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Reinsurance Group (RGA) Down 3.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Reinsurance Group (RGA - Free Report) . Shares have lost about 3.1% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Reinsurance Group Q2 Earnings & Revenues Miss, Up Y/Y

Reinsurance Group reported second-quarter 2019 adjusted operating income of $3.31 per share, which missed the Zacks Consensus Estimate by 1.8%. However, the bottom line improved 6.8% from the year-ago quarter’s figure.

Net foreign currency fluctuations had an adverse impact of 6 cents on the bottom line.

The company witnessed strong momentum from organic growth and in-force transactions. The benefits from global operating platform helped to deliver diverse earnings in the quarter, as strong results in U.S. Financial Solutions, EMEA and Canada offset modest weakness elsewhere.

Reinsurance Group's operating revenues of $3.4 billion improved 4.8% year over year. However, the top line missed the Zacks Consensus Estimate by 2.3%.

Net premiums of $2.8 billion rose 7% year over year. Investment income increased 10.6% from the prior-year quarter to $584.1 million on asset growth. Average investment yield improved 6 basis points to 4.38%.

Total benefits and expenses at Reinsurance Group increased 8.8% year over year to $3.2 billion. Higher claims and other policy benefits, interest credited and operating costs resulted in cost escalation.

Quarterly Segment Update

U.S. and Latin America: Total pre-tax income increased 6% to $147.9 million in the quarter under discussion.

The Traditional segment reported pre-tax adjusted operating income of $59.1 million, a decrease of 13.5% year over year, attributable to modestly unfavorable mortality experience and the negative effect of lapses and client reporting catch-ups. Net premiums rose 3% from the year-ago quarter to $1.4 billion.

Asset Intensive segment’s pre-tax adjusted operating income improved 39.6% to $69.4 million. Financial Reinsurance business reported pre-tax adjusted operating income of $19.3 million, which decreased 10.2% year over year.

Canada: Total pre-tax income climbed 90.6% to $49 million.

Traditional segment’s pre-tax adjusted operating income more than doubled to $45.2 million on favorable individual mortality experience. However, forex had an adverse effect of $1.6 million on the metric. Net premiums increased slightly to $264.2 million. Net foreign currency fluctuations had a negative effect of $9.4 million.

Financial Solutions segment’s pre-tax adjusted operating income increased 8.6% year over year to $3.8 million attributable to favorable longevity experience while net foreign currency volatility had an adverse effect of $0.1 million.

Europe, Middle East and Africa (EMEA): Total pre-tax income of $65.2 million declined 1.2% from the prior-year quarter’s figure.

Pre-tax adjusted operating income of the traditional segment was $15.9 million, up 144.6% year over year. Net foreign currency fluctuations had a negative impact of $1 million. Premiums declined slightly year over year to $350.9 million. Foreign currency exchange rates had an adverse effect of $23.3 million on the metric.

Financial Solutions segment delivered pre-tax adjusted operating income of $49.3 million, down 17.1% from the year-ago quarter. Net foreign currency fluctuations had an adverse impact of $2.8 million on the metric.

Asia/Pacific: Total pre-tax income of nearly $38.2 million dropped 38% from the prior-year quarter.

Traditional segment’s pre-tax adjusted operating income of $34.8 million was down 40.9% attributable to loss in Australia. Net foreign currency fluctuations adversely impacted the result by $0.5 million. Premiums increased 13% to $606.4 million, reflecting growth in new and existing treaties in Asia, partially offset by a reduction in Australia. The results witnessed an unfavorable forex impact of $23.2 million.

Financial Solutions segment’s pre-tax adjusted operating income increased 17.2% to $3.4 million attributable to new business in Asia. Net premiums increased significantly to $44.5 million, attributable to new treaties added in the first half of 2019.

Corporate and Other: Pre-tax adjusted operating loss was $32.9 million, narrower than $42.9 million in the prior-year period.

Financial Update

As of Jun 30, 2019, Reinsurance Group had assets worth $72 billion, up 20.5% from the level at 2018 end.

As of Jun 30, 2019, Reinsurance Group’s book value per share, excluding accumulated other comprehensive income, grew 7.7% year over year to $128.54.

Adjusted return on equity was 11%.

The company exited the quarter with $1 billion in excess capital.

Capital Deployment

Reinsurance Group deployed capital of $185 million for in-force and other transactions.

The board of directors approved a dividend of 70 cents per share, an increase of 17% from prior payout. This marked the 10th straight year of double-digit percentage increase.

The dividend will be paid out on Aug 29, 2019 to shareholders of record as of Aug 8.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Reinsurance Group has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Reinsurance Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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