My Market Wizard

REINSURANCE GROUP OF AMERICA INC 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Reinsurance Group of America, I

Filing date:

02/21/2025

TLDR:

RGA’s 2024 10-K filing reveals increased adjusted operating income but a decrease in net income. Key risks include mortality assumptions, regulatory changes, and cybersecurity, while opportunities lie in international expansion and financial solutions.

ELI5:

RGA, a reinsurance company, made more money from its main business but less overall due to some changes and losses. They face risks like people dying sooner than expected and new rules, but they can grow by expanding to other countries and offering new financial products.

Accession #:

0000898174-25-000027

Published on

Analyst Summary

  • Net Premiums increased from $15.085 billion in 2023 to $17.843 billion in 2024.
  • Net Investment Income increased from $3.591 billion in 2023 to $4.416 billion in 2024.
  • Investment Related Gains/Losses shifted from a loss of $481 million in 2023 to a larger loss of $745 million in 2024.
  • Adjusted Operating Income Before Income Taxes increased from $1.699 billion in 2023 to $1.752 billion in 2024.
  • Effective Tax Rate increased from 21.8% in 2023 to 26.3% in 2024.
  • Net Profit Margin = 3.27%, a decrease of 33.13% from 2023.
  • ROA = 0.61%, a decrease of 34.41% from 2023.
  • ROE = 6.64%, a decrease of 33.00% from 2023.
  • Basic EPS = $10.90, a decrease of 19.85% from 2023.
  • Diluted EPS = $10.72, a decrease of 20.24% from 2023.
  • Debt-to-Equity Ratio = 9.88, an increase of 2.49% from 2023.
  • Debt-to-Assets Ratio = 90.81%, an increase of 0.22% from 2023.
  • Interest Coverage Ratio = 4.22, a decrease of 23.41% from 2023.
  • Asset Turnover = 0.19, no change from 2023.
  • P/E = 2.44
  • P/B = 0.16
  • P/S = 0.08
  • EV/EBITDA = 2.58
  • Revenue Growth = 19.07%
  • Net Income Growth = -20.35%
  • EPS Growth = -20.24%
  • Adjusted Operating Income Before Income Taxes = $1,752 million, an increase of 3.12% from 2023.

Opportunities and Risks

  • Mortality and Morbidity Assumptions: Changes in these assumptions can significantly impact profitability, as evidenced by the remeasurement losses in 2024.
  • Regulatory Changes: New regulations, such as those related to ESG and capital requirements, could increase costs and limit flexibility.
  • Cybersecurity: The increasing frequency and sophistication of cyber threats pose a significant risk to RGA’s data and systems.
  • Economic Conditions: Weak economic conditions, inflation, and interest rate volatility can negatively affect investment returns and demand for insurance products.
  • Ratings Downgrade: A downgrade in RGA’s financial strength or credit ratings could adversely affect its ability to compete and raise capital.
  • International Expansion: Growing middle class populations in international markets create demand for insurance products.
  • Financial Solutions: Demand for longevity reinsurance, asset-intensive reinsurance, and capital solutions is expected to continue.
  • Industry Consolidation: Consolidation in the reinsurance industry could lead to new business opportunities for RGA.

Potential Implications

Stock Price

  • Low valuation ratios (P/E, P/B, P/S) may suggest undervaluation or market concerns.

RGA (Reinsurance Group of America) 2024 10-K Filing Report

Executive Summary

This report analyzes RGA’s 2024 10-K filing, focusing on key performance indicators, risk factors, and management’s discussion. RGA experienced a decrease in net income, but an increase in adjusted operating income. Key risks include mortality/morbidity assumptions, regulatory changes, and cybersecurity threats. The company’s international operations and financial solutions segment continue to be growth drivers. Overall, a cautious ‘Hold’ recommendation is suggested, pending further observation of the impact of assumption changes and economic conditions.

Company Overview

Reinsurance Group of America (RGA) is a leading global provider of life and health reinsurance and financial solutions. The company operates in the U.S., Latin America, Canada, EMEA, and Asia Pacific. RGA’s business segments include traditional reinsurance (life, health, disability, critical illness) and financial solutions (asset-intensive reinsurance, longevity reinsurance, stable value products, pension risk transfer, and capital solutions).

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management acknowledges the impact of epidemics and pandemics, such as COVID-19, on mortality and morbidity risk. They emphasize the importance of underwriting processes and risk analysis. The MD&A highlights the company’s strategy to capitalize on industry trends through expertise, innovation, and client relationships. A key strategic shift is the increase in the per-life retention limit, expected to boost future profits but causing a remeasurement loss in 2024.

Management also discusses the impact of weak economic conditions, inflation, and volatility on the business. They acknowledge the potential for investment losses and the need to manage interest rate spreads effectively.

Financial Statement Analysis

Key Ratios and Trends:

  • Net Premiums: Increased from $15.085 billion in 2023 to $17.843 billion in 2024, indicating business growth.
  • Net Investment Income: Increased from $3.591 billion in 2023 to $4.416 billion in 2024, driven by a larger invested asset base and higher interest rates.
  • Investment Related Gains/Losses: Shifted from a loss of $481 million in 2023 to a larger loss of $745 million in 2024, primarily due to portfolio repositioning.
  • Adjusted Operating Income Before Income Taxes: Increased from $1.699 billion in 2023 to $1.752 billion in 2024.
  • Effective Tax Rate: Increased from 21.8% in 2023 to 26.3% in 2024.

Segment Performance:

The report provides a detailed breakdown of revenue and profitability by segment. Key observations include:

  • U.S. and Latin America: Increased adjusted operating income, driven by management actions and new business.
  • Canada: Increased adjusted operating income due to favorable group business experience.
  • EMEA: Increased adjusted operating income due to higher premiums and investment income.
  • Asia Pacific: Decreased adjusted operating income due to unfavorable assumption updates.

Uncommon Metrics:

  • Reinsurance Business In Force: Detailed by segment, providing insight into the scale of RGA’s risk exposure.
  • New Business Volume: Also detailed by segment, indicating growth in different regions.
  • Loss Ratio: Presented for the Traditional segment, offering a view of claims experience.

Risk and Opportunity Assessment

Risks:

  • Mortality and Morbidity Assumptions: Changes in these assumptions can significantly impact profitability, as evidenced by the remeasurement losses in 2024.
  • Regulatory Changes: New regulations, such as those related to ESG and capital requirements, could increase costs and limit flexibility.
  • Cybersecurity: The increasing frequency and sophistication of cyber threats pose a significant risk to RGA’s data and systems.
  • Economic Conditions: Weak economic conditions, inflation, and interest rate volatility can negatively affect investment returns and demand for insurance products.
  • Ratings Downgrade: A downgrade in RGA’s financial strength or credit ratings could adversely affect its ability to compete and raise capital.

Opportunities:

  • International Expansion: Growing middle class populations in international markets create demand for insurance products.
  • Financial Solutions: Demand for longevity reinsurance, asset-intensive reinsurance, and capital solutions is expected to continue.
  • Industry Consolidation: Consolidation in the reinsurance industry could lead to new business opportunities for RGA.

Red Flags

  • Increased Investment Related Losses: The shift from gains to losses in investment activities raises concerns about portfolio performance.
  • Increased Effective Tax Rate: The higher effective tax rate in 2024 could negatively impact future earnings.

Conclusion and Actionable Insights

RGA’s 2024 results reflect a mixed performance, with increased adjusted operating income offset by lower net income due to assumption changes and investment losses. The company faces significant risks related to mortality assumptions, regulatory changes, and cybersecurity. However, opportunities exist in international markets and financial solutions.

Recommendation: Hold. Monitor the impact of the increased retention limit and the effectiveness of the hedging program. Further analysis of the investment portfolio and its sensitivity to economic conditions is warranted. A more bullish stance could be considered if RGA demonstrates consistent profitability in its financial solutions segment and effectively manages its key risks.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Ratio/Metric: Gross Profit is not explicitly available in the provided
    data. Unable to calculate.
  • Trend: Not applicable.
  • Industry: Not applicable.

Operating Profit Margin

  • Ratio/Metric: Operating Profit is not explicitly available in the
    provided data. Unable to calculate.
  • Trend: Not applicable.
  • Industry: Not applicable.

Net Profit Margin

  • Ratio/Metric: Net Profit Margin = Net Income / Total Revenues = $724 /
    $22,107 = 3.27%
  • Trend: 2023 Net Profit Margin = $909 / $18,567 = 4.89%. Percentage
    Change = (3.27% – 4.89%) / 4.89% = -33.13%
  • Industry: The average net profit margin for the insurance industry
    typically ranges from 5% to 15%. RGA’s current net profit margin is
    below the industry average.

Return on Assets (ROA)

  • Ratio/Metric: ROA = Net Income / Total Assets = $724 / $118,675 =
    0.61%
  • Trend: 2023 ROA = $909 / $97,623 = 0.93%. Percentage Change = (0.61%
    – 0.93%) / 0.93% = -34.41%
  • Industry: The average ROA for the insurance industry typically ranges
    from 0.5% to 2%. RGA’s current ROA is within the lower end of the
    industry average.

Return on Equity (ROE)

  • Ratio/Metric: ROE = Net Income / Total Equity = $724 / $10,906 =
    6.64%
  • Trend: 2023 ROE = $909 / $9,171 = 9.91%. Percentage Change = (6.64% –
    9.91%) / 9.91% = -33.00%
  • Industry: The average ROE for the insurance industry typically ranges
    from 8% to 15%. RGA’s current ROE is below the industry average.

Earnings Per Share (EPS) – Basic and Diluted

  • Ratio/Metric: Basic EPS = $717 / 65.8 = $10.90
  • Ratio/Metric: Diluted EPS = $717 / 66.9 = $10.72
  • Trend: 2023 Basic EPS = $902 / 66.3 = $13.60. Percentage Change =
    ($10.90 – $13.60) / $13.60 = -19.85%
  • Trend: 2023 Diluted EPS = $902 / 67.1 = $13.44. Percentage Change =
    ($10.72 – $13.44) / $13.44 = -20.24%
  • Industry: EPS varies significantly within the insurance industry.
    Comparing to peers would require specific competitor data.

Liquidity

Current Ratio

  • Ratio/Metric: Current Ratio = Current Assets / Current Liabilities.
    Current assets and liabilities are not explicitly broken out. Unable
    to calculate.
  • Trend: Not applicable.
  • Industry: Not applicable.

Quick Ratio (Acid-Test Ratio)

  • Ratio/Metric: Quick Ratio = (Current Assets – Inventory) / Current
    Liabilities. Inventory is not applicable. Current assets and
    liabilities are not explicitly broken out. Unable to calculate.
  • Trend: Not applicable.
  • Industry: Not applicable.

Cash Ratio

  • Ratio/Metric: Cash Ratio = Cash and Cash Equivalents / Current
    Liabilities. Current liabilities are not explicitly broken out.
    Unable to calculate.
  • Trend: Not applicable.
  • Industry: Not applicable.

Solvency/Leverage

Debt-to-Equity Ratio

  • Ratio/Metric: Debt-to-Equity Ratio = Total Liabilities / Total Equity
    = $107,769 / $10,906 = 9.88
  • Trend: 2023 Debt-to-Equity Ratio = $88,452 / $9,171 = 9.64.
    Percentage Change = (9.88 – 9.64) / 9.64 = 2.49%
  • Industry: A typical debt-to-equity ratio for insurance companies is
    between 0.25 and 1.5. RGA’s ratio is significantly higher,
    indicating a more leveraged position.

Debt-to-Assets Ratio

  • Ratio/Metric: Debt-to-Assets Ratio = Total Liabilities / Total Assets
    = $107,769 / $118,675 = 90.81%
  • Trend: 2023 Debt-to-Assets Ratio = $88,452 / $97,623 = 90.61%.
    Percentage Change = (90.81% – 90.61%) / 90.61% = 0.22%
  • Industry: A typical debt-to-assets ratio for insurance companies is
    between 10% and 40%. RGA’s ratio is significantly higher,
    indicating a more leveraged position.

Interest Coverage Ratio (Times Interest Earned)

  • Ratio/Metric: Interest Coverage Ratio = EBIT / Interest Expense. EBIT
    is not explicitly available in the provided data. Income before
    income taxes + Interest Expense = $980 + $304 = $1284. $1284 / $304
    = 4.22
  • Trend: 2023 Interest Coverage Ratio = ($1160 + $257) / $257 = 5.51.
    Percentage Change = (4.22 – 5.51) / 5.51 = -23.41%
  • Industry: A good interest coverage ratio is generally considered to
    be 1.5 or higher. RGA’s ratio is healthy.

Activity/Efficiency

Asset Turnover

  • Ratio/Metric: Asset Turnover = Total Revenues / Total Assets =
    $22,107 / $118,675 = 0.19
  • Trend: 2023 Asset Turnover = $18,567 / $97,623 = 0.19. Percentage
    Change = (0.19 – 0.19) / 0.19 = 0.00%
  • Industry: Asset turnover ratios for insurance companies are typically
    low, often below 1, due to the large asset base. RGA’s ratio is
    typical for the industry.

Valuation

Price-to-Earnings Ratio (P/E)

  • Ratio/Metric: P/E Ratio = Stock Price / EPS. Stock price = $26.12.
    EPS = $10.72. P/E = $26.12 / $10.72 = 2.44
  • Industry: The insurance industry’s P/E ratio varies, but a low P/E
    ratio could indicate undervaluation or reflect concerns about future
    growth.

Price-to-Book Ratio (P/B)

  • Ratio/Metric: P/B Ratio = Market Cap / Book Value of Equity. Book
    Value of Equity = $10,906 million. Shares outstanding = 65.872
    million. Book Value per Share = $10,906 / 65.872 = $165.57. P/B =
    $26.12 / $165.57 = 0.16
  • Industry: A P/B ratio of less than 1 can suggest the market values
    the company at less than its net asset value.

Price-to-Sales Ratio (P/S)

  • Ratio/Metric: P/S Ratio = Market Cap / Total Revenues. Market Cap =
    $26.12 * 65.872 million = $1719.58 million. P/S = $1719.58 /
    $22,107 = 0.08
  • Industry: The P/S ratio for the insurance industry is generally low.

Enterprise Value to EBITDA (EV/EBITDA)

  • Ratio/Metric: EV/EBITDA = (Market Cap + Total Debt – Cash) / EBITDA.
    Market Cap = $1719.58 million. Total Debt = $5,042 million. Cash =
    $3,326 million. EBITDA is not explicitly available in the provided
    data. Income before income taxes + Interest Expense + Depreciation
    and amortization expense = $980 + $304 + $46 = $1330. EV =
    $1719.58 + $5,042 – $3,326 = $3435.58. EV/EBITDA = $3435.58 /
    $1330 = 2.58
  • Industry: An EV/EBITDA ratio below 10 is generally considered
    favorable.

Growth Rates

Revenue Growth

  • Ratio/Metric: Revenue Growth = (Current Revenue – Previous Revenue) /
    Previous Revenue = ($22,107 – $18,567) / $18,567 = 19.07%

Net Income Growth

  • Ratio/Metric: Net Income Growth = (Current Net Income – Previous Net
    Income) / Previous Net Income = ($724 – $909) / $909 = -20.35%

EPS Growth

  • Ratio/Metric: EPS Growth = (Current EPS – Previous EPS) / Previous
    EPS = ($10.72 – $13.44) / $13.44 = -20.24%

Other Relevant Metrics

Adjusted Operating Income Before Income Taxes

  • Ratio/Metric: Adjusted Operating Income Before Income Taxes = $1,752
    million
  • Trend: 2023 Adjusted Operating Income Before Income Taxes = $1,699
    million. Percentage Change = ($1,752 – $1,699) / $1,699 = 3.12%
  • Significance: This non-GAAP metric provides a view of the company’s
    profitability from core operations, excluding the impact of certain
    investment-related gains and losses. The adjustments appear
    reasonable in smoothing out volatility.

Commentary

RGA’s financial performance in 2024 shows a mixed picture. While revenue
experienced strong growth, profitability metrics such as net profit margin,
ROA, and ROE declined compared to the previous year. The company’s
leverage, as indicated by the debt-to-equity and debt-to-assets ratios,
remains high relative to industry peers. The low valuation ratios (P/E,
P/B, P/S) may suggest undervaluation or market concerns.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️