Exclusive Transactions And Asian Expansion Will Strengthen Future Market Position

Key Takeaways

• Strategic capital deployment and exclusive transactions are driving revenue growth and enhancing profitability and margins.
  
• Balance sheet optimization and Asian market expansion are improving long-term value and positioning RGA for sustained revenue increases.
  
• RGA's reliance on exclusive transactions and market growth faces risks from market saturation, competition, mortality volatility, and funding challenges.

Catalysts

Engages in reinsurance business.

• RGA has been deploying significant capital into new transactions, with $1.4 billion deployed in 2024, expected to drive substantial future revenue and earnings growth through exclusive and high-value business opportunities.
  
• Increasing new business embedded value, particularly through exclusive transactions, demonstrates RGA's strong positioning in growth markets and is likely to enhance net margins and profitability over time.
  
• RGA's focus on balance sheet management, such as recapturing retroceded business, is expected to unlock $1.5 billion in long-term value, which will be accretive to ROE and earnings from 2025 onwards.
  
• Expanding market presence in Asia, coupled with unique product development capabilities, positions RGA for sustained revenue increases, leveraging favorable market conditions and biometric capabilities.
  
• RGA's optimization of its balance sheet, including asset repositioning and in-force management actions, has raised expected value of in-force business margins by $2 billion in 2024, indicating potential further increases in earnings.

Reinsurance Group of America Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Reinsurance Group of America's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.3% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $29.66) by about December 2027, up from $727.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.2x on those 2027 earnings, down from 19.0x today. This future PE is lower than the current PE for the US Insurance industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 2.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.41%, as per the Simply Wall St company report.

Reinsurance Group of America Future Earnings Per Share Growth

Risks

• RGA's reliance on high-value exclusive transactions, particularly in Asian markets like Korea and China, poses a risk if these markets become oversaturated or if competition intensifies, potentially impacting revenue and profit margins.
  
• The company's significant growth in the U.S. PRT market and other asset-intensive transactions may lead to increased exposure to market and interest rate volatility, which could affect net margins.
  
• The recapture of retroceded business, while potentially increasing future profitability, also increases mortality exposure. Any unexpected adverse mortality experience could lead to earnings volatility.
  
• The assumption updates and resulting actuarial reviews may not be fully accurate, especially regarding future excess mortality assumptions, which could negatively impact future earnings.
  
• The reliance on capital sources like Ruby Re for funding growth could become challenging if investor interest wanes, potentially constraining capital deployment and affecting future revenue-generating opportunities.

Valuation

• The analysts have a consensus price target of $253.0 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 $283.0, and the most bearish reporting a price target of just $227.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $26.3 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 6.4%.
• Given the current share price of $209.19, the analyst's price target of $253.0 is 17.3% 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.