Aging Populations And Digital Advances Will Expand Markets

Key Takeaways

• Enhanced capital deployment and innovative proprietary solutions position the company for superior earnings growth and structural margin expansion versus peers.
  
• Demographic shifts and regulatory changes in key global markets create long-term opportunities for outsized premium growth and rising new business value.
  
• Reliance on traditional markets, heightened competition, unpredictable claims, medical advances, and slow diversification could limit RGA's growth, profitability, and market share over time.

Catalysts

Provides reinsurance and financial solutions.

• While analyst consensus expects the Equitable transaction to be accretive to ROE and earnings growth, the embedded value and early effective date signal the potential for even greater, faster-than-expected earnings accretion, particularly as management has indicated that further in-force value recognition is likely, which could unlock significant additional capital and drive higher capital deployment and elevated EPS growth.
  
• Analysts broadly agree that Creation Re and exclusive global deals will steadily lift new business value, but with RGA now winning asset-intensive transactions across five countries and leveraging rapidly expanding proprietary solutions, the upside for sustained double-digit revenue growth and structurally higher margins is likely being understated, especially as RGA's platform enables first-mover advantages in fast-growing, underpenetrated markets.
  
• RGA's unprecedented build-up of excess and deployable capital-now representing a substantial portion of its market capitalization-creates a unique multi-year opportunity to deploy capital opportunistically at attractive returns, accelerate high-value in-force transactions, and drive a higher pace of buybacks than market anticipates, materially amplifying EPS growth and ROE.
  
• Global demographic shifts-specifically the rapidly aging population in Asia and Latin America-are occurring alongside regulatory changes and expanding middle classes, putting RGA in a prime position to accelerate premium and fee income as insurance penetration and demand for risk solutions move sharply upward, resulting in outsized top-line growth versus the industry.
  
• RGA's continuously improving digital platform and advanced analytics are beginning to generate operating leverage and superior risk selection, with early results indicating the potential to structurally elevate net margins; as these innovations compound, RGA is positioned to outperform on profitability, supporting outsized long-term earnings growth.

Reinsurance Group of America Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Reinsurance Group of America compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Reinsurance Group of America's revenue will grow by 11.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.5% today to 7.0% in 3 years time.
• The bullish analysts expect earnings to reach $2.1 billion (and earnings per share of $31.8) by about August 2028, up from $770.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, down from 16.2x today. This future PE is lower than the current PE for the US Insurance industry at 14.6x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.06%, as per the Simply Wall St company report.

Reinsurance Group of America Future Earnings Per Share Growth

Risks

• RGA's dependence on mature U.S. and developed market life reinsurance leaves it exposed to long-term demographic headwinds such as declining birth rates and aging populations, which could constrain growth in reinsurance demand and put pressure on future revenue expansion.
  
• Increasing competition from alternative capital providers and industry commoditization may drive down pricing and margins for core life and health reinsurance products, threatening RGA's profitability as indicated by management's need to focus on more exclusive or specialized deals.
  
• Persistent claims volatility, highlighted by recent large U.S. individual life and healthcare excess claims, underscores susceptibility to rising catastrophe risks and unpredictable mortality or morbidity trends, potentially increasing claims volatility and causing swings or declines in net earnings.
  
• Advances in genomics, personalized medicine, and new treatments (such as GLP-1 drugs) could structurally improve global mortality rates faster than RGA's models currently assume, leading to future disconnects in premium growth and long-term profitability as premium rates are pressured.
  
• Difficulty diversifying meaningfully into faster-growth, innovation-driven markets such as Asia or digital platforms-as noted by a heavy emphasis on traditional and U.S.-focused business-could limit RGA's ability to offset stagnating core regions or fully capitalize on emerging revenue opportunities, impacting long-term topline growth and market share.

Valuation

• The assumed bullish price target for Reinsurance Group of America is $275.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Reinsurance Group of America's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $275.0, and the most bearish reporting a price target of just $205.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $30.2 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 7.1%.
• Given the current share price of $189.22, the bullish analyst price target of $275.0 is 31.2% 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.