MetLife (NYSE:MET) plans to announce its second quarter earnings on July 28th. In the previous quarter, the company reported a 21% increase in revenues and over a 25% increase in operating income primarily due to the acquisition of ALICO. MetLife is the largest life insurer in the U.S. and competes with AIG (NYSE:AIG), Hartford Financial Services (NYSE:HIG) and Prudential Financial (NYSE:PRU), and we have a price estimate of $49 on MetLife’s stock that is about 20% above the current market price. Here we present few key aspects of MetLife’s business that investors need to watch.
Global Economic Environment
MetLife’s business, like any other insurance company’s business, is strongly affected by conditions in the global capital markets and the economy. The global economy is recovering from a period of significant stress, but the recovery from the past recession has been below historical averages.
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The unemployment rate continue to remain high, inflation is beginning to rise and the central banks around the world have begun tightening monetary conditions. During the previous quarter, MetLife’s premium from its U.S. businesses declined by almost 10% and a choppy economic environment could lead to stagnation or even a decline in MetLife’s premium income during the second quarter.
Variable Annuities Growth
During the last quarter, MetLife’s annuity sales increased 34% compared to the same period last year primarily due to rise in variable annuity sales. We expect MetLife’s variable annuity sales to remain strong in the remainder of 2011 as the company is expanding its distribution channels to reach more customers. Also the retiring baby boomer population in the U.S. will keep demand for annuities elevated for several years.