Reinsurance Group (RGA) Q4 Earnings Miss, Revenues Beat

Reinsurance Group of America, Incorporated (NYSE:RGA) reported fourth-quarter 2019 adjusted operating income of $3.43 per share, which 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.

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

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.

Zacks Rank

Reinsurance Group currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

Of the insurance industry players that have reported fourth-quarter results so far, RLI Corp. (NYSE:RLI) , Brown & Brown, Inc. (NYSE:BRO) and The Travelers Companies, Inc. (NYSE:TRV) beat the respective Zacks Consensus Estimate for earnings.

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