MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS one RGA subsidiary company to another RGA subsidiary or make payments under the treaty. These conditions generally include unusual or remote circumstances, such as change in control,  insolvency, nonperformance under a treaty, or loss of reinsurance license of such subsidiary. If RGA was ever required to perform under these obligations, the risk to the consolidated company  under the reinsurance treaties does not change; however, additional capital may be required due to the change in jurisdiction of the subsidiary reinsuring the business and may create a strain on liquidity. contracts reported at fair value, nor has it engaged in relationships or transactions with persons or entities that derive benefits from their non-independent relationship with RGA. RGA has issued guarantees to third parties on behalf of its  subsidiaries’ performance for the payment of amounts due under certain credit facilities, reinsurance treaties and an office lease obligation, whereby if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. In limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new,  unrated, or not of a significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party, totaled $188.3 million as of December 31, 2003 and are reflected on the Company’s consolidated balance sheet in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to credit facilities provide additional security to third party banks should a subsidiary fail to make principal and/or interest payments when due. As of December 31, 2003, RGA’s exposure related to credit facility guarantees was $48.6 million and is reflected on the consolidated balance sheet in long-term debt. RGA’s maximum potential guarantee under the credit facilities is $53.1 million. RGA has issued a guarantee on behalf of a subsidiary in the event the subsidiary fails to make payment under its office lease obligation. As of December 31, 2003, the maximum potential exposure was approximately $3.0 million. In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the  maximum potential amount due under this indemnity in the future. The Company has no obligations, assets or liabilities other than those reflected in the financial statements. Further, the Company has not engaged in trading activities involving non-exchange traded Off Balance Sheet Arrangements Guarantees Cash Flows The Company’s principal cash inflows from its reinsurance  operations are premiums and deposit funds received from ceding companies. The primary liquidity concern with respect to these cash flows is early recapture of the reinsurance contract by the  ceding company. The Company’s principal cash inflows from its investing activities result from investment income, maturity and sales of invested assets, and repayments of principal. 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 include selling short-term investments or fixed maturity securities and drawing additional funds under existing credit facilities, under which the Company  had availability of $129.5 million as of December 31, 2003. In May 2003, the Company successfully renewed its U.S. credit  facility which now expires in May 2006 and has a capacity of $175.0 million, up from $140.0 million. As of December 31, 2003, the Company’s outstanding balance was $50 million under this facility. The Company’s principal cash outflows primarily relate to the  payment of claims liabilities, interest credited, operating expenses, income taxes, and principal and interest under debt obligations. The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsur- ance to other insurance enterprises or reinsurers under excess  coverage and coinsurance contracts (See Note 2, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements). The Company also retrocedes most of its financial reinsurance business to other insurance companies to  alleviate regulatory capital requirements created by this business. The Company performs annual financial reviews of its retrocession- aires to evaluate financial stability and performance. The Company has never experienced a material default in connection with retro- cession 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 or as to the recoverability of any such claims. The Company’s management believes its current sources of liquidity are adequate to meet its current cash requirements.  THIS IS RGA. 2003 ANNUAL REPORT 38