MetLife (NYSE:MET) recently announced its quarterly earnings for the first quarter of 2012,  reporting a net loss of $174 million, or $0.16 per share. The loss was attributed to derivative losses from rising interest rates and a lower credit spread during the quarter, and Metlife was quick to reiterate that the derivative gains and losses from credit spreads do not have an economic impact on the company. Overall, Metlife had a strong quarter, with net operating income of $1.46 billion compared to $1.32 billion in the first quarter of last year. It is one of the largest insurance companies in the world and competes with AIG (NYSE:AIG), Hartford Financial (NYSE:HIG), Prudential Financial (NYSE:PRU) and Manulife (NYSE:MFC).
Rising Annuity Sales
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Annuity sales have steadily increased over the past few years, with growth in the number of people reaching retirement age, particularly the Baby Boomer generation. Annuities are a source of post-retirement income and a lucrative product for many people approaching retirement. The boost in sales led to an increase of 20% in the earnings generated through U.S. Life & Non-Medical Health Insurance, which accounts for 24% of our price estimate for MetLife. Variable Annuity sales however dropped by 13%, as customers across the U.S. opted for the security of fixed income annuities over the risk associated with variable annuities (See Variable Annuity Sales Decline As Insurers Become More Risk Averse).
Strong Performance in International Markets
In 2010, MetLife acquired American Life Insurance Company (Alico), one of the largest insurance companies in the world with a strong global customer base. Alico has helped MetLife consolidate its global operations, particularly in Japan, China and Australia, with the company reporting a 15% increase in sales in Asia this quarter. MetLife’s European operations, however, was impacted adversely by the economic crisis in the region as adverse foreign currency exchange rates resulted in a 4% decline in operating earnings, and total sales in this region grew by 7%. Operations in Latin America also fared well, with pension sales in Mexico and accident and health sales in Argentina boosting total sales by 19%. International insurance accounts for 29% of our price estimate for Metlife.
Stress Test Failure
The Federal Reserve requires a minimum total risk-based capital ratio be maintained at 8%. MetLife was not able to maintain this ratio and will not be able to increase its dividend or repurchase stock, as long as it is considered a bank holding company. To this end, Metlife plans to sell its online banking operations to General Electric. (See MetLife Fumes as it Fails Fed Stress Test)
We have a price estimate of $39 for MetLife’s stock, about 9% above the current market price.Notes:
- Metlife’s CEO Discusses Q1 2012 Results – Earnings Call Transcript, SeekingAlpha, April 30th, 2012 [↩]