Keefe, Bruyette & Woods Sees Decision to Retrocede as Good for Reinsurance Group of America

In a report published Wednesday, Keefe, Bruyette & Woods analyst Ryan Krueger reiterated a Market Perform rating and $95.00 price target on

. In the report, Keefe, Bruyette & Woods noted, “RGA is retroceding 14% of its U.S. mortality block to Pacific Life, reducing premiums by $450m (5% of consolidated) and freeing up $200m of capital. We view the transaction favorably, as the retroceded business comes from RGA's underperforming 1999-2004 U.S. mortality block that was earning low-single-digit returns. This deal follows a recent embedded value securitization that freed up ~$250m of intermediate-term capital/liquidity. We expect a portion of the capital freed up from these transactions to be redeployed into additional block opportunities and/or share repurchase over time. Assuming $200m of incremental share repurchase and estimated deal costs, we raise 2016E EPS to $9.75 from $9.60, and increase price target to $95.” Reinsurance Group of America closed on Tuesday at $88.21.