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RGA Gains on Lower Claims

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Reinsurance Group of America Inc. (RGA - Free Report) reported fourth quarter 2012 operating earnings of $2.44 per share, significantly ahead of the Zacks Consensus Estimate of $1.80 per share. Earnings were also up by 48.8% on a year-over-year basis.

The earnings beat came on the back of lower-than-expected claims incidence in the U.S. mortality business along with a strong performance in both the U.S. Asset-Intensive line and Canada segment.

For FY12 earnings per share was $6.96, pretty much ahead of the Zacks Consensus Estimate of $6.32 per share. Full year earnings also grew 6.3% year over year.

Total revenue increased 16% year over year to $2.72 billion, led by increased net premiums, net investment income along with investment related gains. Net premiums increased 7.1% year over year to $2.2 billion.

Investment income surged 22% year over year to $370.2 million.

Total benefits and expenses soared 11.5% year over year to $2.40 billion, owing to an increase in claims and other policy benefits, operating expenses as well as interest expense.  

Segment Results

The U.S. Operations Traditional sub-segment reported pre-tax operating income of $139.6 million, up 69% year over year. Premiums improved 5% year over year to $1.16 billion.

The Asset Intensive business reported pre-tax operating income of $40.8 million, up 49.5% year over year. the results benefited from favorable equity market performance and the addition of a large block of fixed deferred annuities, effective April 1, 2012.

The U.S. Financial Reinsurance business continued to perform well and reported operating income of $8.5 million, up 23% year over year.

The Canada segment’s premium jumped 11% year over year to $248.4 million.  Pre-tax operating income increased 33% year over year to $54.0 million.

The Europe & South Africa segment recorded a 13% hike in premium to $402.5 million. Pre-tax operating income was down to $14.3 million year over year, primarily due to the higher-than-expected morbidity claims in the U.K.

The Asia-Pacific segment reported a pre-tax operating income of $8.5 million, in contrast to operating loss of $15.0 million in the prior-year quarter. Premium was up by a 4.1% year over year to $362.6 million.

The company announced it would pay its quarterly dividend of 24 cents per share on Mar 8, 2013.

2013 Guidance

While the company did not provide any specific earnings per share outlook for FY13, it expects operating earnings to grow in the 5% to 8% range, and operating return on equity of 11% to 12%, over the medium term. It is also expecting to generate excess capital of $200 million to $400 million.

Another company in the same industry StanCorp Financial Group, Inc. reported fourth-quarter 2012 operating earnings of 89 cents per share, which exceeded the Zacks Consensus Estimate by 6 cents. Among others both Genworth Financial Inc. (GNW - Free Report) and Manulife Financial Corp. (MFC - Free Report) carrying Zacks Rank #2 (Buy) are expected to release their fourth quarter earnings shortly.

Reinsurance Group currently retains a Zacks Rank #3 (Hold).

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