When there’s a three-digit upside to a safe company, we’re very interested in clarifying the opportunity for our readers.
As of Saturday, Reinsurance Group of America was trading at Covid-19 level under-valuations. That opens a 100%+ two-year upside with a 3% well-covered yield from an A-rated financial.
Let me show you the details….
This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Learn More »
ToddSm66/E+ via Getty Images This article was co-produced with Wolf Report.
For those of you who don’t know, Wolf Report – a 36-year-old DGI investor in private portfolio management for exclusive clients in Sweden – has now officially joined iREIT on Alpha and Dividend Kings. That makes him our second European analyst, along with Action Biased.
As such, we’re very happy to start featuring his articles and analysis… including this one about potential multibagger Reinsurance Group of America ( RGA ).
The term “multibagger” was coined by Peter Lynch in his book “One up on Wall Street.” It’s meant to describe a stock or stock investment with a rate of return of more than 100%.
Some people like to ascribe time requirements to the word. So, let’s consider less than three years based on conservative calculations.
In which case, Reinsurance Group of America fits the bill.
If you want an overview of the company, you can check out Wolf Report’s initial article on the company . But in this one, let’s begin by taking a look at the recent results… (Source: Reinsurance Group of America) Reinsurance Group of America – How has the company been doing?
Here’s the quick rundown. Reinsurance Group of America is a 40-year-old company that manages more than: $3.3 trillion in life insurance
$64.5 billion in assets.
As such, it’s one of the largest life reinsurance companies in the world.
Unfortunately, that didn’t save it from being heavily impacted by the pandemic. RGA posted a Q3-21 adjusted operating loss of $1.11 per diluted share after a $5.59 per-share Covid impact.
That’s fairly massive. And so, it only makes sense that its trailing 12-month return on equity (RoE) is down to 2.1% – including a 9.8% Covid hit.
So, let’s just call it how we see it. Even good investment results, strong premium growth, and new business activity can’t really turn this past quarter around. (Source: Reinsurance Group of America)
But what about last year’s?To answer that question, let’s recognize the global nature of this company. It services the U.S., Latin America, and Canada, as well as countries in: Europe The Middle East Africa Asia-Pacific… The pandemic impacted every single one of those, of course. Yet Reinsurance Group of America also recorded favorable operating results from asset, capital solutions, and other areas.The same goes for its company premiums. RGA is expanding in the above-bulleted areas, which saw financial solutions growth of over 65%.Its A quality investment portfolio is worth regarding too. It’s boasted a 3.66%+ yield for the past year despite interest rate pressures, and a 4.95% yield for Q3.Furthermore, its overall balance sheet boasts good liquidity, good leverage, and a stable mix of overall capital. (Source: Reinsurance Group of America) Just What Exactly Happened to RGA? Due to low valuation, RGA resumed share buybacks in Q3 to the tune of some $46 million. It increased its dividend by 4% sequentially and also deployed $140 million into in-force blocks.“In-force value” is an important concept to understand if you want to invest in the life insurance industry. It’s the present value of future emerging profits over time – in this case, from a “block,” or closed book. (A closed book is a policy that’s no longer sold yet still accounted for on a life carrier’s financial statements as premium-paying policies).So, why did Covid hit it so badly? Well, truth be told, “non-Covid” did too, which exacerbated the situation. In the third quarter especially, there was just an elevated amount of deaths all around. RGA actually saw the highest quarterly mortality rates since the beginning of the pandemic. And below-65 deaths hit pandemic-era records specifically, with more than 40% of Covid casualties falling in that age range. This automatically affects a reinsurer like RGA, with Q3 claims cost for Covid-19 alone coming in at $235 million.Now, it’s Reinsurance Group of America’s business to predict things like mortality rates within very small margins of error. Otherwise, it wouldn’t stay in business long.So, those numbers didn’t exactly come as a surprise to RGA. But they were nonetheless slightly elevated. And […]