MetLife (NYSE:MET) is scheduled to report earnings for the second quarter of 2013 on July 31, with a conference call to discuss results on August 1.  The company was recently notified that it had reached stage 3 of the process to be named a non-bank Systemically Important Financial Institution or SIFI by the Financial Stability Oversight Council (FSOC).  Fellow insurers, AIG (NYSE:AIG) and Prudential Financial (NYSE:PRU) have been listed as SIFIs and will face increased higher capital requirements in the coming years. However, unlike AIG, which has accepted its designation, MetLife is expected to appeal against the labeling. MetLife’s CEO, Steven A. Kandarian, has stated that the company should not be considered a SIFI.
The Biggest Insurer In The U.S.
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MetLife earns nearly 30% of its revenue from the U.S. and is the biggest life insurer in the country with a market share of over 10%.  In the first quarter of 2013, the company reported a 4% year-on-year increase in premiums and fees from the Americas, driven by an 8% increase in premiums from group, voluntary and worksite benefits, which included growth in dental insurance.
The U.S. market saw a 7% increase in annualized premiums during the first quarter, with a 10% increase in variable universal life products, an 8% increase in universal life products and a 7% increase in whole life products. However, the total number of policies declined 5%, year-on-year, with an 18% decline in universal life policies.  The increase in premiums indicates the higher premium rates that insurers have been charging in lieu of low returns from their investments. Around 75% of MetLife’s assets are invested in fixed maturity securities like government and corporate bonds, returns from these investments are largely linked to interest rates. Interest rates have been low in the last few years due to the Federal Reserve’s Quantitative Easing program, which includes $85 billion in monthly bond purchases. However, recent speculation that the program might be coming to an end has led to an increase in bond yields. The 10-year Treasury yield has climbed from 1.76% at the end of 2012 to around 2.75%. 
Increased yields will not only lead to higher margins for MetLife, but will also allow it to lower premium rates and thus consolidate market position in the U.S. Growth will also be driven by the recovering economy, in particular the job market. The unemployment rate in the U.S. has recovered remarkably from the peak of 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.  Increased employment will drive income levels and thereby demand for insurance products in the coming years. Please read our article: A Closer Look At The U.S. Life Insurance Market for more.
Still Cutting Back On Variable Annuities
MetLife was the highest seller of variable annuities in 2011, but decided to cut back on the product in 2012 to reduce risk and exposure. The company reported a 29% year-on-year decline in sales in the first quarter, and has now slipped down to third place in the variable annuities market, behind Prudential Financial and Jackson National Life, the U.S. subsidiary of Prudential plc.  However, MetLife still has a market share of 10% in the variable annuities market and a share of 8% in the overall annuities market. Variable annuities are a popular retirement solutions product in the U.S., accounting for 80% of the annuities market.
International Growth Driven By Asia
MetLife has operations in some of the fastest growing economies in Asia including China, Japan, Hong Kong, South Korea and Australia. The company has recently entered an agreement with Punjab National Bank (PNB) to expand into the Indian market, and also has operations in UAE, Nepal, Bangladesh and Pakistan. Asian markets now account for more than 60% of the company’s international premiums, which grew from $2.88 billion in 2008 to $13.29 billion in 2012.
Japan is the main focus of MetLife’s international 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.  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 offers Yen whole life products like low cash value whole life, Yen interest simplified whole life and simplified issue whole life, as well as foreign currency whole life products like USD interest sensitive whole life and Euro interest sensitive whole life. Bancassurance is the main distribution model for the company, accounting for 33% of the sales. MetLife has around 100 banking partners in the country with over 42 tier 1 regional bank and 5 mega banks.
Apart from Japan, MetLife is also looking for growth in other high growth economies like India and China. The company has a market share of 10% of the foreign-owned life insurance market in China with regular life and participating life insurance being its main products, and has registered capital of RMB2.12 billion and 1,100 employees.  In India, MetLife has a 10-year exclusive distribution agreement with Punjab National Bank (PNB), which has a 30% stake in the company.  PNB is the largest nationalized bank in India with over 5,000 branches and 60 million customers. The agreement with the bank will allow MetLife to expand aggressively in the Indian market.Notes:
- MetLife to Hold Conference Call for Second Quarter 2013 Results [↩]
- Statement by MetLife on Reaching “Stage 3” of FSOC’s SIFI Designation Process [↩]
- NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2012 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM [↩]
- LIMRA’s U.S. Individual Life Insurance Sales Summary Report, First Quarter, 2013 [↩]
- Analysis: Higher interest rates? Not a problem for some U.S. stocks, Reuters, July 16 [↩]
- U.S. Department of Labor, Labor Force Statistics from the Current Population Survey [↩]
- 2013, LL Global, Inc. SM U.S. Individual Annuity Sales 1st Quarter 2013 [↩]
- Swiss Re’s World Insurance [↩]
- MetLife Alico Japan Overview [↩]
- Foreign Insurance Companies In China, PWC, December 2012 [↩]
- MetLife Enjoys Year-End Success on International Business Growth [↩]