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Reinsurance Group (RGA) Q1 Earnings Fall Shy of Estimates

Reinsurance Group of America Inc. RGA reported first quarter 2016 operating income of $1.85 per share, which missed the Zacks Consensus Estimate of  $1.98 by 6.6%. The bottom line, however, improved 4.5% from the year-ago quarter.

The lower-than-expected earnings were primarily due to adverse foreign currency movement of 10 cents per share and higher claims in the U.S. Individual Mortality Business.

Reinsurance Group's total revenue of $2.5 billion was flat year over year.

Net premiums of $2.2 billion improved 6.6% year over year. Excluding negative foreign currency effect, premium increased 10%.

Investment income decreased 2% from the prior-year quarter to $417.3 million. The average investment yield was down 32 basis points to 4.5%

Total benefits and expenses of Reinsurance Group increased 2.9% year over year to $2.4 billion, owing to higher claims and other policy benefits as well as other operating expenses.

Quarterly Segment Update

U.S. and Latin America: Total pre-tax operating income increased 56.7% to $114.4 million in the first quarter.

The Traditional segment reported a pre-tax operating income of $53.2 million, up 162% year over year. The increase was due to better than expected results last year and with mortality results being as expected for this year. Net premiums increased 11% from the year-ago quarter to $1.2 billion.

Non-Traditional segment’s pre-tax operating income increased 12.4% to $45.3 million. The Financial Reinsurance business reported pre-tax operating income of $15.9 million compared with $12.4 million in the prior year quarter.

Canada: Total pre-tax operating income declined 6.5% to $20 million due to the negative effect of a weaker Canadian dollar.

Traditional segment’s pre-tax operating income increased 12.8%. Net premiums increased 1% to $215.5 million.

Non-Traditional segment’s premiums decreased over 85% to $0.6 million year over year due to unfavorable experience on longevity treaties.

Asia Pacific: Total pre-tax operating income declined 22.4% year over year to $48.6 million during the quarter.

The traditional segment reported a pre-tax income of $41.1 million, down 21.9% year on year mainly due unfavorable year-over-year comparisons and adverse foreign currency effect. The segment otherwise had a strong quarter. Premiums were up 1% to $374.1 million.

Non-Traditional segment’s pre-tax operating income declined 26.7% to $7.4 million due to adverse experience on various treaties and unfavorable foreign currency movements.

Europe, Middle East and Africa (“EMEA”): The EMEA region reported pre-tax operating income of approximately $24.5 million, down 15.9% year over year.

The Traditional segment reported a pre-tax operating loss of $1.1 million as against a $10.4 million profit in the same quarter last year. This was the result of unfavorable claims experience in U.K. Net reported premiums increased 2%.

The Non-Traditional segment reported a 37.6% surge in pre-tax operating income to $25.6 million due to favourable longevity experience in the U.K, partially offset by unfavorable foreign currency fluctuations.

Corporate and Other: Pre-tax operating loss came in at $30.3 million, wider than $5.7 million loss incurred in the prior year.

Financial Update

As of Mar 31, 2016, Reinsurance Group had assets worth $52.2 billion, up 16.8% year over year.

As of Mar 31, 2016, Reinsurance Group’s book value per share excluding Accumulated Other Comprehensive Income (AOCI) was $84.11,up 6.1% year over year.

Dividend and Share Repurchase Update

The company’s board of directors declared a quarterly dividend of 37 cents payable on May 31 to shareholders of record as on May 10.

The company repurchased 1.2 million shares for $105 million this quarter.    

Zacks Rank and Other Stocks

Reinsurance Group has a Zacks Rank #3 (Hold). Some other stocks in the insurance sector such as Amerisafe AMSF, Unum Group UNM, and Aflac AFL beat Zacks Consensus Estimate for the first quarter.

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