On Dec 28, 2015, we issued an updated research report on Reinsurance Group of America, Inc. RGA.
The life insurer’s continual exposure to foreign exchange volatility has adversely impacted its earnings. The company’s operating income declined by about 35 cents per share through the first three quarters of 2015. The trend is likely to continue in the future as well.
The Australian division of Reinsurance Group has been underperforming for quite some time. The operational underperformance stemmed from factors such as competitive direct and reinsurance markets, complex product designs, weakening claims experience and increasing legal activity that encourage claims many years after the initial accident.
The European insurance market might witness significant consolidation due to increase in capital requirement after the introduction of Solvency II. This in turn might affect the dynamics of the life reinsurance market and lead to a reduction in the overall reinsurance demand and put pressure on life reinsurance margins.
With respect to quarterly results, Reinsurance Group’s third-quarter 2015 earnings missed the Zacks Consensus Estimate on lower revenues, higher claims in the U.S. Individual Mortality Business as well as adverse foreign currency impact. The life insurer delivered negative earnings surprise for three straight quarters.
Nonetheless, the overall results of Reinsurance Group’s Asia and EMEA operations are satisfactory. Also, the company is expected to benefit from the changing life reinsurance pricing environment. A niche position in the U.S. and Canada reinsurance markets, together with the expansion of its international operations, will enable the life insurer to reap benefits. Moreover, the expanding pension risk transfer market raises optimism.
Zacks Rank and Stocks to Consider
Currently, Reinsurance Group carries a Zacks Rank #4 (Sell). Some better-ranked life insurers are Primerica, Inc. PRI, StanCorp Financial Group Inc. SFG and Symetra Financial Corporation SYA. Each of these carries a Zacks Rank #2 (Buy).
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