Reinsurance Group of America has had an impressive run over the past six months as its shares have beaten the S&P 500 by 5.4%. The stock now trades at $207.84, marking a 10.5% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Reinsurance Group of America, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Reinsurance Group of America Not Exciting?
Despite the momentum, we're sitting this one out for now. Here are three reasons you should be careful with RGA and a stock we'd rather own.
1. Net Premiums Earned Point to Soft Demand
Net premiums earned are net of what’s paid to reinsurers (insurance for insurance companies), which are used by insurers to protect themselves from large losses.
Reinsurance Group of America’s net premiums earned has grown at a 6.9% annualized rate over the last two years, slightly worse than the broader insurance industry and slower than its total revenue.
2. Growing BVPS Reflects Strong Asset Base
For insurers, book value per share (BVPS) is a vital measure of financial health, representing the total assets available to shareholders after accounting for all liabilities, including policyholder reserves and claims obligations.
Although Reinsurance Group of America’s BVPS was flat over the last five years. the good news is that its growth has recently accelerated as BVPS grew at an excellent 21.9% annual clip over the past two years (from $138.39 to $205.63 per share).
3. BVPS Projections Show Stormy Skies Ahead
The key to book value per share (BVPS) growth is an insurer’s ability to earn underwriting profits while generating strong returns on its float - Warren Buffet’s secret sauce.
Over the next 12 months, Consensus estimates call for Reinsurance Group of America’s BVPS to shrink by 11.8% to $163.27, a sour projection.
Final Judgment
Reinsurance Group of America’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 0.9× forward P/B (or $207.84 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward our favorite semiconductor picks and shovels play.
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