Is Reinsurance Group of America (RGA) a Buy After Disappointing Q2 Earnings?

Reinsurance Group of America (RGA) has long been a paragon of disciplined capital management and strategic execution in the reinsurance sector. Its Q2 2025 earnings, however, revealed a mixed bag of results, with short-term volatility in key segments tempering what would otherwise be a compelling narrative of long-term resilience. For investors, the critical question is whether this volatility is a temporary blip or a signal of deeper structural challenges. To answer this, we must dissect RGA's strategic priorities, capital deployment, and premium growth trends in the context of its broader market valuation.

Short-Term Volatility: A Product of Cyclical Pressures

RGA's Q2 earnings reflected a 15% miss on adjusted operating earnings per share (EPS), falling to $4.72 from a consensus estimate of $5.55. This shortfall was driven by unfavorable claims experience in the U.S. Individual Life segment and group healthcare excess lines. While these issues are concerning, they are not uncommon in a sector sensitive to actuarial surprises and macroeconomic tailwinds. What matters most is how the company navigates such headwinds.

The U.S. Financial Solutions segment, for instance, delivered robust performance, driven by higher variable investment income and improved yields. Similarly, the EMEA and Asia Pacific Traditional segments outperformed, with favorable longevity experience and claims trends. These regional disparities highlight the strength of RGA's diversified global footprint—a strategic advantage that cushions against localized shocks.

Long-Term Strategic Execution: Capital Allocation as a Competitive Edge

At the heart of RGA's appeal lies its capital deployment discipline. The company's estimated deployable capital surged to $3.4 billion in Q2, up from $1.9 billion in Q1, fueled by the recognition of additional credit for in-force business and the $32 billion reinsurance transaction with Equitable Holdings. Pro forma excess capital now stands at $2.3 billion, a figure that underscores RGA's ability to balance risk management with growth.

The recent 4.5% dividend increase to $0.93 per share further reinforces this narrative. While critics may argue that capital efficiency metrics—such as return on invested capital (ROIC) falling below the weighted average cost of capital (WACC)—raise red flags, the broader context is more nuanced. RGA's investment portfolio, valued at $115 billion, remains diversified and high-quality, with 70% in investment-grade bonds and a rising new money rate of 6.53%. This asset base provides a buffer for strategic acquisitions or in-force block transactions, which are key to sustaining long-term value creation.

Premium Growth Momentum: A Foundation for Future Earnings

RGA's traditional premium growth of 11.0% year-to-date, driven by strong performance in the APAC and Latin America segments, signals underlying demand for its products. The Creation Re strategy, which focuses on innovation in risk transfer solutions, has exceeded new business expectations, further diversifying the company's earnings streams.

While the U.S. Traditional segment faces near-term challenges, the global reinsurance market is projected to grow at a 5.2% CAGR through 2030, driven by rising demand for longevity and health risk solutions. RGA's biometric risk expertise and integrated asset management capabilities position it to capture a significant share of this growth.

Valuation: A Contrarian Opportunity?

RGA's current valuation metrics suggest a compelling entry point for long-term investors. The stock trades at a P/E of 16.24, near its one-year low, and a P/B of 1.12, close to its three-year trough. Analysts have assigned a target price of $242, with a moderate buy recommendation. Technical indicators, such as the RSI of 41.91, suggest the stock is approaching oversold territory, potentially offering a margin of safety.

Critics may highlight the ROIC-WACC gap as a cautionary sign. However, in a sector where capital deployment is both an art and a science, RGA's track record of executing high-conviction transactions—such as the Equitable Holdings deal—demonstrates a management team that prioritizes quality over quantity. The key will be monitoring how the company integrates this transaction into its existing operations and whether it can leverage the $2.3 billion pro forma excess capital to drive returns.

Conclusion: A Buy for the Long-Term Investor

RGA's Q2 earnings may have disappointed in the short term, but they do not detract from the company's long-term strategic moat. Its disciplined capital allocation, global diversification, and strong premium growth momentum provide a solid foundation for navigating cyclical volatility. While the ROIC-WACC dynamic warrants close scrutiny, the broader picture—a company with a robust balance sheet, a high-quality investment portfolio, and a clear roadmap for deploying excess capital—suggests that RGA remains a compelling buy for investors with a 3–5 year horizon.

In a market where short-term noise often overshadows long-term fundamentals, RGA's earnings miss is an opportunity to reassess the company's strategic strengths. For those who can look beyond the quarterly blips, the case for RGA is built on its ability to transform volatility into value—a hallmark of its enduring appeal.