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We are reiterating our ‘Neutral’ recommendation on the shares of Reinsurance Group of America Inc. (RGA - Analyst Report) following the fourth quarter earnings release. Diversified operations and a significant position in the U.S. will help it to perform favorably, over the long term.
 
Why Reiterate?
 
Reinsurance Group holds a significant position in the U.S. and Canada. It has fully geared itself to maintain its competitive position in the in North American reinsurance market by growing Facultative Reinsurance, Automatic Reinsurance and In Force Block Reinsurance. 
 
It is also focusing on its underwriting standards, prompt response on quotes, competitive pricing as well as capacity and flexibility to meeting customer needs, in an attempt to preserve its position.  The acquisition of ReliaStar’s group life and health reinsurance business has helped it to penetrate deeper in the North American market. 
 
Reinsurance Group is aggressively growing its international operations to reap the benefits of diversification. Management is eyeing key Asian markets, particularly India and China, which represent long-term significant opportunities given the low reinsurance penetration in these markets. Going forward, management continues to see significant market opportunities in this segment. 
 
As a result of consolidations in recent years within the life reinsurance industry, there are fewer competitors. As a consequence, we believe that the life reinsurance pricing environment will remain attractive for the existing life reinsurers, particularly for those with a significant market presence. Reinsurance Group controls approximately 19.4% of market share in North America and ranks second only to Swiss Re holding 21.4% on the basis of individual life reinsurance in force. It has strong ratings.
 
Some of the negatives include weak equity markets coupled with interest rates, which are expected to remain low in 2013, and put additional pressure on Reinsurance Group’s Asset Intensive business. Moreover, management’s conservative positioning of the investment portfolio is expected to exert pressure on yield.
 
Other stocks 
 
Cincinnati Financial Corp. (CINF - Analyst Report), XL Group plc (XL - Analyst Report) each carrying Zacks Rank #1(Strong Buy), RLI Corp. (RLI - Analyst Report) with Zacks Rank #2 (Buy), are among other property and casualty insurers worth considering.

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