Reinsurance Group of America Inc.
) reported first quarter 2012 operating earnings of $1.52 per
share, in line with the Zacks Consensus Estimate and up 4.8% year
over year. The earnings growth came on the back of a modest
increase in revenue, coupled with lower effective tax rates and
lower share count.
Total revenue increased 0.5% year over year to $2.29 billion,
led by increased net premiums, offset by lower net investment
income and lower investment related losses.
Net premiums increased 7% year over year to $1.86 billion,
primarily attributable to growth in life reinsurance and foreign
Investment income was down 8% year over year, totaling $340.9
million, primarily due to a decline in fair value of the options
contracts. A low interest rate environment continues to drain
income from investments.
Total benefits and expense increased 2.8% year over year to $2.1
billion due to an increase in claims and other policy benefits, and
higher operating expense partly offset by lower interest expense
and decline in collateral finance facility expense.
reported pre-tax operating income of $93.9 million, a nominal 1%
increase year over year. Premiums were up 9.2% year over year to
The Asset Intensive business, a sub-segment of U.S. operations,
benefited by an improved performance in the equity markets during
the quarter and reported a pre-tax operating income of $24.5
million, up 17% year over year.
The U.S. Financial Reinsurance business, another sub-segment,
continued to perform well and reported operating income of $6.5
million, up 4.8% year over year.
segment posted a modest 1.5% year-over-year increase in premiums to
$218.2 million. Pre-tax operating income increased a whopping
83% year over year to $46.7 million, primarily led by favorable
Europe & South Africa
segment recorded a 9% hike in premium in the quarter to total
$292.8 million. However, pre-tax operating income decreased
significantly by 79% year over year to $4.6 million, primarily due
to higher-than-expected critical illness claims in the U.K. Adverse
mortality claims and unfavorable foreign currency movements also
contributed to the decline, though at a lesser degree.
segment reported a pre-tax operating profit of $26.9 million, up
20.6% year over year, led by favorable mortality experience and
expected levels of disability claims. Premiums rose 4% to $325.4
million, led by favorable foreign exchange movement.
Adjusted book value per share, a measure of net worth, increased
12.2% year over year to $58.57 per share.
The company also declared a quarterly dividend of 18 cents per
share, which will be paid on June 1, 2012.
In the absence of any update on the 2012 outlook, we believe
that the earlier EPS guidance range of $6.70 - $7.30 should hold
Despite higher global claims during the quarter, overall results
reflect that Reinsurance Group has performed well. The
company has diversified its operations and holds a significant
position in the U.S.
An expanding international business also boosts long-term
growth. It is poised to benefit from consolidations within the life
reinsurance industry. However, headwinds such as reliance on
retrocession, increased retention and compliance with Solvency II
requirements in the European region remain a concern. Nevertheless,
a stable balance sheet and strong ratings inspire our confidence in
Reinsurance Group competes primarily with Munich Re, Swiss Re,
and General Re, subsidiaries of
Berkshire Hathaway Inc.
). The stock currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Considering the fundamentals, we are
also maintaining our long-term Neutral recommendation on the
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
REINSURANCE GRP (
): Free Stock Analysis Report
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