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Reinsurance (RGA) Beats Earnings and Revenue Estimates in Q3

Zacks Equity Research

Reinsurance Group of America, Incorporated RGA reported third-quarter 2019 adjusted operating income of $4.02 per share, which beat the Zacks Consensus Estimate by 17.5%. However, the bottom line declined 0.2% from the year-ago quarter’s figure.

Net foreign currency fluctuations had an adverse impact of 2 cents on the bottom line.

Better-than-expected results were driven by improved premiums and higher investment income, partially offset by increase in expenses.
Reinsurance Group's operating revenues of $3.6 billion beat the Zacks Consensus Estimate by 4.6%. The top line also improved 10.2% year over year.

Net premiums of $2.8 billion rose 7.7% year over year. Investment income increased 18.5% from the prior-year quarter to $678.8 million. Average investment yield improved 26 basis points to 4.83% due to higher variable investment income.

Total benefits and expenses at Reinsurance Group increased 13.8% year over year to $3.3 billion. Higher claims and other policy benefits, interest credited, operating costs, policy acquisition costs and other insurance expenses and interest expense resulted in cost escalation.

Reinsurance Group of America, Incorporated Price, Consensus and EPS Surprise

Reinsurance Group of America, Incorporated Price, Consensus and EPS Surprise

Reinsurance Group of America, Incorporated price-consensus-eps-surprise-chart | Reinsurance Group of America, Incorporated Quote

Quarterly Segment Update

U.S. and Latin America: Total pre-tax income decreased 3.3% to $112.5 million in the quarter under discussion.

The Traditional segment reported pre-tax adjusted operating income of $122.1 million, up 4.9% year over year, attributable to favorable experience in the Group business and strong variable investment income. This was partly offset by unfavorable individual mortality experience. Net premiums rose 3% from the year-ago quarter to $1.4 billion.

Asset Intensive segment’s pre-tax adjusted operating income improved 2.8% to $65.6 million. Financial Reinsurance business reported pre-tax adjusted operating income of $19.2 million, which decreased 11.1% year over year.

Canada: Total pre-tax income surged 105.3% to $46.8 million.

Traditional segment’s pre-tax adjusted operating income more than doubled to $44.3 million on favorable individual mortality experience. However, forex had an adverse effect of $0.5 million on the metric. Net premiums increased 11% to $270.8 million. Net foreign currency fluctuations had an adverse impact of $2.9 million.

Financial Solutions segment’s pre-tax adjusted operating income increased 93.8% year over year to $3.1 million attributable to favorable longevity experience while net foreign currency volatility had an immaterial effect on pre-tax adjusted operating income.

Europe, Middle East and Africa (EMEA): Total pre-tax income of $86.6 million increased 16.1% from the prior-year quarter’s figure.

Pre-tax adjusted operating income of the traditional segment was $25.5 million, up 38.6% year over year, primarily due to favorable underwriting experience overall. Net foreign currency fluctuations had a negative impact of $1.2 million. Premiums increased 6% to $359.4 million in the quarter. Foreign currency exchange rates had an adverse effect of $17.1 million on the metric.

Financial Solutions segment delivered pre-tax adjusted operating income of $59 million, up 4.6% from the year-ago quarter. Net foreign currency fluctuations had an adverse impact of $3.3 million on the metric.

Asia/Pacific: Total pre-tax income of nearly $23.3 million declined 62.5% from the prior-year quarter.

Traditional segment’s pre-tax adjusted operating income of $21.5 million was down 65.3% attributable to loss in Australia. Net foreign currency fluctuations impacted results favorably by $3.1 million. Premiums increased 19% to $655.9 million, reflecting growth in new and existing treaties in Asia, partially offset by a reduction in Australia. Foreign currency exchange rates had an adverse effect of $11.9 million on net premiums.

Financial Solutions segment’s pre-tax adjusted operating income increased 230.8% to $4.6 million attributable to new business in Asia. Net premiums increased significantly to $30 million, attributable to new treaties added in the year 2019.

Corporate and Other: Pre-tax adjusted operating loss was $29.9 million, wider than $18.1 million in the prior-year period primarily due to costs related to higher incentive-based compensation accruals, strategic initiatives and service businesses.

Financial Update

As of Sep 30, 2019, Reinsurance Group had assets worth $75.8 billion, up 20.3% from the level at 2018 end.

As of Sep 30, 2019, Reinsurance Group’s book value per share, excluding accumulated other comprehensive income, grew 7% year over year to $132.02.

Adjusted return on equity was 10.7%.

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

Capital Deployment

Reinsurance Group deployed capital of $150 million for in-force and other transactions.

The board of directors approved a dividend of 70 cents per share, an increase of 16.7% from the prior payout. This marked the 10th straight year of double-digit percentage increase.

The dividend will be paid out on Dec 3, 2019 to shareholders of record as of Nov 12.

Zacks Rank

Reinsurance Group currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here.

Other Insurance Releases

Of the insurance industry players that have reported third-quarter results so far, American Financial Group, Inc. AFG, Arthur J. Gallagher AJG and CNA Financial Corporation CNA beat the respective Zacks Consensus Estimate for earnings.

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