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Reinsurance Group of America Inc. (RGA - Analyst Report) reported second quarter 2012 operating earnings of $1.66 per share, lagging the Zacks Consensus Estimate by 12 cents but up 3.5% year over year. The earnings miss was the result of an adverse foreign exchange movement along with higher effective tax rates and lower share count.

Total revenue increased 7.8% year over year to $2.38 billion led by increased net premiums and lower investment related losses, offset by lower net investment income.
Net premiums increased 9.1% year over year to $1.95 billion.

Investment income was down 3% year over year, totaling $328.3 million, primarily due to a decline in fair value of option contracts. A low interest rate environment continues to drain income from investments.

Total benefits and expenses increased 7.1% year over year to $2.16 billion owing to an increase in claims and other policy benefits, and higher operating expenses, partly offset by lower interest expense and decline in collateral finance facility expense.

Segment Results

US Operations Traditional sub segment reported pre-tax operating income of $95.5 million, up 5% year over year. Premiums were up 11% year over year to $1.08 billion.
The Asset Intensive business, another sub-segment of the U.S. operations, was adversely affected by a muted performance in the equity markets during the quarter and reported a pre-tax operating income of $16.6 million, down 19% year over year.

The U.S. Financial Reinsurance business, another sub-segment, continued to perform well and reported operating income of $9.6 million, up 37% year over year.
The Canada segment posted a 5% year-over-year increase in premiums to $221.2 million.  Pre-tax operating income decreased 27% year over year to $30.5 million, primarily due to less favorable mortality experience compared to the prior-year quarter.

The Europe & South Africa segment recorded a 10% hike in premium in the quarter to $310.1 million. However, pre-tax operating income decreased significantly by 36% year over year to $18.4 million, primarily due to better-than-expected claims.

The Asia-Pacific segment reported a pre-tax operating profit of $22.7 million, up nearly fivefold year over year, led by favorable mortality experience and a high fee income from financial reinsurance transaction. Premiums rose 5% to $331.9 million.

Adjusted book value per share, a measure of net worth, increased 12.3% year over year to $60.34 per share.

The company declared a 33% increase in quarterly dividend to 22 cents per share, which will be paid on August 31, 2012.

2012 Guidance

In the absence of any update on 2012 outlook, we believe that the earlier earnings per share guidance range of $6.70 – $7.30 persists.

Reinsurance Group competes primarily with, a subsidiary of Berkshire Hathaway Inc. (BRK.A - Snapshot Report)(BRK.B - Analyst Report) and Munich Re, Swiss Re, General Re. The stock currently retains a Zacks # 2 Rank, which translates into a short-term Buy rating. Considering the fundamentals, we are maintaining our long-term Neutral recommendation on the shares.

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