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Investment Overview for MetLife (NYSE:MET)
Below we look the key drivers of the US life & non medical health insurance division with potential upside/downside to the Trefis price estimate.
- MetLife's Share of Asian Insurance Market MetLife's share of the international market increased substantially over the last few years, from 0.1% in 2009 to 0.93 % in 2012. The company is expanding aggressively in high growth markets in Asia. The acquisition of ALICO in 2010 helped it establish a foothold in the Asian market. MetLife has a market share of around 5% in the Japanese insurance market, with around 7 million policies in force and over $75 billion in assets. The company has a market share of 10% of the foreign-owned life insurance market in China. We expect MetLife to increase its share of the market to around 1.16% through the Trefis forecast period. There is a 10% upside to the Trefis price estimate for MetLife's stock if its market share increased to 1.5% by 2019.
- Group Insurance Premiums In The U.S. . MetLife has a market share of nearly 25% in the group life insurance market. The recovering job market drove a 6% growth in MetLife's group insurance premiums in 2012. As the economy and the job market recovers from the financial crisis of 2008, we expect a 2% to 3% growth rate in group insurance premiums over the coming years. A 5% growth rate would imply a 10% upside to our price estimate.
MetLife is a leading provider of insurance, employee benefits and financial services with operations throughout the United States and the Latin America, Asia Pacific and Europe, Middle East and India regions. MetLife offers life insurance, non-medical health insurance (disability, long-term care, dental), retirement products (fixed/variable annuities), property and casualty insurance (auto, home insurance), retail banking and other financial services to individuals, groups and institutions.
MetLife's international insurance business is the company's main source of value. This is due to the significance of the market, which we estimate will approach $26.89 billion by 2019. The acquisition of ALICO from AIG in 2010 allowed the company to expand into key markets in Asia and the Middle East. MetLife has a market share of around 5% in the Japanese insurance market and a market share of 10% of the foreign-owned life insurance market in China.
In the U.S., MetLife's most valuable business is collecting premiums and fees from its customers, worldwide. The company invests insurance premiums collected across all its insurance products in assets such as bonds, equities and mortgages.
MetLife is the biggest life insurer in the U.S., with a market share of nearly 10%.
Taking total premiums for life insurance, annuity considerations, deposit type contract funds, accident and health and other considerations, the company has a market share of 13.8%
The company primarily invests in fixed maturity securities like government and corporate bonds. Nearly 75% of the assets are invested in such securities, however the yield from these dropped from 5% in 2007 to 4% in 2012. In the coming years, we expect the yield to recover to per-recession levels as the Fed's quantitative easing program comes to an end.
Increasing Bond Yields
More than 75% of MetLife's assets are invested in corporate and government bonds, the returns from which are linked to interest rates. The 10 year Treasury bond yield has climbed from 1.66% in May to around 2.63%, primarily due to speculations that the Federal Reserve’s Quantitative Easing program might be winding down in the near future. The program involves purchasing assets like long term treasuries and mortgage-backed securities from commercial banks and other financial institutions, thereby increasing liquidity and reducing long term interest rates. The Fed has indicated a threshold of 6.5% unemployment rate as a target for the economic recovery before it might start increasing interest rates. Improving trends in the U.S. job market have led to speculations that the Fed might start tapering the program later this year, sending bond yields soaring. The unemployment rate in the U.S. has recovered from 10.1% observed during the financial crisis in 2009 and reached a four-year low of 7.5% in April, staying around 7.6% through May and June.
Modest Growth in Life and Health Insurance Market
Growth in the life and health insurance business continues to be impacted by the current higher levels of unemployment. However, the recovering job market is driving growth in the market.
Acquisition of ALICO Expanded Footprint
Prior to the acquisition of ALICO, MetLife was the leading insurer in the U.S. and Mexico and now it is expected to become a leading insurer in Japan. ALICO will also lead to a position amongst the top five insurers in many emerging markets in Europe, the Middle-East and Latin America.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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