MetLife Earnings Preview: FX Headwinds, Low Investment Income To Offset Business Growth

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MetLife (NYSE:MET) is scheduled to hold a conference call to discuss its second quarter earnings results on Thursday, July 30. [1] During the first quarter of 2015, MetLife reported a 10% year-over-year (y-o-y) increase (constant currency basis) in operating income on the back of growth across geographies as well as improvement in underwriting results. During the three month period ended June, we expect MetLife’s performance to be dented by FX headwinds and persistently low investment returns. However, we expect MetLife to register some growth in business on the back of operations in emerging markets, as well as product enhancements that the company is tailoring to meet demands in mature markets.

In the note below. we take a look at the key factors that will drive MetLife’s second quarter earnings results. We have a price estimate of $56 for MetLife’s stock, which is in line with the current market price.

See our full analysis of MetLife

FX Headwinds Will Continue To Impact International Operations

Japan and Korea have been the primary drivers of growth for MetLife internationally. Japan once again led growth in Asia, posting a 32% y-o-y increase in sales of accident and health insurance products, driving a 4% y-o-y (on a constant currency basis) growth in total sales in Asia. Despite solid business growth and improved underwriting performance in various markets in Asia, FX headwinds dampened earnings during the first quarter. The U.S. Dollar has continued to strengthen against a host of international currencies, including the Japanese Yen, during the last three months as well. [2] This will have an adverse impact on MetLife’s earnings during the second quarter.

Additionally, it will be interesting to see how the company performed in emerging markets such as India, where the government recently relaxed rules regarding foreign insurance companies operating in the market. Insurance penetration in India is just around 3% in terms of premiums as a percentage of GDP, compared to more than 8% in the U.S., so there is a significant growth opportunity there. MetLife operates in India through a joint venture with a local bank.  ((Stronger advanced markets’ performance boosts insurance industry growth in 2014, Swiss Re))

Expect Growth In The U.S.

The U.S. is a mature market, with significant insurance penetration. Thus, for MetLife growth in the U.S. will not come from trying to increase penetration but rather from the introduction of newer products and the enhancement of existing product lineups. We will be keeping a close eye on MetLife’s results from the U.S. market during the second quarter. Life insurance sales grew 8% y-o-y in the U.S. market in the first quarter of 2015. [3] We expect that growth momentum in the U.S. market to carry forward to the second quarter, and MetLife should be able to benefit on the back of its size and brand position in the U.S.

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Notes:
  1. Events Calendar, MetLife Investor Relations []
  2. DOLLAR INDEX SPOT Exchange Rate, Bloomberg []
  3. LIMRA Reports Individual Life Insurance Sales Increase 8 Percent in First Quarter 2015 []