Will Harness Global Markets And Regulatory Changes For Future Expansion

Key Takeaways

• RGA's strategic focus on Creation Re deals and balance sheet optimization aims to increase earnings and net margins through exclusive transactions and risk reduction.
  
• A strong pipeline in Asia and EMEA, combined with regulatory opportunities, supports RGA's potential for substantial future revenue growth and earnings expansion.
  
• Heavy reliance on in-force transactions and aggressive growth strategies could lead to revenue fluctuations, financial instability, and earnings volatility due to various risks.

Catalysts

Provides reinsurance and financial solutions.

• RGA's strategic focus on Creation Re deals creates a cycle of repeat opportunities, likely to enhance future revenue and earnings through exclusive transactions in key markets worldwide.
  
• Balance sheet optimization and in-force management actions are expected to continue reducing risk and increasing net margins, contributing positively to long-term earnings potential.
  
• Successful deployment of $1.7 billion into transactions in 2024, with expectations for similar or increased levels in 2025, suggests continued revenue growth from new business and strategic capital use.
  
• The robust pipeline in regions like Asia and EMEA, coupled with opportunities from regulatory changes such as the ESR in Japan, indicates potential for substantial future revenue enhancement.
  
• RGA's updated financial targets, including a higher operating ROE range and expectations of an 8% to 10% growth in earnings run rate, demonstrate confidence in ongoing earnings growth due to strategic deals and market expansion.

Reinsurance Group of America Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Reinsurance Group of America's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 6.5% in 3 years time.
• Analysts expect earnings to reach $1.8 billion (and earnings per share of $27.01) by about March 2028, up from $717.0 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 11.3x on those 2028 earnings, down from 17.6x today. This future PE is lower than the current PE for the US Insurance industry at 13.9x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

Reinsurance Group of America Future Earnings Per Share Growth

Risks

• The company's growth is heavily reliant on in-force transactions, which are described as lumpy in nature, potentially leading to fluctuating revenues and net income depending on transaction timing and execution.
  
• The success of RGA's business strategies in Asia, particularly with the Chinese and Hong Kong markets, may be subject to regulatory changes or geopolitical tensions, which could impact revenue consistency and financial stability.
  
• The ongoing challenge in the U.S. market is balancing new PRT business and the run-off of lower-margin annuities, which may lead to slower growth in earnings from the Financial Solutions segment.
  
• The deployment of $1.7 billion in capital highlights aggressive growth strategies, but the risk of overleveraging could adversely affect net margins and financial solvency if the expected returns are not realized.
  
• Despite current profitability, the reliance on favorable biometric claims experience for economic gains can reverse with any shifts in mortality trends or unforeseen pandemic-like events, potentially impacting earnings volatility.

Valuation

• The analysts have a consensus price target of $251.364 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 $285.0, and the most bearish reporting a price target of just $224.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $27.4 billion, earnings will come to $1.8 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 6.7%.
• Given the current share price of $190.62, the analyst price target of $251.36 is 24.2% 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.