Reinsurance Group of America Inc. (RGA) reported second-quarter 2014 operating income of $2.23 per share, significantly ahead the Zacks Consensus Estimate of $2.06. In the year-ago quarter, the company had posted an operating loss of 99 cents per share.
The quarter’s results were driven by strong international earnings, both from Europe, Middle East and Africa (:EMEA) and Asia Pacific along with continued mo'mentum in Global Financial Solutions.
Reinsurance Group's total revenue of $2.83 billion increased 9.4% year over year and was slightly below the Zacks Consensus Estimate of $2.86 billion.
Total premium of $2.2 billion rose 7.3% year over year.
Investment income decreased 8.0% year over year to $410.6 million due to a reduction in the fair value of options contracts underlying equity indexed annuities.
Total benefits and expense of Reinsurance Group declined 5.0% year over year to $2.53 billion due to lower claims and other policy benefits coupled with lower interest expense.
Quarterly Segment Update
U.S. Operations: The U.S. Traditional sub-segment net premium written increased 5% year over year to $1.19 billion. However, the segment’s underwriting profitability as reflected by pre-tax operating income rose just 2.9% year over year to $89.0 million, due to adverse experience in Group insurance business.
Another sub segment – the U.S. Asset Intensive – reported pre-tax operating income of $44.0 million, up 9.5% year over year benefiting from a favorable net interest rate spread performance on fixed annuities and favorable equity markets.
Growing number of financial reinsurance treaties generated strong fee income which led to a 14.3% year-over-year increase in pre-tax operating income in the U.S. Financial Reinsurance business to $13.6 million.
Canada Operations: Higher-than-expected individual mortality claims, resulted in a decline of 3.2% in pre-tax operating income to $30.7 million.
Asia Pacific Operations: Pre-tax operating income was $29.3 million, in contrast with a pre-tax operating loss of $282.6 million last year.
The EMEA region reported premium written of $340.9 million, up 17% year over year led by strong results in U.K. Pre-tax operating income increased nearly four times to $44.7 million from $11.5 million in the year-ago quarter.
As of Jun 30, 2014, Reinsurance Group had assets worth $43.2 billion, up 11.3% year over year.
As of Jun 30, 2014, book value – a measure of the company’s net worth – was $73.54, up 10.9% year over year.
Dividend and Share Buy Back
Reinsurance Group increased its quarterly shareholder dividend by 10% to 33 cents per share.
During the quarter, the company repurchased approximately 818,000 shares for a total cost of $64.1 million.
Tight-lipped on 2014 Performance
Reinsurance Group did not project its 2014 earnings guidance. During the first quarter, the company had targeted growth in operating income per share in the 5% to 8% range over the medium term, and operating return on equity in the band of 11% to 12%. The company also expects to deploy $200 million to $400 million of excess capital, on average, annually. The company also expects the tax rate to decline to 34% from 35% currently, which reflects a slight shift in earnings contribution from lower tax rate jurisdictions.
Reinsurance Group carries a Zacks Rank # 3(Hold)
Among other players who have already reported second-quarter results, Assurant Inc. (AIZ) and ACE Limited (ACE) reported earnings ahead of the respective Zacks Consensus Estimate. Another player, RLI Corp.’s (RLI) earnings came in line with the Zacks Consensus Estimate.