What Are MetLife’s Key Sources of Revenue?

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MetLife (NYSE: MET), one of the leading insurance companies in the world, is structured into five segments – U.S., Asia, Latin America, EMEA (Europe, the Middle East, and Africa), and MetLife Holdings. Below, we expand on these segments, their historical performance, and our expectations going forward.

  • U.S., the largest segment, provides coverage to both businesses and individuals in the United States. The segment is divided into three businesses – Group Benefits, Retirement & Income Solutions, and Property & Casualty. Group Benefits offers solutions such as term, variable, and universal life insurance, disability coverage, and dental solutions. Retirement & Income Solutions includes pension risk transfers, and stable value products while Property & Casualty offers solutions for automobile, property, and small businesses. The U.S. segment contributes about 51% to MetLife’s total revenue and saw 8% growth in 2017, on account of higher pension risk transfers and structured settlement products sales. Moreover, core and voluntary products in the Group Benefits business did well in 2017.
  • Asia Segment offers life insurance, accident & health insurance, and retirement & savings plan to businesses and individuals. The company functions in 10 markets in Asia and has a strong footprint in Japan. The segment performance has remained fairly stable over the past few years, and while the earned premiums have been on a downward trend, the decline has been offset by improved results from universal life policy fees and investment income.
  • Latin America Segment provides life insurance, accident & health insurance, retirement & savings, and credit insurance to businesses and individuals. The company operates in 7 jurisdictions in Latin America and has a strong footprint in Mexico and Chile. The 6.7% revenue growth in 2017 was driven by higher group accident & health and credit life product sales in Mexico.
  • EMEA Segment offers similar products as the Latin America segment and has its largest base in the Gulf region, Poland, the UK and Turkey. Overall, the revenue growth remained fairly stagnant at 0.85%. However, the company’s products are doing well in Turkey and Egypt.
  • MetLife Holdings comprises of products such as term, variable, and universal life insurance that the company has stopped marketing actively. This was primarily due to the separation and the U.S. retail advisor force divestiture. As a result, revenue from this segment has been on a downward trend, with 2017 experiencing an 8.9% decline.

We have created an interactive dashboard analysis that shows MetLife’s key revenue sources and the expected 2018 performance. You can adjust the revenue drivers to see the impact on the overall revenues, EPS, and price estimate.

P&C and Retirement & Income Businesses To Drive Growth In U.S. Segment

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The last two earnings releases have been a bit chaotic for MetLife. While the Q4’17 earnings announcement was postponed due to a material weakness in internal controls, a day before the Q1’18 earnings release, the company’s CFO was replaced as it was disclosed that the company failed to fulfill pension payments to about 13,500 people over a period of 25 years. However, MetLife managed to defuse the situation by posting decent numbers for both quarters. The Group Benefits business posted strong results in Q1, and we expect the business to continue its momentum and deliver solid growth on the back of efficient non-medical health underwriting. We expect big things from the company’s PRT business. 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. Meanwhile, the company has launched two InsurTech investment programs – MetLife Digital Ventures and Metlife Digital Accelerator. MetLife claims that the initiative will foster an innovative culture in the insurance space. Given that the company is striving hard to evolve in the InsurTech world, this seems to be a step in the right direction.

Asia Business To Remain Stable; MetLife Holdings To Decline

In the Asia business, emerging markets grew by 26% in 2017, mainly due to impressive agency growth in China. We expect this trend to continue in the upcoming year. However, business in Japan will likely experience some pressure and slightly offset the growth. Given that the company has introduced new products in Japan that essentially make customers the bearer of foreign currency risk and market risk, this trend could change in the future. For Metlife Holdings, the company has decided to stop marketing the life and annuity products. As a result, revenue from the segment has been declining over the past few years and will likely continue in the future. The company expects 5% declines per year going forward.

We have a price estimate of $56 for MetLife, which is ahead of the current market price. This is based on revenue projections of $64.1 billion. Furthermore, we expect MetLife’s net margin to expand due to effective cost management. We forecast net income of about $5.3 billion, or EPS of about $5.08. Finally, using our estimated P/E multiple of 11 gives us $56 as a fair price estimate. Disagree? Detailed steps to arrive at MetLife’s price estimate are outlined in our interactive dashboard, and you can modify our assumptions to arrive at your own estimate for the company.

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