A month has gone by since the last earnings report for Reinsurance Group of America, Incorporated (RGA – Free Report) . Shares have added about 3.7% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, lets 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 Beat, Decrease Y/Y
Reinsurance Group of America, Incorporated reported fourth-quarter 2016 operating income of $2.63 per share. Though the bottom line outperformed the Zacks Consensus Estimate of $2.50 by 5.2%, it deteriorated 7.4% from the year-ago quarter.
The company’s Traditional business in the US, Asia, the EMEA and Canada was strong in the quarter. The fourth-quarter results displayed the company’s earnings diversification in terms of both geography and product.
Reinsurance Groups operating revenues of $3.1 billion increased 6.5% year over year.
Net premiums of $2.5 billion rose 7.1% year over year on organic growth and moderate contributions from in-force transactions.
Investment income grew 6.5% from the prior-year quarter to $497.2 million. The average investment yield was down by 27 basis points to 4.69%.
Total benefits and expenses of Reinsurance Group increased 5.8% year over year to $2.8 billion. Higher claims and other policy benefits, policy acquisition costs and other insurance expenses, interest expenses, other operating expenses as well as collateral finance and securitization expenses resulted in the overall increase in costs.
Operating income of $9.73 per share improved 15.4% year over year.
Reinsurance Groups total revenue of $10.9 billion increased about 8% year over year.
Quarterly Segment Update
Reinsurance Group changed the name of its Non-Traditional segments to Financial Solutions in the fourth quarter.
US and Latin America: Total pre-tax income soared 33.7% to $190.5 million in the quarter.
The Traditional segment reported pre-tax operating income of $129.3 million, up 63.7% year over year. The upside was backed by higher variable investment income and moderately favorable claims experience in the Individual Mortality business. Net premiums grew 4% from the year-ago quarter to $1.4 billion.
The Financial Solutions segment’s pre-tax operating income dipped 1.9% to $46.7 million. Nonetheless, the segment’s operating income was supported by favorable investment spreads. Financial Reinsurance business reported pre-tax operating income of $14.4 million compared with $15.9 million in the prior-year quarter, in line with expectations.
Canada: Total pre-tax operating income decreased approximately 20% to $38.8 million.
The Traditional segment’s pre-tax operating income declined 22.8% to $34.8 million. Net premiums increased 20% to $241.9 million driven by robust growth in individual mortality and a one-time amendment in 2016 on a creditor treaty.
The Financial Solutions segment’s pre-tax income jumped 20.6% year over year to $4.1 million on the back of favorable longevity experience.
Asia Pacific: Total pre-tax operating income plunged 70% to $12.3 million during the quarter.
The Traditional segment reported a pre-tax operating income of $18.5 million, down 48.2% year over year. Premiums were up 15.3% to $448.3 million on strong growth in Asia.
The Financial Solutions segment’s pre-tax operating losses of $6.1 million compared unfavorably with pre-tax operating income of $5.4 million of the year-ago quarter.
Europe, Middle East and Africa (EMEA): This region reported pre-tax operating income of $52.6 million, up 66.1% year over year.
The Traditional segment reported pre-tax operating income of $15.8 million, up 22.5% year over year. Higher premiums and a favorable adjustment associated with improved client reporting primarily supported the upside. However, the improvement was partially offset by moderately unfavorable mortality and morbidity experience in the UK Premiums inched up 0.5% to $301.3 million.
The Financial Solutions segment’s pre-tax operating income soared 95.2% to $36.7 million on the back of sustained favorable experience in both asset-intensive and longevity businesses. New businesses also contributed to the growth.
Corporate and Other: Pre-tax operating loss of $26.3 million was substantially wider than the year-ago loss of $16.7 million.
As of Dec 31, 2016, Reinsurance Group had assets worth $53.1 billion, up 5.4% from year-end 2015.
As of Dec 31, 2016, Reinsurance Group’s book value per share, excluding Accumulated Other Comprehensive Income (AOCI), grew 11.2% year over year to $92.59.
Dividend and Share Repurchase Update
The board of directors announced a quarterly dividend of 41 cents, which is payable on Mar 2, to shareholders on record as of Feb 9, 2017.
The board of directors authorized a new share repurchase program of up to $400 million of the company’s outstanding common stock.
For the intermediate term, the life insurer targets growth in operating income per share in the range of 5% to 8% and operating return on equity in the range of 10% to 12%.
Given that the investment environment is unlikely to change much from the current levels, the company anticipates deploying $300-$400 million of excess capital, on an average, annually.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been two upward revisions for the current quarter.