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Reinsurance Group of America (RGA) Down 5.6% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Reinsurance Group of America, Incorporated (RGA - Free Report) . Shares have lost about 5.6% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is RGA 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 drivers.

Reinsurance Group Lags Q1 Earnings, Revenues Rise Y/Y

Reinsurance Group of America, Incorporated reported first-quarter 2018 adjusted operating income of $1.61 per share, which missed the Zacks Consensus Estimate of $2.45 by 34.3%. Also, the bottom line declined 13.4% from the year-ago quarter’s figure.

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

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

Reinsurance Group's operating revenues of $3.1 billion improved 7.6% year over year. Moreover, the top line beat the Zacks Consensus Estimate by 2.7%.

Net premiums of $2.6 billion rose 9.2% year over year. Investment income inched up 0.4% from the prior-year quarter to $516.3 million. The average investment yield was up 5 basis points (bps) to 4.46%, representing higher variable investment income.

Total benefits and expenses at Reinsurance Group increased 8.4% year over year to $3 billion. Higher claims and other policy benefits, other operating expenses as well as collateral finance and securitization expenses resulted in the overall escalation in costs.

Quarterly Segment Update

U.S. and Latin America: Total pre-tax income plunged nearly 47.3% to $70.3 million in the quarter under discussion.

The Traditional segment reported pre-tax adjusted operating income, which plummeted 95.7% to $1.2 million year over year. The downside was attributable to elevated claims experience in the Individual Mortality segment and a sluggish performance in Group. Net premiums dipped 0.4% from the year-ago quarter to $1.3 billion due to the modification of a health treaty, which occurred in the fourth quarter of 2017 along with lower individual health premiums.

The Asset Intensive segment’s pre-tax adjusted operating income declined 3.7% to $49.7 million. Lower prepayment income along with the impact from lower equity markets was responsible for this downside. Financial Reinsurance business reported pre-tax adjusted operating income of $20.2 million, which improved 13.2% from $17.8 million in the prior-year quarter owing to strong businesses volumes in the latter half of 2017.

Canada: Total pre-tax income rose 17.4% to $26.9 million.

The Traditional segment’s pre-tax adjusted operating income surged 52.4% to $25.6 million, driven by in-line individual mortality experience. Net premiums increased 17.1% to $252.7 million. This upside is attributable to a new transaction and a positive impact of net foreign currency fluctuations.
The Financial Solutions segment’s pre-tax adjusted operating income decreased 11.2% year over year to $3.2 million.

Asia/Pacific: Total pre-tax income was $26.9 million, plunged 43.4% from the prior-year quarter.

Pre-tax adjusted operating income of the traditional segment fell 45.1% to $22.9 million during the reported quarter. Unfavorable underwriting experience in Asia and a moderate loss in Australia led to this downside. Nonetheless, premiums improved 22% year over year to $589.5 million on sturdy growth in Asia, mainly owing to new and existing treaties across the region.

The Financial Solutions segment reported pre-tax adjusted operating income of $1.3 million against pre-tax operating loss of $0.5 million in the year-ago quarter.

Europe, Middle East and Africa (EMEA): Total pre-tax income was $54.6 million, up 18.9% from the prior-year quarter.

The Traditional segment reported pre-tax operating income of about $15.4 million, up nearly 10.3% from the year-ago quarter. This upside was attributable to favorable underwriting results across the region, partially offset by an unfavorable underwriting performance in the U.K. Net foreign currency fluctuations also impacted the result. Premiums improved 23% to $375.7 million owing to growth of new and existing treaties. The upside was also driven by a favorable forex impact.

The Financial Solutions segment’s pre-tax adjusted operating income surged 30.5% to $35.9 million, owing to underlying business growth and a positive forex impact along with a favorable longevity experience.  

Corporate and Other: Pre-tax adjusted operating loss of $30.9 million was wider than the loss of $26.6 million incurred in the prior-year period due to higher project expenses as well as incentive-based compensation expenses.

Financial Update

As of Mar 31, 2018, Reinsurance Group had assets worth $60.5 billion, up 13.9% from 2017-end.

As of Mar 31, 2018, 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 May 29, 2018 to shareholders of record as of May 8, 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

VGM Scores

At this time, RGA has a poor Growth Score of F, however its Momentum is doing a lot better with a C. Charting a somewhat similar path, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Interestingly, RGA has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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