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Why You Should Add Reinsurance Group (RGA) to Your Portfolio


Estimates for Reinsurance Group of America, Incorporated RGA have been revised upward over the past seven days, reflecting analysts’ confidence in the stock before earnings results. The stock has seen the Zacks Consensus Estimate for 2018 bottom line move 0.1% north to $11.29 and for 2019 being raised 0.2% to $13.30.

This provider of traditional individual and group life, asset-intensive, critical illness and financial reinsurance carries an impressive VGM Scoreof B. Shares of this Zacks Rank #2 (Buy) insurer have inched up 1.7% in a year against the industry’s 14.9% decrease. Back tested results have shown that stocks with a favorable VGM Score of A or B coupled with a solid Zacks Rank #1 (Strong Buy) and 2 offer the best investment opportunity.

Let’s focus on the factors that make Reinsurance Group a stock to be invested in for attractive returns.

Improving Top Line: Reinsurance Group’s rising revenues over the past several years are attributable to higher net premiums earned as well as investment income. The company’s top line improved 21% over the past five years.

Product-line expansion with market leading services, capabilities, expertise and innovation should continue to aid the company’s top-line growth.

A favorable rate environment reflecting sustained hikes in interest rate should drive better investment results.

Geographic Expansion: Reinsurance Group’s international operations generate one-third of its total premiums. The company has a significant presence in Hong Kong, Japan, India, Korea and Taiwan. The life insurer noted that economic growth and demographic trends leading to rapid growth in the insurance market, offer ample growth opportunities in these regions.

Sturdy Capital Position: Reinsurance Group has a strong capital management policy in place that enhances its shareholder value. While the latest dividend hike marks nine consecutive double-digit percentage increases, the company has $200 million of the same remaining under its authorization. An excess capital of about $1.2 billion at second-quarter end will help the company maintain financial flexibility to pursue growth initiatives.

Growth Projections: The Zacks Consensus Estimate for current-year earnings per share is pegged at $11.29, representing year-over-year growth of 4.2% on 4.3% higher revenues of $12.9 billion. For 2019, the consensus mark for the bottom line stands at $13.30, translating into a 17.8% year-over-year rise as revenues improve 5% to $13.6 billion.

Attractive Valuation: Shares of Reinsurance Group are trading at a price to book multiple of 1.06, much lower than the industry average of 1.84. Price to book value ratio is the best multiple for valuing life insurers because of large variations in their earnings results from one quarter to the next. This ratio essentially measures a life insurer’s current market value relative to what it would be worth if it chooses to shut down. Underpriced shares with solid fundamentals are lucrative bets.

The stock also carries a commendable Value Score of A. Value Score helps identify the most attractive value stocks. Back tested results have shown that stocks with a Value Score A or B when combined with a favorable Zacks Rank of 1 or 2 offer best investment bets.

Other Stocks to Consider

Investors interested in the life insurance industry can also consider some other top-ranked stocks like Primerica, Inc. PRI, Athene Holding Ltd. ATH and American Equity Investment Life Holding Company AEL.

Primerica distributes financial products to middle-income households in the United States as well as Canada. It delivered an average four-quarter beat of 5.89%. The stock is a Zacks #1 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

Athene issues, reinsures, and acquires retirement savings products in the United States, the District of Columbia, and Germany. It pulled off an average four-quarter positive surprise of 15.03%. The stock is a Zacks #1 Ranked player.

American Equity Investment provides life insurance products and services in the United States. The company came up with an average four-quarter earnings surprise of 22.24%. The stock is a #2 Ranked player.

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