Why I'm Not Concerned About Reinsurance Group of America

So Reinsurance Group of America (RGA) missed estimates. Big deal; they’ve had good-to-excellent earnings for the last ten quarters; they have a bad quarter now and then when the “law of small numbers” catches up with them. Look at 2Q05 and 4Q01 for examples. The law of small numbers means that every now and then, you get a random gaggle of deaths with high face amounts, and the quarter is bad. This is often a good buying opportunity, because Wall Street, which only understands that the earnings missed, without understanding the underlying model, assumes that the miss will persist into the future.

That has not been true of RGA.

I have met the CEO and CFO of RGA, and I think they know what they are doing, more than all of the other companies that do life reinsurance. They are the quality name in the space, including their more complex European competitors.

The stock price is currently way above my lower rebalance point, but I would be a buyer on weakness if I did not have a position. This is one of those stocks that you tuck away for 5-7 years, and you find that it doubles. The current oligopolistic nature of life reinsurance may shorten that timespan.

Disclosure: I am long RGA.

Comments

[fxtrader07:]

You give the impression that the quarterly miss was due to quite of normal fluctuations in death claims. But, a larger part of the miss comes from a significant investment loss of 155 million. even though mgmt is pretty much convinced that most if that loss will be reversed over the longer run, this IS a very important issue, no? When an insurance company reports significant losses in their investment protfolio, it is ALWAYS a cause for concern, because it is these investments (along with smart underwriting) that ultimately creates (or destroys) the value.
So i am not holding my breath here- there may well be more negative news in store from the company next quarter if the current liquidity and credit market crisis continues or worsens.

2008 Apr 21 11:16 AM

[nsurinvest:]

Even when RGA a few years back had two adverse claims quarters in a row, they bounced back, so yes, I would normally agree with David's assessment. So while this is somewhat expected, I'm a bit more concerned than usual. The UK publication MoneyMarketing reported on 16-April (a day prior to the earnings announcement) about the sudden departure of the head of the UK Operation. This, after being with the company for 9 years, building this market up from nothing. Neither the CEO or the CFO said anything about this during the call, either.
The MoneyMarketing blurb is in quotes below.
"Perry Thomas leaves RGA
Helen Pow - 16-Apr-2008
RGA head of UK business Perry Thomas has left the reinsurer with immediate effect. The role will be filled by Enda Murphy, who currently heads up the international business based in Dublin.
Thomas, who had been at RGA for nine years, has not revealed where he is going. "

2008 Apr 28 07:18 PM