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Reinsurance Group of America Inc. ( ( RGA - Analyst Report ) ) reported fourth quarter 2011 operating earnings of $1.91 per share, higher than the Zacks Consensus Estimate of $1.84 per share. The earnings outperformance can be attributed to better-than-expected growth in net premium coupled with lower effective tax rates and lower share count. Earnings were, however, down 11% year over year.
Total revenue increased 3.5% year over year to $2.35 billion, led by increased net premiums, partly offset by lower net investment income and higher investment related losses.
Net premiums increased 13% year over year to $2.03 billion, primarily due to growth in life reinsurance and foreign currency fluctuations.
Investment income was down 14% year over year, totaling $304.5 million, yielding 5.19%, which was down 24 basis points from last year’s fourth quarter
Total expense increased 6.4% year over year to $2.1 billion due to increase in claims and other policy benefits, higher operating and interest expense as well as increase in collateral finance facility expense.
For the full year 2011, the company reported earnings of $7.28 per share, 7 cents ahead of the Zacks Consensus Estimate of $7.21 per share. Total revenues were $8.8 billion, up 6.0% year over year.
US Operations reported pre-tax operating income of $120.1 million, down 9.5% year over year. Premiums were up 9% year over year to $1.1 billion. The asset intensive business in the U.S. was hampered by poor performance in the equity markets during the quarter and reported a pre-tax operating income of $13.2 million, down from $56.4 million in the year-ago period.
The U.S. Financial Reinsurance business continued to perform well in this quarter and added $6.8 million of pre-tax income compared with $5.6 million last year, primarily due to higher fee income from new business. Management expects a premium growth of approximately 5% – 7% for the segment.
The Canada segment posted a premium increase of 9% and grossed $224.8 million in the quarter. Pre-tax operating income increased 12% year over year to $41million in the quarter attributable to better-than-expected mortality experience. Management expects a premium growth of approximately 7% – 9% for the segment.
The Europe & South Africa segment recorded a 38% hike in premium in the quarter to total $356.3 million. Pre-tax operating income increased 6.3% year over year to $38.6 million in the quarter, from $36.4 million last year, when claims experience was particularly favorable. Management expects premium growth of approximately 4% – 6% for the segment.
The Asia-Pacific segment reported a pre-tax operating loss of $1.2 million in sharp contrast with operating income of $8.1 million reported in the prior year quarter, particularly due to unfavorable disability experience in Australia. Premiums rose 8% to $348.45 million. Management expects premium growth of approximately 6% – 8% for the segment.
Book value per share, a measure of net worth, increased 9.2% year over year to $61.53 per share.
Management projects operating income per diluted share to be within a range of $6.70 – $7.30.
Despite the global market and economic disruptions, overall results reflect that Reinsurance Group has performed favorably well in 2011. The company has diversified its operations and holds a significant position in the U.S. The acquisition of ReliaStar has further consolidated its position as a leader in the North American market. An expanding international business also boosts long-term growth.
The company is poised to benefit from consolidations within the life reinsurance industry. However, headwinds such as reliance on retrocession, increased retention and compliance with Solvency II requirements in the European region remain a concern. Nevertheless, a stable balance sheet and strong ratings inspire our confidence in the company.
Reinsurance Group competes primarily with Munich Re , Swiss Re, and General Re, a subsidiary of Berkshire Hathaway Inc. ( BRK.A - Snapshot Report ) ( BRK.B - Analyst Report ) . The stock currently retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining our long-term “Neutral” recommendation on the shares.
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