On Aug 24, we issued an updated research report on Reinsurance Group of America Inc. RGA.
Reinsurance Group enjoys a leading position in the U.S. Latin America Traditional market. The company has successfully expanded its product line with market leading services, capabilities, expertise and innovation. Equipped with an experienced management team, the company has a strong appetite and capacity for attractive block opportunities, which are expected to generate 4–6% growth in the region in the near term.
The company is also one of the leading insurers in Canada with a solid growth trajectory. Moreover, the company has a sizable block of in-force business, which acts as a significant source of earnings. Strong growth rates of 5–8% for premiums and 8–10% for earnings are expected from this region by 2016.
Reinsurance Group derives more than 33% of its net premiums from international operations. The company has a significant presence in Hong Kong, Japan, India, Korea and Taiwan. Economic growth and demographic trends in these markets, therefore, have opened up abundant growth opportunities for the company. Reinsurance Group expects pre-tax operating income growth of 15–20% and premium growth of 10–15% by 2016.
Moreover, the company has been effectively managing its capital deployment. During the second quarter of 2015, the company increased its dividend by 12% to $0.37 per share. Additionally, it bought back $24 million shares in the same quarter and now has $200 million left under its authorization. With excess capital of more than $750 million, the company has been able to maintain its financial flexibility. This should allow it to continue capital management and hence, boost profitability.
However, an underperforming Australia business, stringent regulatory requirements pertaining to Solvency II and foreign exchange exposure are headwinds.
Earnings Review
Reinsurance Group reported second-quarter results last month. The results missed the Zacks Consensus Estimate and declined year over year on adverse foreign currency effect, higher effective tax rate and increased claims in Australia and the U.S.
Zacks Rank
Currently, Reinsurance Group carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the insurance space are First American Financial Corporation FAF, Primerica, Inc. PRI and StanCorp Financial Group Inc. SFG. While First American Financial sports a Zacks Rank #1 (Strong Buy), Primerica and StanCorp Financial Group hold a Zacks Rank #2 (Buy).
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