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Reinsurance Group (RGA) Q4 Earnings & Revenues Lag Estimates

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Reinsurance Group of America, Incorporated (RGA - Free Report) reported fourth-quarter 2017 adjusted operating income of $2.60 per share. The bottom line lagged the Zacks Consensus Estimate of $2.82 by 7.8% and slightly slipped 1.1% from the year-ago quarter.


The company’s weak performance at Traditional business in the Asia Pacific and U.S. and Latin America regions in the reported quarter was primarily responsible for this downside.

Nonetheless, highlights of the quarter under review are the strong performance at both EMEA and Canada segments, driven primarily by a favorable individual mortality experience.

Reinsurance Group's operating revenues of $3.2 billion improved 4.7% year over year. However, the top line missed the Zacks Consensus Estimate by 2.7%.

Net premiums of $2.5 billion inched up 0.5% year over year. Investment income rose 13.6% from the prior-year quarter to $564.8 million. The average investment yield was down 31 basis points (bps) to 4.38%, representing lower yields on new money and reinvested assets plus lower variable investment income.

Total benefits and expenses at Reinsurance Group increased 7.3% year over year to $2.9 billion. Higher claims and other policy benefits, interest credited, policy acquisition costs, other operating expenses as well as collateral finance and securitization expenses resulted in the overall escalation in costs.

Full-Year Highlights

For 2017, Reinsurance Group reported adjusted operating earnings per share of $10.84, falling short of the consensus mark by 2.1% but improving 11.4% year over year.

Total revenues of $12.3 billion rose 8.1% year over year.

Quarterly Segment Update

U.S. and Latin America: Total pre-tax income declined nearly 11% to $194.3 million in the quarter under discussion.

The Traditional segment reported pre-tax adjusted operating income, which plunged 27.5% to $93.8 million year over year. The downside was attributable to modestly unfavorable claims experience in the Individual Mortality segment and a weak performance in Group. Net premiums fell 3% from the year-ago quarter to $1.4 billion due to the negotiated modification of an existing health treaty that effectively reduced premiums in the quarter.

The Asset Intensive segment’s pre-tax adjusted operating income improved 18.4% to $55.3 million. Additional income from a new in-force transaction, written earlier in 2018 along with the impact from favorable equity markets, contributed to the upside. Financial Reinsurance business reported pre-tax adjusted operating income of $21.1 million compared with $14.4 million in the prior-year quarter owing to strong businesses volumes.

Canada: Total pre-tax operating income rose 10.2% to $42.7 million.

The Traditional segment’s pre-tax adjusted operating income improved 10.9% to $38.6 million, driven by favorable individual mortality experience. Net premiums slid 1.2% at $239 million. This decline is attributable to the persistent effects of a previously disclosed reduction in creditor business treaty.

The Financial Solutions segment’s pre-tax adjusted operating income rose 2.4% year over year to $4.2 million on favorable longevity experience.

Asia/Pacific: Total pre-tax adjusted operating income was $27.9 million, skyrocketing 126.3% from the prior-year quarter.

Pre-tax adjusted operating income of the traditional segment surged 47% to $27.2 million during the quarter. Premiums improved 11% to $495.4 million on sturdy growth in Asia, mainly owing to new and existing treaties in Hong Kong and Southeast Asia.

The Financial Solutions segment reported pre-tax adjusted operating income of $0.7 million against pre-tax operating loss of $6.1 million in the year-ago quarter.

Europe, Middle East and Africa (EMEA): Total pre-tax adjusted operating income was $64.2 million, up 22.2% from the prior-year quarter.

The Traditional segment reported pre-tax operating income of about $29.7 million, up nearly 88% from the prior-year quarter. This upside was attributable to favorable mortality and morbidity experience, primarily in the U.K. Premiums, which improved 7% to $321.9 million, mainly owing to new business across the segment and growth of existing treaties.

The Financial Solutions segment’s pre-tax adjusted operating income declined 6% to $34.5 million.

Corporate and Other: Pre-tax adjusted operating loss of $59.6 million was wider than the loss of $26.3 million incurred in the prior-year period.

Financial Update

As of Dec 31, 2017, Reinsurance Group had assets worth $60.5 billion, up 13.9% from 2016-end.

As of Dec 31, 2017, Reinsurance Group’s book value per share excluding accumulated other comprehensive income, grew 28.4% year over year to $118.88.

Dividend Update

The board of directors approved a dividend of 50 cents per share, payable on Mar 1, 2018 to shareholders of record as of Feb 8, 2018.

2018 Guidance

The company projects adjusted operating earnings per share to grow in the range of 5-8% and adjusted operating return on equity to grow between 10% and 12% over the intermediate term.

Taking into consideration that there are no substantial changes in the investment environment in comparison to the current levels, Reinsurance Group will deploy $300-$400 million of excess capital on average.

As a result of the tax reform, the effective tax rate for 2018 and thereafter will range between 21% and 24%.

Zacks Rank  

Reinsurance Group holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry having reported fourth-quarter earnings, the bottom line of Brown & Brown, Inc. (BRO - Free Report) , MGIC Investment Corporation (MTG - Free Report) and The Progressive Corporation (PGR - Free Report) beat the respective Zacks Consensus Estimate.

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