Reinsurance Group's Q1 Earnings Miss Ests on Higher Claims - Analyst Blog

Reinsurance Group of America Inc. RGA reported first-quarter 2014 operating income of $1.61 per share, significantly below the Zacks Consensus Estimate of $1.97. Results were also down 2.4% year over year. The company's earnings suffered from high claim costs in its U.S and Canadian business.  

 

Total revenue of $2.66 billion increased 2.2% year over year and was also ahead of the Zacks Consensus Estimate of $2.52 billion.

 

Total premium of $2.1 billion rose 6.0% year over year.

 

Investment income at Reinsurance Group decreased 5.0% year over year to $404.4 million, led by a reduction in the fair value of options contracts underlying equity indexed annuities.

 

Total benefits and expense of Reinsurance Group escalated 5.8% year over year to $2.46 billion due to higher claims and other policy benefits, coupled with higher interest expense.

 

Quarterly Segment Update

 

U.S. Operations: The U.S. Traditional sub-segment net premium written increased 8% year over year to $1.14 billion. However, the segment's underwriting profitability suffered, as reflected by pre-tax operating income which declined 33% due to unfavorable mortality experience relative to the year-ago quarter. 

  

Another sub segment, the U.S. Asset Intensive business, reported pre-tax operating income of $70.6 million, down 21.1% year over year due to changes in the fair values of various embedded derivatives.  

 

Growing number of financial reinsurance treaties generated strong fee income which led to a 55% year-over-year increase in pretax operating income in the U.S. Financial Reinsurance business to $12.4 million.

 

Canada Operations: Adverse mortality along with a weak Canadian dollar led to a decline of 33.0% in pre-tax operating income to $12.4 million.

 

Asia Pacific Operations: Pre-tax operating income was $27.0 million, up 7% year over year to $24.7 million, led by strong performance from the Asia Pacific markets. 

 

Europe, Middle East and Africa (EMEA) reported premium written of $340.7 million, up 16% year over year led by strong results in France.  Pre-tax operating income increased 52.2% year over year to $14.0 million, due to higher individual mortality claims in the U.K.

 

Financial Update

 

As of March 31, 2014, Reinsurance Group had assets worth $40.54 billion, up slightly 0.8% year over year.

 

As of March 30, 2014, book value – a measure of the company's net worth – was $71.51, up 6.1% year over year.

 

Dividend Update

 

Reinsurance Group announced to pay a regular quarterly dividend of 30 cents per share to its shareholders on May 30, 2014.

 

Reinsurance Group repurchased approximately 1.45 million shares for a total cost of $112.6 million

 

Tight-lipped on 2014 Guidance

 

Reinsurance Group did not divulge any details regarding its 2014 earnings guidance. During the last reported quarter, the company had targeted growth in operating income per share in the 5% to 8% range over the medium term, and operating return on equity in the band of 11% to 12%. The company also expects to deploy $200 million to $400 million of excess capital, on average, annually. The company also expects tax rate to decline to 34% from 35% currently, which reflects a slight shift in earnings contribution from lower tax rate jurisdictions.

 

Other Stocks 

 

Among other players, Everest Re Group Ltd. RE reported its first-quarter earnings ahead of the Zacks Consensus Estimate. Montpelier Re Holdings Ltd. MRH and Protective Life Corp. PL – both with a Zacks Rank #2 (Buy) – are scheduled to report their first-quarter earnings on April 30 and May 7, respectively.