MetLife (NYSE:MET) reported a net profit of $975 million for the third quarter of 2013, compared to a loss of $957 for the same period in 2012.  The swing was largely due to a one-time $1.9 billion goodwill impairment charge that the company incurred last year. Excluding investment gains, the operating income was up 6% over the prior year, reaching $1.5 billion. Results from the Europe, the Middle East and Africa (EMEA) region were particularly strong, with operating income growing 37% (28% on a constant currency basis). Operating earnings from the Americas region increased 7% over the prior year, while those from Asia fell 1%. Revenues from premiums and fees were up 3% over the prior year.
Our $51 price estimate for MetLife’s stock is in line with the current market price.
Strength In America
The Americas region, which includes the U.S. and Latin America, accounts for three-quarters of MetLife’s revenues and around 80% of its operating income. MetLife is the largest life insurance company in the U.S., with a market share of over 10%, ahead of Prudential Financial (NYSE:PRU).  Operations in the country can be divided into retail, group voluntary & worksite benefits and corporate benefit funding.
The retail division, which offers life insurance products and annuities to individuals, reported a 6% increase in premiums driven by strong broker dealer annuity sales and separate account annuity fee growth. Operating earnings for the division grew 34% as a result of the company’s focus on expense management. MetLife, which was once the leading seller of variable annuities, continued to cut back on the market-linked product, with sales down 41% for the third quarter. We expect moderate growth in this division in the coming years.
Premiums and fees for the group voluntary & worksite benefits division were up 1% over the prior year, but operating earnings fell 20% as a result of weak underwriting results. The division offers life, dental, group short- and long-term disability and accidental death & dismemberment coverage to corporate employers across the U.S. We expect revenue growth in the division as the job market in the U.S. continues to improve, but the company will have to keep a check on the loss ratio (operating expenses to premiums) which increased from 108% in the third quarter of 2012 to 110% this time around.
Around 12% of the Americas operating income comes from Latin America, where the company operates in Brazil, Argentina, Mexico, Chile, Colombia and Uruguay. According to our analysis, MetLife has a market share of just over 4% in these markets. The insurer reported a 4% growth in sales for the third quarter, driven by strong performances in Chile and Argentina. Premiums and fees were up but one-time adjustments affected the top line as operating earnings declined 13% compared to the same period in 2012.
Expansion In Asia
Premiums and fees from the Asia region were up 12% on a constant currency basis, but foreign exchange fluctuations meant that the reported value was down 5%. The top line was also affected by a charge related to the strengthening of group life total and permanent disability reserves in Australia, as operating income fell 1%. Excluding one-time adjustments, the operating earnings increased 17% on a constant currency basis. MetLife is focused on Asian expansion, with 18% of its revenues and 15% of operating income coming from the region. The company has established operations in markets like China, Japan, Hong Kong, South Korea, Australia, UAE, Nepal, Bangladesh, India and Pakistan, and recently entered Myanmar and Vietnam. MetLife is also bidding for AMMB Holdings Bhd’s life insurance operations in Malaysia.  We expect the company to gain market share in the region in the next few years.
EMEA A Small Contributor
The EMEA region accounts for just 5% of MetLife’s premiums and operating income, but a strong business strategy allowed the company to achieve 10% sales growth in the region during the three months ending September. Premiums increased 8%, while operating earnings surged 37%. MetLife operates in 31 countries across the EMEA region with Poland, the U.K., France, Italy and the United Arab Emirates forming the core operations.Notes: