We are reiterating our 'Neutral' recommendation on the shares
Reinsurance Group of America Inc.
). A diversified operations and a significant position in the
U.S. will help it to perform favorably, over the long term.
However, these positives are dwarfed by weak equity markets and
low interest rate environment.
Reinsurance Group holds a significant position in the U.S. and
Canada. It has fully geared itself to maintain its competitive
position in the in North American reinsurance market by growing
Facultative Reinsurance, Automatic Reinsurance and In Force Block
It focuses on its underwriting standards, prompt response on
quotes, competitive pricing as well as capacity and flexibility
to meeting customer needs, in an attempt to preserve its
position. The acquisition of ReliaStar's group life and
health reinsurance business in 2010 has helped it to penetrate
deeper in the North American market.
Reinsurance Group is aggressively growing its international
operations to reap the benefits of diversification. Management
eyes key Asian markets, particularly India and China, which
represent long-term significant opportunities given the low
reinsurance penetration in these markets. Approximately 46% of
the total company's premium comes from its international
operations, up from 43% last year. Going forward, management
continues to see significant market opportunities in this
As a result of consolidation in recent years within the life
reinsurance industry, there are fewer competitors. As a
consequence, we believe that the life reinsurance pricing
environment will remain attractive for the existing life
reinsurers, particularly for those with a significant market
presence (RGA controlling approximately 19.4% of market share in
North America ranks second only to Swiss Re holding 21.4% on the
basis of individual life reinsurance in force) and strong
Some of the headwinds include weak equity markets coupled with
interest rates, which is expected to remain low in 2012, and put
additional pressure on Reinsurance Group's Asset Intensive
business. Moreover, management's conservative positioning of the
investment portfolio is expected to exert pressure on yield.
Reinsurance Group competes primarily with Munich Re, Swiss Re,
General Re, a subsidiary of
Berkshire Hathaway Inc.
). Reinsurance Group currently retains a Zacks # 4 Rank, which
translates into a short-term Sell rating.
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
REINSURANCE GRP (RGA): Free Stock Analysis
To read this article on Zacks.com click here.