MetLife Earnings Preview: International Growth Is Key

by Trefis Team
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MetLife (NYSE:MET) is scheduled to report earnings for the first quarter of 2013 on Thursday, May 2. [1] The insurer’s stock has climbed 10% since it completed the sale of its bank deposit business to General Electric’s (NYSE:GE) GE Capital Finance Inc. The divestiture of the banking business allowed the company to exit banking oversight from the Federal Reserve and increase its dividend by 49% – the first increase since 2007.  ((MetLife Lifts Dividend First Time Since 2007, Bloomberg, April 24, 2013))

International expansion, particularly in developing markets in Asia and Latin America, has helped the company deliver revenue growth from premiums in the last few years. MetLife’s derivatives program, designed to reduce exposure to low interest rates, has helped the company wade through the tough economic environment allowing it to maintain operating margins around 12% for the last three years. We expect the company to deliver another solid quarter driven once again by international growth.

Our $39 price estimate for MetLife’s stock is in line with the current market price.

See our full analysis of MetLife

International Operations Are Key

MetLife’s international operations account for 15% of its net revenues and 26% of operating income. In 2010, it acquired ALICO, an established life insurer in Japan and other Asian markets from AIG (NYSE:AIG). This acquisition drove 150% annual growth in MetLife’s international premiums through 2011. The company maintained this momentum in 2012 and reported a 17% year-on-year increase in operating income from Asia last quarter, complemented by a 15% year-on-year increase in operating earnings in Latin America.

Outside the U.S., Japan is the fulcrum of MetLife’s operations. The country is the second biggest life insurance market in the world after the U.S., accounting for 20% of the world’s premiums and more than half of the premiums originating in Asia. [2] Japan has only 43 life insurance companies and showed premium growth, measured in U.S. dollar equivalents, close to 15% in 2010 and 2011. The average gross profit margin for life insurers’ in the country has been around 20% but the recent weakening of the Yen is expected to hurt the foreign insurers’ income.  ((Analysis: Weak yen trend to slow as wary Japan insurers take stock of “Abenomics”, Reuters, February 25, 2013))

MetLife has market share of 10% of the foreign-owned life insurance market in China with regular life and participating life insurance being its main products. The company has registered capital of RMB 2.12 billion and 1,100 employees. MetLife Insurance Company is a collaboration between MetLife and Shanghai United Investment Company Limited. The latter holds a 50% stake while MetLife of Connecticut and MetLife hold  27.8% and 22%, respectively. [3] China (excluding Hong Kong and Taiwan) is the world’s fifth largest life insurance market. [2] With over $130 billion in premium volume, the country accounts for 5% of the world’s premiums and 14% of the premiums originating in Asia.

MetLife is also looking to enter the Indian insurance market. The country’s Union Cabinet passed a proposal to increase foreign direct investment in the insurance sector from 26% to 49% in 2012. This bill is expected to be passed by the country’s parliament this week. [4] MetLife has entered a collaboration with Punjab National Bank (PNB), one of the largest banks in the country, and is set to capitalize on the expected growth in the economy.

The company is also the biggest life insurer in Chile. The country holds huge potential for future growth with a sovereign debt rating of A+ from S&P and Moody’s and a high 5-year projected GDP growth rate of 4.7%.

For more on MetLife’s international prospects, please read our articles: An Overview Of The Japanese Life Insurance Market and A Look At The Indian Life Insurance Market

Going Strong In The U.S.

MetLife earns nearly 30% of its revenue from the U.S. and is the biggest life insurer in the country with market share of 10% in terms of direct premiums. [5] The company has long been the leading life insurer in the U.S. and seen its market share rise from 8.8% in 2009 to 10% in 2012. [6]

However, the country’s life insurance market is quite mature and the growth is expected to be slower than in the international markets. For more analysis, read our article A Closer Look At The U.S. Life Insurance Market.

MetLife was the biggest seller of variable annuities in 2011, according to data from LIMRA. However, the company decided to reduce exposure to capricious equity markets by cutting down on the product sales in 2012. As a result, MetLife slipped to third spot behind Prudential Financial (NYSE:PRU) and the U.S. subsidiary of its British namesake, Jackson National Life. Variable annuities are a popular retirement solutions product in the U.S., accounting for 80% of the annuities market.  MetLife still has 13% share of the variable annuities market and 11% share of the overall annuities market.

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Notes:
  1. MetLife to Hold Conference Call for First Quarter 2013 Results, Press Release []
  2. Swiss Re’s World Insurance [] []
  3. Foreign Insurance Companies In China, PWC, December 2012 []
  4. Insurance and pension get FDI boost, need parliament nod, Indian Express, 5th October, 2012 []
  5. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2012 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM []
  6. 2009 Market Share Reports for the Top 125 Life and Fraternal Insurance Groups and Companies By State and Countrywide []
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