Reinsurance Group of America (RGA) just delivered a record-breaking quarter, sending ripples of excitement through the market. But beneath the surface of those impressive numbers lies a potential game-changer that has largely gone unnoticed: the rise of weight loss drugs and their potential impact on the reinsurance landscape.

While analysts are busy dissecting RGA's strong earnings, ROE, and new business performance, a closer look at the transcript of their Q1 2024 earnings call reveals a subtle, yet powerful, clue. Jonathan Porter, RGA's Chief Risk Officer, highlighted "emerging data relative to weight loss drugs, as an example, GLP-1 type drugs" as a factor that could "lead to measurable improvements in both mortality and morbidity over time." This seemingly innocuous comment could herald a seismic shift in the industry, with RGA poised to benefit significantly.

Here's why: RGA is heavily weighted towards mortality risk, meaning they profit when actual death rates are lower than expected. This makes them particularly sensitive to advancements that extend lifespans. While the impact of weight loss drugs on mortality is still being studied, the early signs are undeniably promising. GLP-1 drugs, originally designed to treat diabetes, have shown remarkable success in helping individuals achieve significant weight loss, leading to improvements in cardiovascular health, blood sugar control, and overall well-being.

The potential implications are enormous. If these drugs lead to a widespread reduction in obesity-related diseases and mortality, RGA's core business could experience a surge in profitability. Imagine a future where, thanks to these revolutionary drugs, death rates plummet, exceeding even the most optimistic projections. The impact on RGA's bottom line would be nothing short of transformative.

But here's where it gets even more interesting. In his comments, Porter specifically highlighted the potential impact on both mortality and morbidity. This suggests that RGA sees the benefits extending beyond just life insurance to their health reinsurance business as well. A healthier population means fewer claims for chronic conditions like heart disease, stroke, and certain cancers, all of which can significantly impact morbidity experience.

This potential double whammy of improved mortality and morbidity experience sets RGA apart from many of its competitors. Most reinsurers tend to focus on either asset risk or biometric risk, but RGA, as a global leader in both life and health reinsurance, is uniquely positioned to capture the full spectrum of benefits from these advancements.

Of course, this is still a developing story. The long-term impact of weight loss drugs on population health remains to be seen. But the fact that RGA is actively studying and considering these trends suggests they are prepared to capitalize on them.

Hypothesis:

RGA's strategic focus on exclusive arrangements and innovative solutions, coupled with their expertise in both mortality and morbidity risk, positions them to disproportionately benefit from the potential impact of weight loss drugs on population health.

Numbers:

RGA's value of business subject to LDTI (a measure of expected unrealized underwriting margins) increased by over $3 billion in 2023, primarily driven by new business. This suggests a significant exposure to mortality risk, which would be directly impacted by advancements in weight loss drugs.

RGA deployed a record $737 million of capital into in-force transactions in Q1 2024, demonstrating their commitment to growth and their confidence in the future profitability of their business.

RGA's Capital Deployment

This chart shows RGA's capital deployment into in-force transactions over the past few quarters, illustrating their increased activity in this area.

The rise of weight loss drugs could be a game-changer for the reinsurance industry, and RGA is at the forefront of this potential transformation. While the market is focused on the immediate drivers of their record earnings, the long-term story could be even more compelling. As the impact of these drugs unfolds, RGA's strategic positioning could lead to a new era of growth and profitability, potentially reshaping the reinsurance landscape for years to come.

"Fun Fact: RGA was ranked number one for the 13th consecutive year on NMG Consulting's Global all respondents Business Capability Index. This speaks to their industry-leading expertise and ability to innovate."