Equitable Transaction And Asia Initiatives Will Expand Underwriting Opportunities

Key Takeaways

• Strategic transactions and partnerships in Asia are anticipated to drive revenue and profitability through enhanced business value and underwriting efficiency.
  
• Expansion in PRT markets and efficient capital management are expected to increase market share, elevate net premiums, and enhance future ROE.
  
• Macroeconomic uncertainties, competition, and execution risks in new markets may pressure RGA's margins and hinder revenue growth, especially in the U.S. PRT business.

Catalysts

Provides reinsurance and financial solutions.

• The strategic transaction with Equitable is expected to enhance RGA's financial returns due to its alignment with RGA's expertise and stronger operational efficiencies, positively impacting ROE and earnings growth.
  
• RGA's Creation Re initiatives in Asia, including new product launches and exclusive client partnerships, are expected to drive higher new business embedded value, thereby increasing revenue and future underwriting profitability.
  
• Expanding into the growing PRT markets in the UK and expected recovery in the U.S., along with strong local underwriting systems, is anticipated to elevate market share and boost net premiums.
  
• The deployment of capital into in-force transactions in Japan and ongoing strategic partnerships signal substantial growth in Asia Financial Solutions, potentially leading to increased revenue and earnings.
  
• The disciplined approach in balancing new business opportunities with efficient capital management is likely to sustain or enhance future ROE by optimizing the funding of profitable business segments and leveraging financial solutions.

Reinsurance Group of America Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Reinsurance Group of America's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.8% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $28.64) by about May 2028, up from $793.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 16.5x today. This future PE is lower than the current PE for the US Insurance industry at 14.4x.
• Analysts expect the number of shares outstanding to grow by 0.45% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.55%, as per the Simply Wall St company report.

Reinsurance Group of America Future Earnings Per Share Growth

Risks

• Macroeconomic uncertainties, such as market volatility and interest rate fluctuations, could adversely affect RGA's revenue and earnings, especially in its U.S. PRT business, which has seen less vibrancy recently.
  
• Lower-than-expected variable investment income could negatively impact net margins and overall profitability if such trends continue, as demonstrated by the underperformance of variable investment income in Q1.
  
• Execution risks in new markets, especially significant international transactions or complex product developments, could hinder the anticipated growth and affect future revenue streams.
  
• Intense competition in certain markets, particularly with private equity-backed companies, may pressure margins and impact RGA's ability to maintain or grow its market share and revenue.
  
• Potential adverse mortality and morbidity trends, if not accurately priced or managed, could impact claims experience negatively, influencing net margins and profitability.

Valuation

• The analysts have a consensus price target of $239.2 for Reinsurance Group of America based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $284.0, and the most bearish reporting a price target of just $195.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $28.2 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of $198.19, the analyst price target of $239.2 is 17.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.