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Reinsurance Group Q4 Earnings & Revenues Surpass Estimates

Zacks Equity Research

Reinsurance Group of America, Incorporated RGA reported fourth-quarter 2018 adjusted operating income of $3.46 per share, which outperformed the Zacks Consensus Estimate of $3.39 by 2.1%. Moreover, the bottom line improved 33.1% from the year-ago quarter’s figure. However, net foreign currency fluctuations had an adverse impact of 6 cents on the metric.

In the quarter under review, the company witnessed a solid performance across EMEA, Asia and Canada, which helped offset moderately weak results witnessed by its U.S. Traditional segment and Australia. Also, the company displayed premium growth and was successful in substantial capital deployment. The company continued to benefit from earnings diversity that stems from its global operating platform.

Reinsurance Group's operating revenues of $3.4 billion improved nearly 6.7% year over year. Moreover, the top line beat the Zacks Consensus Estimate by 1.3%.

Net premiums of $2.8 billion rose nearly 12% year over year. Investment income declined 7.7% from the prior-year quarter to $521.4 million. The average investment yield (excluding spread business) was up 6 basis points (bps) to 4.44%.

Total benefits and expenses at Reinsurance Group increased 5.5% year over year to $3.1 billion. Higher claims and other policy benefits plus interest expense resulted in the overall escalation in costs.

Full-Year Highlights

For 2018, Reinsurance Group delivered adjusted operating income of $12.12 per share, outpacing the Zacks Consensus Estimate by 0.2% and improving 11.8% year over year as well.

Moreover, total operating revenues of $13 billion beat the consensus mark by 0.8% and also grew 5.7% year over year.

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 Quote

Quarterly Segment Update

U.S. and Latin America : Total pre-tax income plunged nearly 43.9% to $108.8 million in the quarter under discussion.

The Traditional segment reported pre-tax adjusted operating income, which dipped 1.5% to $92.4 million year over year. This downside was attributable to unfavorable individual mortality. Net premiums rose 8% from the year-ago quarter to $1.5 billion owing to higher sales volume.

The Asset Intensive segment’s pre-tax adjusted operating income declined 4.5% to $52.8 million. Financial Reinsurance business reported pre-tax adjusted operating income of $19.4 million, which decreased 8% from $21.1 million in the prior-year quarter.

Canada : Total pre-tax income climbed nearly 7.9% to $46.8 million.

The Traditional segment’s pre-tax adjusted operating income surged 30.3% to $50.3 million on the back of a favorable individual mortality experience along with income from two new in-force transactions written during 2018. However, forex had an adverse effect of $2.3 million on the metric. Net premiums increased 11.9% to $267.4 million. This upside is courtesy of an in-force transaction in particular that was carried out in 2018 as well as new business. However, net foreign currency fluctuations had a negative effect of $10.7 million on the metric.

The Financial Solutions segment’s pre-tax adjusted operating income slumped 71.4% year over year to $1.2 million. The same was in line with expectations. But net foreign currency volatility had a hostile effect of $0.1 million on the metric.

Asia/Pacific : Total pre-tax income of $19.4 million plunged 33.8% from the prior-year quarter’s figure.

Pre-tax adjusted operating income of the traditional segment increased nearly 23.9% to $33.7 million during the reported quarter. Favorable underwriting experience in Asia contributed to this upside, partially offset by a loss in Australia. However, net foreign currency fluctuations had a positive impact of $0.7 million on the same. Premiums rose 24% year over year to $616.4 million on new and existing treaties in Asia along with premium catch-ups owing to the timing of client reporting. However, foreign currency exchange rates had an opposing effect of $18.4 million on the metric.

The Financial Solutions segment delivered pre-tax adjusted operating income of $2 million, which skyrocketed 185.7% from the year-ago quarter and matched expectations. However, net foreign currency fluctuations had an adverse impact of $0.1 million on the metric.

Europe, Middle East and Africa (EMEA) : Total pre-tax income of $50.5 million augmented 17.8% from the prior-year quarter’s count.

The Traditional segment’s pre-tax adjusted operating income of about $15 million plunged nearly 49.5% from the year-ago period. The results represent a modestly favorable experience. Moreover, net foreign currency fluctuations adversely impacted the result by $0.9 million. Premiums dropped 10% to $352.5 million, attributable to new business. The results witnessed an unfavorable forex impact of $12 million.

The Financial Solutions segment’s pre-tax adjusted operating income ascended nearly 28.1% to $44.2 million owing to a favorable longevity experience. However, the results were hampered by net foreign currency fluctuations of $1.4 million.

Corporate and Other : Pre-tax adjusted operating loss of $31 million was noticeably narrower than the loss of $59.6 million incurred in the prior-year period.

Financial Update

As of Dec 31, 2018, Reinsurance Group had assets worth $64.6 billion, up 6.8% from the level at 2017 end.

As of Dec 31, 2018, Reinsurance Group’s book value per share excluding accumulated other comprehensive income, grew 6.8% year over year to $124.39.

Share Repurchase and Dividend Update

In the quarter under review, the company bought back shares worth $25 million. Also, the company deployed capital worth $160 million for in-force and other transactions. Notably, the company authorized a new share buyback program totaling $400 million, which will replace the previous plan.

The board of directors cleared a dividend of 60 cents per share, payable Feb 28, 2019 to shareholders of record as of Feb 7, 2019.

Guidance

Over the intermediate term, the company projects adjusted operating earnings per share to grow in the range of 5-8% while adjusted operating return on equity in the band of 10-12%.

With the assumption of no significant changes in the investment environment from current levels, the company expects to deploy excess capital in the range of $300-$400 million, on average, annually.

Currently, the insurer anticipates its effective tax rate on adjusted operating income for 2019 and thereafter to range between 21% and 24%.

Zacks Rank

Reinsurance Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1Rank (Strong Buy) stocks here .

Performance of Other Insurers

Among other players from the insurance industry having reported fourth-quarter earnings so far, the bottom line of MGIC Investment Corporation MTG and The Travelers Companies, Inc. TRV beat the respective Zacks Consensus Estimate while that of The Progressive Corporation PGR missed the same.

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Reinsurance Group of America, Incorporated (RGA) : Free Stock Analysis Report

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