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Wolf's Corona Discounts: Reinsurance Group Of America


  • In what may well be one of the last Corona-discount articles, we take a look at the Reinsurance group of America.
  • Company operations are appealing and the current valuations show a continuing undervalued picture, disconnected from the company's positive earnings.
  • Because of this disconnect between assumption and current reality, RGA is a "BUY".

We may well be looking at one of the last articles entitled "Corona discounts". As we move forward, companies move back up more and more towards standard valuations. While discounts still exists across all sectors - you can view my articles on this - they're thinning, and especially what i consider class 1 companies are moving back quicker and quicker to more standard valuations.

Reinsurance Group of America (NYSE:RGA), thankfully, is not doing so just yet.

As discounts slowly disparate, we need to deploy our capital with the precision of tactical airstrikes in order to make investments that give us good potentials of appreciating due to their valuations and forward expectations. RGA, as i see it, is an underfollowed and underappreciated gem of a company. You should at the very least look at this business and decide for yourself.

In this article, the purpose I have is to present RGA, do some groundwork, and give you a point from which to move forward.

Reinsurance Group of America - What does the company do?

RGA is, as the name suggests, a business that operates in the reinsurance industry. The company is a Fortune 500 company, with about $3.3 trillion of life reinsurance in force, and company assets of about $64.5B. These two numbers alone make RGA into one of the largest life reinsurance companies in the world.

So, with that out of the way - the company is about 40 years old, and headquartered in Missouri. While the company itself is 40 years old, the General American Reinsurance was a division formed in 1973, and it was the forerunner to RGA (out of the General American Life Insurance Company, which today is called Metlife (MET))

The business of reinsurance is, on the face of it, a simple. The business of reinsurance is a way

This article was written by

Wolf Report profile picture

Wolf Report is a senior analyst and private portfolio manager with over 10 years generating value ideas in European and North American markets.

He is a contributing author for the investing group iREIT on Alpha where in addition to the U.S. market, he covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas. Learn more.

Analyst’s Disclosure: I am/we are long RGA, AFL, AMP, PRU, PFG, TD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment. I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (17)

Paperone75 profile picture
Any idea about the price has been pummeled until 67,56??
BM Cashflow Detective profile picture
Well, I don't know the exact reasons either. Are there any? Only short and medium-term expectations are currently traded on the stock exchange. And they probably look very bad again. In my view, simply wonderful.

After that, the analysts cyclically lower their expectations again with the falling share prices. Somewhat unsurprising.

Overall, I expect $RGA results to likely fail analysts' expectations next quarter as a result. From the perspective of the analysts as employees of the investment companies, this is probably a logical approach. Then the last optimists are driven out of the shares. I guess all of these investment companies already have capital for early purchases. The current sellers are just "maneuvering mass".

It is currently a very oversold situation. In my view, it is advisable to think long term and buy now countercyclically before others do. I like to buy into a lot of fear and doubt. Great discounts. Be greedy when others are afraid. That we already know. Now only one thing is decisive. Are you absolutely convinced of the long-term quality and durability of the business model? Then, in my opinion, there is only one sensible approach.

This is my point of view. Does that help you further?
Paperone75 profile picture
Totally agree with you!
BM Cashflow Detective profile picture
@Paperone75 @Risk Professor @Tim Butler

"I guess all of these investment companies already have capital for early purchases."

Daily low on July 10th of our discussion $ 67.47.

Current price $ 83.74. Since then + 24.11%

This assumption has actually become more true in such a short time than I expected. It was almost a situation with an announcement.

The many years of experiences with Mr. Market's emotional behavior have paid off for me again. Obviously an advantage of age. I accepted his gift in time.

I hope you too.
Paperone75 profile picture
This awful -6% is always consequence of a new peak in the new cases??
Manatee Research profile picture
Great article, thanks. Going to go check our their annual reports now ;).
What’s the deal with RGA? Market is trending up and RGA is trending down pretty hard.
I have to give kudos to Wolf for good articles, and also for having a focus on european stocks and markeds. I am a novice in stocks and articles from people with a clear philosophy is a good way to learn a little every day. I went in RGA around mid june, and I am fine with that. But in the two weeks following that purcase the share dropped to 83-84 $. I have not found any reason for this drop. What did I miss?
Paperone75 profile picture
The cost of pandemic-related damages, either in life or in non-life fields, is higher than estimated.
Paperone75 profile picture
Very well written article; RGA is one of my battle-horses, at the moment in the watchlist, but I have owned it some years ago. Maybe I could buy it again in the coming weeks.
BM Cashflow Detective profile picture
I have been heavily involved with my investments in the reinsurance industry for many years. Munich Re ($MURGY), Hannover Re ($HVRRF), Everest Re Group Ltd. ($RE), RenaissanceRe Holdings Ltd. ($RNR). In the past few weeks I have also noticed the blatant undervaluation of the Reinsurance Group Of America ($ RGA). So I opened a first position. Due to the variety of Corona offers, the position is unfortunately not as big as I would like it to be.

It should also be taken into account that this undervaluation naturally also has operational reasons. This weakness is clearly revealed in peer group comparisons. In the past five years, the return on equity has dropped from around the median to less than the median among competitors, suggesting that the company's historical competitiveness in operations is deteriorating. The return on invested capital has of course also decreased, as has free cash flows. RGA has relatively low profit margins and medium capital efficiency. While sales have grown faster than the peer median in recent years, the market for the share shows a P / E ratio that is only around the peer median. The change in the company's annual sales appears to be at the expense of earnings. RGA has relatively low profit margins and medium capital efficiency. The company is likely investing too much in a company with only medium returns. With the share price not rising so quickly, the market seems to assume that RGA's earnings will grow at about the same rate as those of its selected competitors and also does not appear to expect any significant improvement in returns below the comparative median.

I personally rate it quite differently. RGA is currently trading at a price-to-book ratio of 0.73. So I currently get almost 30% of the book value and the operational business for free. This is an extraordinarily good deal for me. I also like that this company has a strong competitive position in an oligopoly. In the long term, there is plenty of room for a catch-up potential in terms of return on capital, cash flows and margins. Like the author, I am convinced of the long-term potential of RGA. I don't see it as a big risk to invest in a company whose business model is managing big risks.
09 Jun. 2020
Thanks for the article. It may be worth mentioning the recent $500M stock offering, along with the $600M debt offering which may need to be taken into calculations. I would also love to see more insider buying activity for this company.
Risk Professor profile picture
Agree with your assessment. Perhaps people have trouble understanding the complexities of reinsurance, and just stay away. Long RGA and PRU (also ATH).
Bjorn Zonneveld profile picture
Established a position today after taking profits in APPS
Skip Kapur profile picture
sheer coincidence. got into RGA just over the last few weeks. built a core position @ $90

good job Wolf, as always. excellent, really.
Will have to seriously look into RGA. Too bad the dividend is so low.
But on the flip side, the total return looks fantastic.
Tim Butler profile picture
Wolf, thanks for your analysis and article on RGA. The performance on your undervalued stocks, per your prior recent articles, has been nothing less than spectacular. Perhaps you ought to post an article citing the tickers and prices, as of the date of publication of your prior articles, along with today's prices and appreciation percentage. What's astounding to me is the consistency in your cited companies. You did not just get lucky with one, two or a few, instead they are all up, and up big time. Thank You.
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