Reinsurance Group of America, Incorporated RGA reported second-quarter 2018 adjusted operating income of $3.10 per share, which missed the Zacks Consensus Estimate of $3.18 by 2.5%. However, the bottom line improved 5.1% from the year-ago quarter’s figure. A positive impact from net foreign currency fluctuations benefited the metric.
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
The company witnessed a strong overall performance in both EMEA and the Asia Pacific, mainly driven by a favorable individual mortality experience. However, Reinsurance Group’s United States and Latin America regions in the reported quarter displayed a weak performance.
Reinsurance Group's operating revenues of $3.2 billion improved 4.3% year over year. However, the top line lagged the Zacks Consensus Estimate by 2.4%.
Net premiums of $2.6 billion rose 4.6% year over year. Investment income grew 1.8% from the prior-year quarter to $528.1 million. The average investment yield was down 28 basis points (bps) to 4.32%, representing lower variable investment income.
Total benefits and expenses at Reinsurance Group increased 5.7% year over year to $2.9 billion. Higher claims and other policy benefits, other operating expenses, policy acquisition costs and other insurance expenses, interest expense as well as collateral finance and securitization expenses resulted in the overall escalation in costs.
Quarterly Segment Update
U.S. and Latin America: Total pre-tax income declined nearly 21.9% to $154.4 million in the quarter under discussion.
The Traditional segment reported pre-tax adjusted operating income, which decreased 25.1% to $68.3 million year over year. This downside was attributable to claims experience in the Individual Mortality segment that came in line with expectations and an unfavorable performance in Group. Net premiums rose 3% from the year-ago quarter to $1.4 billion.
The Asset Intensive segment’s pre-tax adjusted operating income dipped 0.4% to $49.7 million. Lower prepayment income was responsible for this downtrend. Financial Reinsurance business reported pre-tax adjusted operating income of $21.5 million, which improved 7.8% from $19.9 million in the prior-year quarter.
Canada: Total pre-tax income plunged nearly 32% to $25.3 million.
The Traditional segment’s pre-tax adjusted operating income declined 28.8% to $22.2 million due to unfavorable individual mortality experience. Net premiums increased 17.8% to $260.8 million. This upside is courtesy of a particularly large transaction and new business. Also, a positive impact of net foreign currency fluctuations aided this uptick.
The Financial Solutions segment’s pre-tax adjusted operating income decreased 19.9% year over year to $3.5 million, representing favorable longevity experience.
Asia/Pacific: Total pre-tax income was $63 million, up 7.3% from the prior-year quarter’s figure.
Pre-tax adjusted operating income of the traditional segment rose 10.5% to $58.9 million during the reported quarter. Favorable underwriting experience in Asia and a break-even result in Australia led to this upside. However, net foreign currency fluctuations had a negative impact on the same. Nonetheless, premiums inched up 0.3% year over year to $538.8 million on consistent sturdy level of premiums from ongoing positive momentum in Asia. The improvement was partially offset by a reduction in Australia due to the effects of treaty recaptures.
The Financial Solutions segment reported pre-tax adjusted operating income of $2.9 million, up 11.5% from the year-ago quarter’s level. This upside is driven by new business coupled with slightly better-than-expected results from a treaty that is in runoff.
Europe, Middle East and Africa (EMEA): Total pre-tax income was $71.8 million, which soared 78.4% from the prior-year quarter’s count.
The Traditional segment reported pre-tax operating income of about $6.5 million, plunging nearly 43% from the year-ago period. This downside was attributable to unfavorable underwriting results in a couple of markets. Also, net foreign currency fluctuations impacted the result. Premiums improved 7% to $354.5 million owing to new business. This uptrend was also boosted by a favorable forex impact.
The Financial Solutions segment’s pre-tax adjusted operating income skyrocketed 124.5% to $59.5 million owing to a very favorable longevity experience and continued underlying business growth plus a positive forex impact.
Corporate and Other: Pre-tax adjusted operating loss of $42.9 million was substantially wider than the loss of $9.5 million incurred in the prior-year period due to higher project and regulatory compliance expenses.
Financial Update
As of Jun 30, 2018, Reinsurance Group had assets worth $59.8 billion, up 2.8% from the level at 2017 end.
As of Jun 30, 2018, Reinsurance Group’s book value per share excluding accumulated other comprehensive income, grew 22.1% year over year to $119.31.
Share Repurchase and Dividend Update
In the quarter under review, the company bought back 0.9 million shares worth $150 million.
The board of directors approved a dividend hike of 20% amounting to 60 cents per share, payable Aug 28, 2018 to shareholders of record as of Aug 7, 2018. This dividend raise marked the ninth straight year of double-digit percentage increases.
Zacks Rank
Reinsurance Group carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
Among other players from the insurance industry having reported second-quarter earnings so far, the bottom line of The Progressive Corporation PGR, MGIC Investment Corporation MTG and RLI Corp. RLI beat the respective Zacks Consensus Estimate.
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