Insurers are among the biggest beneficiaries of interest rate hikes. The Federal Reserve has raised interest rates ten times since last year, with the most recent one being a 25-basis point hike. Insurance companies benefit significantly from rising interest rates as their underlying bond investments yield high returns.
Investors’ interest in Reinsurance Group of America, Incorporated (RGA) has been on the rise lately. RGA’s stock has gained 10.9% in price over the past month and 27.8% over the past year to close the last trading session at $147.63.
In this piece, I have mentioned several reasons why it could be wise to buy the stock now.
In today’s uncertain world, insurance is vital. Conservative investors are drawn to the insurance sector since these companies are known to perform steadily regardless of economic conditions. Moreover, various types of insurance are required by law to help shield individuals or businesses against unforeseen losses.
Investment firm Nordea Investment Management AB increased its holding in RGA by 22.8%. JPMorgan Chase & Co. increased its holding in the company by 27.3% in the first quarter, while Private Advisor Group LLC boosted its position in RGA by 13%. In addition, Private Advisor Group LLC increased its shareholding by 13%, and Great West Life Assurance Co.’s shareholding jumped by 11.6%.
The rise in investments from institutional investors is due to its impressive financial performance in the first quarter. For the quarter, RGA’s EPS and revenue beat analyst estimates. Its EPS beat the consensus estimate by 36.5%, while its revenue came 0.9% above analyst estimates. On a constant currency basis, premiums increased by 10.8% in the first quarter.
RGA’s CEO Anna Manning said, “This was a strong quarter and a good start to the year. In the quarter, many regions and product lines performed very well, and we had another active quarter for in-force and other transactions, including our first U.S. PRT transaction. We are delivering on our strategy, our balance sheet remains strong, and we are well-positioned to add to this positive momentum going forward.”
RGA is expected to pay shareholders a dividend of $0.80 per share on May 30, 2023. Its annual dividend of $3.20 yields 2.17% on the current share price. The company’s dividend payouts have increased at a 5.1% CAGR over the past three years and a 10.4% CAGR over the past five years. Its four-year average yield is 2.34%.
Wall Street analysts expect the stock to hit $159.88 in the near term, indicating a potential upside of 8.3%.
Here’s what could influence RGA’s performance in the upcoming months:
Positive Developments
On May 9, 2023, RGA announced that it had completed the transformation of the Hodge Life Assurance Company Limited (HLAC) business it purchased in 2021. HLAC’s business was transferred to another group company, Omnilife Insurance Company Limited.
RGA’s U.K. Managing Director Peter Banthorpe said, “Omnilife is RGA’s U.K. consolidation vehicle with strategic plans to acquire additional insurance portfolios. The acquisition of HLAC is Omnilife’s second transaction, and the timely completion of the Part VII transfer demonstrates further the Omnilife team’s capability in executing and integrating these deals.”
Robust Financials
RGA’s net premiums for the first quarter ended March 31, 2023, increased 7.3% year-over-year to $3.39 billion. Its adjusted operating income rose 23.3% over the prior-year quarter to $349 million. The company’s adjusted operating return on equity (ex AOCI) came in at 11.2%, compared to 7.1% in the prior-year quarter.
Its total revenues increased 8.5% year-over-year to $4.25 billion. In addition, its net income available to RGA’s shareholders increased 27.9% year-over-year to $252 million.
Favorable Analyst Estimates
Analysts expect RGA’s EPS for fiscal 2023 and 2024 to increase 20.2% and 3.1% year-over-year to $17.35 and $17.89. Its revenue for fiscal 2023 and 2024 is expected to increase 8.6% and 4.4% year-over-year to $17.66 billion and $18.43 billion.
It surpassed Street EPS estimates in three of the trailing four quarters
Mixed Valuation
In terms of tailing-12-month EV/Sales, RGA’s 0.63x is 68.1% lower than the 1.96x industry average. Its 0.56x trailing-12-month Price/Sales is 70.8% lower than the 1.91x industry average. Likewise, its 0.65x forward non-GAAP PEG is 35.3% lower than the 1.01x industry average.
In terms of forward non-GAAP P/E, RGA’s 8.51x is 3.4% higher than the 8.23x industry average. Likewise, its 1.21x forward Price/Book is 37.3% higher than the 0.88x industry average.
Solid Historical Growth
RGA’s revenue grew at a CAGR of 5.6% over the past three years. Its net income grew at a CAGR of 3.5% over the past three years. In addition, its total assets grew at a CAGR of 5.6% in the same time frame.
POWR Ratings Show Promise
RGA has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RGA has an A grade for Growth, consistent with its solid historical growth. It has an A grade for Sentiment, in sync with its favorable analyst estimates.
RGA is ranked #2 out of 9 stocks in the A-rated Insurance - Reinsurance industry. Click here to access RGA’s Value, Momentum, Stability, and Quality ratings.
Bottom Line
RGA’s stock is trading above its 50-day and 200-day moving averages of $136.79 and $136.67, respectively, indicating an uptrend. The company reported impressive financial performance in the first quarter, with strong growth in premiums and earnings. Its first-quarter performance helped garner buying interest from institutional investors.
Although the Fed signaled that it could pause rate hikes, the April CPI is expected to remain elevated. Moreover, April’s job growth remained strong. All these factors mean that the central bank could look to hike interest rates again in June. As a result, RGA is expected to benefit.
Given its robust financials, favorable analyst estimates, solid historical growth, and regular dividends, it could be wise to buy the stock now.
How does Reinsurance Group of America, Incorporated (RGA) Stack up Against Its Peers?
RGA has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Insurance - Reinsurance industry with a B (Buy) rating: International General Insurance Holdings Ltd. (IGIC), Everest Re Group, Ltd. (RE), and Hannover Rück SE (HVRRY).
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RGA shares were trading at $148.49 per share on Wednesday morning, up $0.86 (+0.58%). Year-to-date, RGA has gained 5.06%, versus a 8.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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