MetLife (NYSE:MET) will look to build on the 18% year-on-year growth in operating profit it reported for the second quarter when it reports earnings for the third fiscal quarter of 2012 on Thursday, November 1. One-time gains from derivatives tied to interest gains allowed the company to double its net income last quarter; this time around we expect organic growth based on international operations, particularly in Asia.
Our $35 price estimate for MetLife’s stock is 10% above the current market price.
International insurance is the most important business division for MetLife, accounting for 63% of the stock price, according to our analysis. About 18% of the company’s revenues are generated from Asia. MetLife delivered a strong performance here in the last quarter with insurance sales increasing by 13% year-on-year. Sales were particularly strong in Japan where the company reported a 33% increase. Net income jumped a massive 61% to $275 million due to lower catastrophe related losses.
In Latin America, the company reported a 19% year-on-year increase in revenues. We expect MetLife to maintain the momentum it has gained and continue growth in the international insurance market.
Cutting Back In The U.S.
MetLife has been cutting back on its most popular variable annuity offering in the U.S. In 2011, the company aggressively sold variable annuities with a 50% increase in sales, taking it to top spot in individual annuity sales in the country.  The increased exposure to capricious equity markets due to the variable annuity product led to a drop in margins, prompting MetLife to reconsider its position on the product. MetLife’s variable annuity sales dropped 25% in the first half of 2012, taking it from first to third spot behind Prudential Financial (NYSE:PRU) and Jackson National Life, the U.S. subsidiary of UK’s Prudential Plc.  We expect a further drop in variable annuity sales this quarter.
The company was able to increase fixed annuity sales by 5% in the first six months of 2012, which allowed it to maintain second spot in overall annuity sales. We expect annuity premiums to grow gradually over the next few years with increased focus on fixed annuities.
MetLife 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 being classified as a bank holding company which would restrict its ability to pay dividends and buyback shares. The company has received an extension of the deadline from September 30, 2012 to January 5, 2013 to resubmit capital plans to the Federal Reserve.
It is also looking to expand its distribution network by partnering with Wal-Mart (NYSE:WMT). Read our article MetLife Broadens Its Demographic Target By Selling Insurance At Wal-Mart for more details.Notes: