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$4B cession in RGA reinsurance deal impacts MassMutual's 2017 results

Massachusetts Mutual Life Insurance Co. posted its lowest level of net premiums and annuity considerations in six years during 2017, but not due to any weakness in the company's sales of one of its key life insurance products.

Based on a review of the annual statement pages the company posted on its website Feb. 27, the cession of more than $4 billion in life premiums to RGA Reinsurance Co. under a reinsurance agreement effective Dec. 31, 2017, had a significant impact throughout MassMutual's income statement, including on the top line.

MassMutual on a stand-alone, individual company basis reported $17.49 billion in net premiums and annuity considerations in 2017, down from $21.41 billion in 2016. Its gross business volume, however, dipped only to $22.43 billion from $22.74 billion. Sharply higher ceded premiums of $4.94 billion in 2017 as compared with $1.33 billion in 2016, including an increase to $4.06 billion from $55.6 million in the group life line, were almost entirely responsible for the lower net number.

In the 20 years prior to 2016, MassMutual had not reported more than $819.2 million in ceded premiums annually across business lines. But as the notes to the annual statement explain, it entered reinsurance agreements in each of the last two years that served to boost its total cessions.

A series of agreements that took effect Dec. 31, 2016, involved the cession of certain of MassMutual's in-force universal life, variable life and 20-year term life policies. The company gave $85 million of consideration to the third-party reinsurer and ceded $473.4 million in premiums and $410.6 million in reserves. Schedule S, Part 3 of MassMutual's annual statement indicates that it recorded reserve credits totaling $410.6 million in 2016 for separate agreements with Swiss Re Life & Health America Inc. that took effect Dec. 31 of that year.

The reinsurance agreement that took effect at the end of 2017, meanwhile, involved certain in-force universal life policies. It was structured as a combination of 90% coinsurance funds withheld on certain of the policies and 40% yearly renewable term on certain other universal life policies, according to the notes to the annual statement. In addition to the premiums ceded, MassMutual ceded $4 billion in reserves and recorded a $4 billion liability for funds held under coinsurance.

Although MassMutual did not link RGA to the agreement in the notes to the annual statement, Schedule S, Part 3 of the filing shows the reinsurer as the counterparty on an agreement effective Dec. 31, 2017, with $4 billion of premiums ceded, a $4 billion reserve credit and $4 billion in funds withheld under coinsurance.

A Reinsurance Group of America Inc. spokesperson declined additional comment. RGA Reinsurance's largest individual relationships with unaffiliated companies in the life business as of year-end 2016 based on reserves assumed were with Midland National Life Insurance Co. and John Hancock Life Insurance Co. (USA).

MassMutual retains responsibility for servicing the reinsured policies under the 2016 and 2017 agreements and will continue to manage the assets under the latter deal.

Elsewhere on the income statement, the company said its aggregate reserves declined by $4 billion as a result of the Dec. 31, 2017, pact. As such, while its total revenue fell to $25.45 billion in 2017 from $29.05 billion in 2016, its total underwriting deductions declined to $23.73 billion from $27.62 billion. Its pretax, pre-policyholder dividend net gain from operations increased to $1.72 billion from $1.43 billion.

MassMutual announced in a release that its whole-life insurance products achieved record sales on a consolidated basis, including Bay State Insurance Co. and C.M. Life Insurance Co., for a 12th consecutive year in 2017.

Whole-life ranked as MassMutual's second-largest source of premium income in 2016, behind group annuities. The company said it ranked as the nation's No. 1 writer of whole-life insurance, citing preliminary results from a fourth-quarter retail individual life sales report from LIMRA.

The life insurance exhibit of its 2017 annual statement shows that the number and aggregate amounts of whole-life and endowment policies issued increased 20.6% and 16.3%, respectively.

Exhibit 1 data from the filing shows that the company achieved growth in the combination of direct first-year and single premiums of 9.7% in ordinary life, 5.7% in group life and 11.3% in ordinary individual annuities. But they declined 16.7% in the group annuity business, which pressured the company's gross writings on an overall basis.