Why Is Reinsurance Group (RGA) Down 7% Since Last Earnings Report?

It has been about a month since the last earnings report for Reinsurance Group (RGA). Shares have lost about 7% in that time frame, underperforming 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 Q4 Earnings Miss, Revenues Beat

Reinsurance Group of America, fourth-quarter 2019 adjusted operating income of $3.43 per share, missed the Zacks Consensus Estimate by 7.5%. Also, the bottom line declined 0.9% from the year-ago quarter’s figure.

Net foreign currency fluctuations had an adverse impact of 1 cent on the bottom line.

Reinsurance Group's operating revenues of $3.8 billion beat the Zacks Consensus Estimate by 4.6%. The top line also improved 10.1% year over year.

Net premiums of $3 billion rose 6.4% year over year. Investment income increased 29.7% from the prior-year quarter to $677 million. Average investment yield improved 11 basis points to 4.55% due to higher variable investment income.

Total benefits and expenses at Reinsurance Group increased 10.7% year over year to $3.5 billion. Higher claims and other policy benefits, interest credited, operating costs and interest expense resulted in cost escalation.

Quarterly Segment Update

U.S. and Latin America: Total pre-tax income increased 73.4% to $189 million in the quarter under discussion.

The Traditional segment reported pre-tax adjusted operating income of $83 million, down 9.8% year over year, attributable to above-average variable investment income and favorable Group experience. It was offset by adverse individual mortality experience driven by large claims. Net premiums rose 4% from the year-ago quarter to $1.6 billion.

Asset Intensive segment’s pre-tax adjusted operating income improved 22.6% to $65 million. Capital Solutions business reported pre-tax adjusted operating income of $26 million, which increased 30% year over year.

Canada: Total pre-tax income decreased 25.5% to $35 million.

Traditional segment’s pre-tax adjusted operating income decreased 46% year over year to $27 million due to modestly unfavorable individual mortality experience. However, forex had an adverse effect of $5 million on the metric.

Net premiums increased 3% to $276 million. Net foreign currency fluctuations had an adverse impact of $25 million.

Financial Solutions segment’s pre-tax adjusted operating income increased 250% year over year to $7 million, attributable to income from a new fee-based transaction, while net foreign currency fluctuations had an immaterial effect on pre-tax income and pre-tax adjusted operating income.

Europe, Middle East and Africa (EMEA): Total pre-tax income of $95 million increased 86.3% from the prior-year quarter’s figure.

Pre-tax adjusted operating income of the traditional segment was $23 million, up 53.3% year over year, primarily due to favorable underwriting experience across most of the region. Net foreign currency fluctuations had an adverse impact of $1 million. Premiums increased 4% to $368 million in the quarter. Foreign currency exchange rates had an adverse effect of $4 million on the metric.

Financial Solutions segment delivered pre-tax adjusted operating income of $73 million, up 62.2% from the year-ago quarter. Net foreign currency fluctuations had an immaterial effect on the metric.

Asia/Pacific: Total pre-tax income of nearly $25 million increased 25% from the prior-year quarter.

Traditional segment’s pre-tax adjusted operating income of $12 million was down 64.7% attributable to loss in Australia that was roughly similar to third-quarter levels. Net foreign currency fluctuations impacted results favorably by $2 million. Premiums increased 7% to $659 million, reflecting growth in new and existing treaties in Asia, slightly offset by a reduction in Australia. Foreign currency exchange rates had an adverse effect of $3 million on net premiums.

Financial Solutions segment’s pre-tax adjusted operating income increased 300% to $8 million, attributable to new business in Asia. Net premiums increased significantly to $38 million, attributable to new treaties added in 2019.

Corporate and Other: Pre-tax adjusted operating loss was $40 million, wider than $33 million in the prior-year period, primarily due to higher incentive compensation accruals and higher costs related to strategic initiatives.

Financial Update

As of Dec 31, 2019, Reinsurance Group had assets worth $76.7 billion, up 18.9% from the level at 2018 end.

As of Dec 31, 2019, Reinsurance Group’s book value per share, excluding accumulated other comprehensive income, grew 8.6% year over year to $135.10.

Adjusted return on equity was 10.5%.

The company exited the quarter with $900 million in excess capital.

Capital Deployment

Reinsurance Group deployed capital of $78 million for in-force and other transactions.

The board of directors approved a dividend of 70 cents per share, unchanged from the prior payout. This marked the 11th straight year of double-digit percentage increase.

The dividend will be paid out on Feb 27 to shareholders of record as of Feb 6.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 6.81% due to these changes.

VGM Scores

Currently, Reinsurance Group has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

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

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research