MetLife (NYSE:MET) is one of the largest sellers of life insurance in the U.S. and has started offering prepaid life policies through Wal-Mart (NYSE:WMT) stores.  Around 200 retail stores in South Carolina and Georgia have started selling MetLife’s products boosting the distribution network for individual life insurance beyond the traditional broker-dealer model. MetLife’s target demographic has hitherto been restricted to middle-income and more affluent customers, but the partnership with Wal-Mart will help it reach all socioeconomic strata given Wal-Mart’s reach.
MetLife has also received an extension for a deadline to resubmit capital plans to the Federal Reserve.  The company is looking to sell about $7.5 billion in U.S. deposits and its online banking platform to General Electric (NYSE:GE) so as to avoid the classification as a bank holding company which restricts its ability to pay dividends and buyback shares. The deadline has been extended from September 30, 2012 to January 5th to allow the deal to go through.
Our $35 price estimate for MetLife’s stock, is 10% above the current market price.
An Innovative Distribution Network
MetLife currently relies on a network of financial advisers, banks, consultants and brokerage agencies to distribute its products in the U.S. Most of its competitors in the U.S., including Prudential Financial (NYSE:PRU) and AIG (NYSE:AIG), employ a similar model for distribution. Manulife (NYSE:MFC), however, sells through retail chain, Costco (NASDAQ: COST), in Canada but still targets affluent customers. MetLife is looking to replicate the model and use its popular Snoopy and Peanuts characters trademark to reach out to retail store customers.
Life insurance products are generally bought by a more affluent demographic as insurance companies generally target customers with annual income above $100,000. The high cost of insurance is one of the main reasons why penetration, measured by taking premiums as a percentage of GDP, is around 8% in the U.S.  In comparison, in the U.K., the penetration is much higher at 14%.
The 2010 census in the U.S. revealed that about 50% of the households in the country have an annual income less than $50,000 forming a huge customer base for MetLife and other insurance companies to tap into.  About 56% of Wal-Mart’s customers make less than $50,000 a year, and we believe that by distributing its products through the retail chain, MetLife might be looking to expand its reach to the aforementioned populace. 
The pricing certainly looks affordable as the company is now offering a one-year policy with a $10,000 death benefit through Wal-Mart. The price for customers aged 18 to 44 is $69 whereas that for customers above 60 is much higher at $429 for a single year coverage of $25,000. Customers can purchase a pre-paid card at the retail store, covering the policy fees, and activate the policy by calling the telephone number provided. In the event, the customer does not meet MetLife’s minimal underwriting criteria to be eligible for the policy, he or she can use the card for shopping.
Sales of MetLife’s most popular product, Universal Life Insurance, dropped by 31%, year-on-year in the second quarter of 2012. The product accounted for almost half of the sales of life insurance products last year but has not struggled this year. We believe that by expanding its distribution network and its target demographic, MetLife stands to gain market share in the mature U.S. economy and revive sales. We currently forecast MetLife’s share to reach 6.9% by the end of our forecast period. You can use the interactive chart below to assess the impact a change in market share will have on our price estimate.Notes:
- MetLife Joins Wal-Mart Selling Insurance in a Snoopy Box, Bloomberg, 1st October, 2012 [↩]
- MetLife Gets Extension Until January 5 To Resubmit Capital Plan, NASDAQ, 4th October [↩]
- Presentation To The American Council Of Life Insurers, Goldman Sachs Investment Banking Division, 28th March, 2012 [↩]
- Annual Social and Economic (ASEC) Supplement, United States Census Bureau [↩]
- The Demographics of Retail, AdAge, 19th March, 2012 [↩]