB-eligible collateral that may be pledged to support any FHLB advances needed to provide additional liquidity. The amount of liquidity available both within 24 hours and within 72 hours is reviewed and reported at least weekly. In order to effectively manage operational risks, management primarily relies on: Risk Culture Risk management is embedded in RGA's business processes in accordance with RGA's risk philosophy. As the cornerstone of the ERM framework, risk culture plays a preeminent role in the effective management of risks assumed by RGA. At the heart of RGA's risk culture is prudent risk management. Senior management sets the tone for RGA risk culture, inculcating positive risk attitudes so as to entrench sound risk management practices into day-to-day activities. Structural Controls Structural controls provide additional safeguards against undesired risk exposures. Examples of structural controls include: pricing and underwriting reviews, standard treaty language, etc. Risk Monitoring and Reporting Proactive risk monitoring and reporting enable early detection and mitigation of emerging risks. For example, there is elevated regulatory activity in the wake of the global financial crisis and RGA is actively monitoring regulatory proposals in order to respond optimally. Risk escalation channels coupled with open communication lines enhance the mitigants explained above. New Accounting Standards See Note 13 - "New Accounting Standards" in the Notes to Condensed Consolidated Financial Statements. 78



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