MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS embedded derivative feature must be measured at fair value on  the balance sheet and changes in fair value reported in income.  Substantially all of the Company’s funds withheld receivable  balance is associated with its reinsurance of annuity contracts.  The funds withheld receivable balance totaled $2.7 billion at December 31, 2003, of which $2.0 billion are subject to the  provisions of Issue B36 (see Note 2—“New Accounting Pronouncements” in Notes to Consolidated Financial Statements for further discussion). The Company’s asset-intensive products are primarily supported by investments in fixed maturity securities. 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 impact on profitability. Certain of these asset-intensive agreements, primarily in the U.S. operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company. Funds withheld at interest comprised approximately 30.6% and 29.7% of the Company’s investments as of December 31, 2003 and 2002, respectively. For 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 balance sheet. 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 to the Company from the ceding company. Interest accrues to these assets at rates defined by the treaty terms. 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 A.M. Best rating of “A+”. Certain ceding companies maintain  segregated portfolios for the benefit of the Company. Based on  data provided by ceding companies as of December 31, 2003, funds withheld at interest were approximately (in thousands):  Based on data provided by the ceding companies as of December 31, 2003, the maturity distribution of the segregated portfolio portion of funds withheld at interest was approximately (in thousands): THIS IS RGA. 2003 ANNUAL REPORT At December 31, 2003 Book Value Market Value % of Total Underlying Security Type: Investment grade U.S. corporate securities $1,854,933 $1,934,579 90.8% Below investment grade U.S. corporate securities 87,190 85,262 4.0% Unrated securities 16,903 16,890 0.8% Other 90,764 94,843 4.4% Total segregated portfolios 2,049,790 2,131,574 100.0% Funds withheld at interest associated with non-segregated portfolios 667,488 667,488 Total funds withheld at interest $2,717,278 $2,799,062 At December 31, 2003 Book Value Market Value % of Total Maturity: Within one year $ 35,763 $ 40,361 1.9% More than one, less than five years 473,441 495,177 23.2% More than five, less than ten years 1,249,003 1,297,882 60.9% Ten years or more 291,583 298,154 14.0% Total all years $2,049,790 $2,131,574 100.0% 42