It has been about a month since the last earnings report for Reinsurance Group (RGA - Free Report) . Shares have lost about 1.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Reinsurance Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Reinsurance Group Q2 Earnings Beat, Revenues Miss
Reinsurance Group of America, Incorporated reported second-quarter 2020 adjusted operating income of $1.36 per share against the Zacks Consensus Estimate of a loss of $1.02. However, the bottom line declined 58.9% from the year-ago quarter’s figure.
Net foreign currency fluctuations had an adverse impact of 4 cents on the bottom line. Reinsurance Group witnessed increased net premiums and solid results in Asia/Pacific, and Europe, Middle East and Africa (EMEA) segments, offset by soft performance at U.S. and Latin America and Canada segments.
Reinsurance Group's operating revenues of $3.5 billion improved 2% year over year. However, the top line missed the Zacks Consensus Estimate by 0.02%. Net premiums of $2.8 billion rose 0.9% year over year. Investment income (excluding spread-based businesses and the value of associated derivatives) decreased 1% from the prior-year quarter to $305 million. Average investment yield decreased 31 basis points from the prior-year period to 4.07% due to lower variable investment income and an increase in cash and cash equivalents.
Total benefits and expenses at Reinsurance Group increased 6.4% year over year to $3.4 billion. Higher claims and other policy benefits, interest credited and policy acquisition costs and other insurance expenses resulted in cost escalation.
Quarterly Segment Update
U.S. and Latin America: Total pre-tax adjusted operating loss was $78 million in the quarter under discussion against pre-tax income of $148 million in the year-ago quarter. The Traditional segment reported pre-tax adjusted operating loss of $165 million against the year-ago income of $59 million, reflecting unfavorable individual mortality experience due to excess claims that were probably COVID-19 related. Net premiums rose 3.1% from the year-ago quarter to $1.4 billion. Asset Intensive segment’s pre-tax adjusted operating income decreased 8.7% to $63 million. Capital Solutions business reported pre-tax adjusted operating income of $24 million, which increased 20% year over year, attributable to new business.
Canada: Total pre-tax adjusted operating income declined 10.2% to $44 million. Traditional segment’s pre-tax adjusted operating income decreased 11.1% to $40 million due to negative impact from COVID-19 claims, partially offset by favorable Group experience. However, forex had an adverse effect of $1 million on the metric. Net premiums decreased 3.8% to $254 million due to adverse foreign currency effects of $9 million. Financial Solutions segment’s pre-tax adjusted operating income of $4 million remained unchanged from the year-ago period. Net foreign currency fluctuations had an immaterial effect on pre-tax income and pre-tax adjusted operating income.
Europe, Middle East and Africa (EMEA): Total pre-tax adjusted operating income of $95 million increased 46.1% from the prior-year quarter’s figure. Pre-tax adjusted operating income of the traditional segment was $16 million, flat year over year. The results were in line with management's expectations as the negative impact from COVID-19 claims in the U.K. were offset by favorable morbidity experience overall and favorable mortality experience in Continental Europe. Net foreign currency fluctuations had a negative impact of $2 million. Premiums increased 0.3% year over year to $352 million.
Foreign currency exchange rates adversely impacted net premiums by $20 million. Financial Solutions segment delivered pre-tax adjusted operating income of $79 million, up 61.2% from the year-ago quarter, indicating favorable longevity experience. Net foreign currency fluctuations had an adverse impact of $2 million on the metric.
Asia/Pacific: Total pre-tax adjusted operating income of nearly $59 million increased 55.3% from the prior-year quarter. Traditional segment’s pre-tax adjusted operating income of $47 million was up 38.2%. Net foreign currency fluctuations had a favorable effect of $2 million on the metric. Premiums increased 0.2% to $607 million. Foreign currency exchange rates had an adverse effect of $12 million on net premiums. Financial Solutions segment’s pre-tax adjusted operating income increased 200% to $12 million, attributable to continued new business growth in Asia. Net premiums decreased 29.5% to $31 million. Foreign currency exchange rates had a favorable effect of $1 million on net premiums.
Corporate and Other: Pre-tax adjusted operating loss was $11 million, narrower than $33 million in the prior-year period.
As of Jun 30, 2020, Reinsurance Group had assets worth $80.7 billion, up 5.2% from the level at 2019 end. As of Jun 30, 2020, Reinsurance Group’s book value per share, excluding accumulated other comprehensive income, grew 0.2% year over year to $128.82. Adjusted return on equity was 7.8%, reflecting a contraction of 320 bps year over year. The company exited the quarter with $1.4 billion in excess capital.
The board of directors approved a dividend of 70 cents. The dividend will be paid out on Sep 1, 2020 to shareholders of record as of Aug 14.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -15.81% due to these changes.
Currently, Reinsurance Group has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Reinsurance Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.