- RGA has announced a $1.5 billion deal with Equitable to reinsure $32 billion worth of life insurance policies, reinforcing its position in the industry despite a recent Moody’s downgrade. However, the transaction is expected to boost RGA’s future earnings and aligns with its expertise, with multiple analysts maintaining hold ratings and a moderate buy outlook on its stock.
Reinsurance Group of America (RGA), a $13 billion market cap health and life reinsurance provider, has announced a deal with fellow Fortune 500 company Equitable.
The deal will see RGA deploy $1.5 billion in cash to reinsure $32 billion worth of policies across a mix of life insurance products.
Reinsurance is a common industry practice of sharing the risk of policies with another business in return for a premium. The deal, often referred to as a ‘reinsurance treaty,’ is often done without policyholders needing to be made aware.
As the transaction nears completion, RGA has not only assured shareholders that the risk profile of the new batch of business is within its means, but also said they can expect “significant benefits to future earnings” as a result.
“This transaction is expected to deliver favorable economics and significant expected future value for RGA upon closing,” said Ron Herrmann, executive vice president and head of the Americas at RGA, tells Fortune. “It is expected to meaningfully contribute to our intermediate-term financial targets.
“Including the transaction, we have sufficient capital to deploy for the remainder of the year and we will remain selective and disciplined to maximize long-term shareholder value.”
Herrmann added the transaction sits “squarely” within the St Louis-based giant’s risk profile and adds the company’s capital position remains strong.
This might address concerns raised by Moody’s, which this week downgraded its outlook for RGA from stable to negative. Moody’s said that in the near term, the deal—subject to regulatory approval but expected to be completed by mid-2025—could strain RGA’s capital adequacy.
Yet even then, Moody’s added, per Reinsurance News, that the announcement “is consistent with RGA’s strategy of assuming flow business and in-force or large transactions in which it can earn good returns on capital and leverage its competitive advantages.”
RGA said it expects the deal to add approximately $70 million of adjusted operating income before taxes in 2025 and increase to $160 to $170 million in 2026. In time, RGA expects this to balloon to $200m.
Other Wall Street firms have a positive outlook for RGA: Morgan Stanley and TD Cowen both issued hold ratings for RGA shares last month, alongside target prices of $228 and $233, respectively. MarketBeat’s analyst rating for RGA shares overall is ‘moderate buy.’
At the time of writing, RGA’s share price sits at $198.91—up 12% over the past 12 months but down 7.65% for the year to date.
Growth and diversification
With RGA—ranked 223 on the Fortune500—having operated in the life insurance industry for some 50 years, Hermann framed the deal as well within the company’s expertise: “While large, it is a block of business with which we are very familiar.”
He explained: “It is a natural outgrowth of the strong foundation RGA has built over decades. Our biometric risk expertise, global liability origination platform, integrated capabilities on both sides of the balance sheet, and commitment to financial and risk discipline, set RGA apart.”
For Equitable, ranked 381 on the Fortune 500, the deal marks greater cohesion between products.
As Mark Pearson, CEO of Equitable explained to Fortune: “The value generated allows us to enhance our focus on our integrated business model with retirement, asset management and wealth management. This enables us to deepen our market leading positions and deliver superior solutions to clients, particularly as the demand for financial well-being increases.”
Equitable’s shares are up 8.56% for the year to date, up 54.6% over the past year.
