Reinsurance Group of America Inc. (RGA) reported first quarter 2011 operating earnings of $1.61 per share, ahead of the Zacks Consensus Estimate of $1.56 and 29% above $1.25 earned in the year-ago quarter. Operating income was $118.8 million, up 28% from $93 million in the first quarter of 2010.
Earnings for the reported quarter benefited from an improvement in net premiums written along with an increase in net investment income.
The company reported net income of $160.8 million or $2.18 per share, higher than $122.4 million or $1.64 per share in the first quarter of 2010.
Operational Update
Total revenue was up 8.7% year over year to $2.3 billion, led by increased net premiums and higher net investment income, coupled with investment related gains. Results were also ahead of the Zacks Consensus Estimate of $2.1 billion.
Net premiums increased 7% year over year to $1.74 billion, contributed by business growth across all the business segments. Net investment income increased 22% to $371 million, primarily due to a larger average invested asset base, offset by lower effective investment portfolio yields.
Total expense increased 7% year over year to $2 billion due to increase in Claims and other policy benefits, higher amount of interest credited, higher operating and interest expense as well as increase in collateral finance facility expense.
Segment Results
The U.S. segment’s pre-tax operating income was $69.5 million, up 19% year over year due to improved contribution from all the sub-segments – Traditional, Asset Intensive and Financial Reinsurance.
Canada segment’s pre-tax operating income increased 64% year over year to $26.3 million due to favorable foreign currency fluctuations along with favorable mortality experience. Net premiums increased 3% year over year to $215 million.
Europe & South Africa segment’s pre-tax operating income more than doubled to total $26 million in the quarter fueled by improved claims experience, primarily in South Africa and Continental Europe.
Net premiums increased 24% to total $269.1 million, in the quarter, primarily reflecting strong production in the UK and several other European markets.
Asia-Pacific segment’s pre-tax operating income inched down to $25.7 million in the quarter largely attributable to the estimated net losses of $6.5 million from the Japan and New Zealand earthquakes.
Net premiums increased 9% year over year to $311.5 million.
The Corporate and Other Segment's pre-tax operating income plummeted to $3.6 million from $14 million in the year-ago quarter.
Annualized operating return on equity was 11.5% in the quarter. Book value (excluding AOCI) increased 1% year over year to $55.88 per share, reflecting strong net income contributions and an improved investment portfolio position.
The company also bought back 5.5 million shares.
Dividend
The board of directors declared a regular quarterly dividend of 12 cents per share to shareholders of record as of May 4. The dividend will be paid on May 25.
We maintain our Neutral recommendation on Reinsurance Group. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
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