MetLife Earnings Preview: Underwriting Performance, International Growth In Focus

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MetLife

MetLife (NYSE:MET) is scheduled to report its third quarter earnings on Thursday, October 30. In the previous quarter, the company’s operating earnings of $1.6 billion were flat compared to a year ago. [1]

During the third quarter, the company’s underwriting performance, investment yields and growth in emerging markets will be key to its performance. On account of MetLife’s international operations, foreign currency fluctuations will continue to pose a challenge. We have a price estimate of $59 for the company’s stock, which is about 10% higher than the current market price.

See our full analysis of MetLife

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Underwriting Performance In Focus

During the second quarter of 2014, the company suffered from unfavorable underwriting performance across product lines. For example, revenues and premiums for Group, Voluntary and Worksite Benefits in the Americas were up 6%, but operating earnings declined by 25%. Overall, the company’s performance in the Americas was boosted by the ProVida acquisition.

Performance In International Markets Will Be Key

International markets, particularly in Latin America and Asia, present a tremendous opportunity for the company to expand its business. Within Asia, Japan is MetLife’s biggest market, where the company has a share of around 5% in the insurance market. [2] The company offers Yen-based whole life products in addition to U.S. Dollar and Euro-based whole life products in the country. Thus, currency fluctuations will continue to have an impact on its earnings. FX headwinds (particularly due to fluctuations in the Yen) offset strong sales growth in China and Korea in the previous quarter. Going forward, the company expects strong growth in sales to continue in Asia, driven by expansion in China and Korea. [3]

In Latin America, the company’s operating earnings have grown at a CAGR of around 20% over the past decade. [4] Going forward, a growing middle class as well as a large number of underserved businesses present favorable conditions for the company to grow. We expect the growth momentum from the previous quarter to continue, and will be closely watching the company’s performance in these high potential markets in the upcoming quarterly results.

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Notes:
  1. MetLife’s (MET) CEO Steven Kandarian on Q2 2014 Results – Earnings Call Transcript, Seeking Alpha []
  2. MetLife Alico Japan Overview []
  3. Asian Investor Conference Presentation, Investor Relations []
  4. MetLife Investor Day Presentation, Investor Relations []