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U.S. Segment constitutes 50% of the Trefis price estimate for MetLife's stock.
Asia Segment constitutes 25% of the Trefis price estimate for MetLife's stock.
Metlife Holdings & Corporate constitutes 13% of the Trefis price estimate for MetLife's stock.
WHAT HAS CHANGED?
In Q1 2021, MetLife reported Total Revenues of $15.6 billion, which is 15% less than Q1 2020. This drop was primarily driven by net derivative gains (losses) of -$2.2 billion, as compared to the loss of $4.2 billion in the year-ago period. Notably, the net investment income increased by 74% y-o-y in the quarter.
Impact of coronavirus outbreak
MetLife has suffered as states and countries are on lockdown due to Coronavirus pandemic. This resulted in a slight drop in net premium for the company as business and individuals were more focused on short term. Further, the company saw some increase in insurance claims. In addition to this, the insurance companies are heavily dependent on income from investment of insurance premiums for their profitability, which suffered due to interest rate headwinds driven by economic slowdown. While the Q2 and Q3 2020 results were one similar lines, Q4 saw some increase driven by growth in net premiums and net investment income. However, the Q1 2021 revenues decreased on a year-on-year basis due to net derivative loss of $2.2 billion. Overall, full year 2021 revenues are expected to remain around $66.6 billion.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are the key drivers of MetLife with the potential upside or downside to the Travelers stock price.
MetLife's Premiums From Asia MetLife's premiums from the international market increased substantially over the last few years, from $1.7 billion in 2010 to $6.76 billion in 2017. The company is expanding aggressively in high growth markets in Asia. The acquisition of ALICO in 2010 helped it establish a foothold in the Asian market. 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 has a market share of 10% of the foreign-owned life insurance market in China. We expect MetLife to grow its premiums from the region to about $7.4 billion by the end of Trefis forecast period. There is a 10% upside to the Trefis price estimate if MetLife's premiums from Asia reach $12.2 billion by the end of Trefis forecast period.
MetLife's Premiums From The U.S. MetLife has a market share of nearly 11% in the group life insurance market. The recovering job market drove a 6% growth in MetLife's group insurance premiums in 2012. And the growth in employment over the last couple of years has added a growth of 3-5% in group insurance premiums. Furthermore, we expect big things from the company’s PRT business. In May 2018, MetLife won a $6 Bil pension risk transfer from FedEx, which was the largest U.S. pension deal (measured by premiums) in the last five years. PRT is growing at an impressive rate and we anticipate the company to reap benefits from that. Moreover, increases in average premium per policy in both auto and homeowners policy should provide a boost to the P&C business. We expect MetLife to grow its premiums from the region to about $28.5 billion by the end of Trefis forecast period. There is a 10% upside to the Trefis price estimate if MetLife's premiums from Asia reach $33.9 billion by the end of Trefis forecast period.
MetLife is a leading provider of insurance, employee benefits, and financial services with operations throughout the United States and the Latin America, Asia Pacific and Europe, Middle East and India regions. MetLife offers life insurance, non-medical health insurance (disability, long-term care, dental), retirement products (fixed/variable annuities), property and casualty insurance (auto, home insurance), retail banking and other financial services to individuals, groups, and institutions.
SOURCES OF VALUE
MetLife's international insurance business is the company's main source of value. This is due to the significance of the market, which we estimate will approach $28 billion by 2023. The acquisition of ALICO from AIG in 2010 allowed the company to expand into key markets in Asia and the Middle East. MetLife has a market share of around 5% in the Japanese insurance market and a market share of 10% of the foreign-owned life insurance market in China.In the U.S., MetLife's most valuable business is collecting premiums and fees from its customers, worldwide. The company invests insurance premiums collected across all its insurance products in assets such as bonds, equities, and mortgages.
MetLife is the biggest life insurer in the U.S., with a market share of nearly 10%.
Taking total premiums for life insurance, annuity considerations, deposit type contract funds, accident and health and other considerations, the company has a market share of 13.8%The company primarily invests in fixed maturity securities like government and corporate bonds. Nearly 75% of the assets are invested in such securities, however, the yield from these dropped from 5% in 2007 to 4% in 2012. In the coming years, we expect the yield to recover to pre-recession levels as there is an indication that with strengthening macro economic parameters rates Fed might start increasing rates.
Increasing Bond Yields
More than 75% of MetLife's assets are invested in corporate and government bonds, the returns from which are linked to interest rates. The 10 year Treasury bond yield has improved in the last one and a half year to over 2% and fed has also increased interest rates twice within 6 months. The unemployment rate in the U.S. has recovered from 10.1% observed during the financial crisis in 2009 and reached a low of 4% in June 2018.
Modest Growth in Life and Health Insurance Market
Growth in the life and health insurance business continues to be impacted by the current higher levels of unemployment. However, the recovering job market is driving growth in the market.
Acquisition of ALICO Expanded Footprint
Prior to the acquisition of ALICO, MetLife was the leading insurer in the U.S. and Mexico and now it is expected to become a leading insurer in Japan. ALICO will also lead to a position amongst the top five insurers in many emerging markets in Europe, the Middle-East and Latin America.
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