Moody's Ups View on MetLife's Long-Term Debt - Analyst Blog

Ratings agency Moody's Investor Service of Moody's Corp. MCO reiterated the credit and insurance financial strength (IFS) ratings of MetLife Inc. MET and its operating subsidiaries in the U.S. The strong ratings were further boosted by a lift in the outlook on the company's long-term debt.

Accordingly, Moody's asserted MetLife's senior debt at “A3” and IFS of “Aa3” was affirmed on the company's U.S. wing — Metropolitan Life Insurance Co. The outlook for both were raised to ‘stable' from ‘negative'. Additionally, the ratings agency maintained an IFS of “A1” on American Life Insurance Co. (ALICO) with a stable outlook. ALICO was acquired from American International Group Inc. AIG in Nov 2010.

The upgrade on outlook primarily stemmed from the projection of rising interest rates as a result of improvement in the economy. In such a scenario, higher bond yields are likely to boost MetLife's fixed-income portfolio, in turn enhancing operating leverage through improved earnings and capital.

Moody's further opines that over the past couple of years, MetLife has been proactively taking steps to minimize risks and enhance returns by mitigating risk exposure within variable annuity (VA) guaranteed benefits, besides improving capital flexibility and shifting toward fee-based and protection businesses from capital-intensive products. Moreover, the company is trying to gain momentum through its diversified mix, reflected by growth from international operations along with disciplined expense management.

However, the low interest rate environment has been hampering MetLife's spread businesses and its efforts of improving profitability, cash flows and leverage metrics. Additionally, weakness in Japanese markets and elevated sovereign market risk mar the desired growth from emerging economies, wherein MetLife has expanded aggressively.

Nonetheless, with an improving economy, Moody's remains confident of MetLife's capital flexibility, earnings growth potential on the heels of strong market presence, large scale of operations and brand appreciation. Overall, MetLife has the potential to write more businesses and outperform the peer group in future.

While MetLife and AIG carry a Zacks Rank #3 (Hold), other better-ranked life insurers that warrant a look include Kemper Corp. KMPR and ING U.S. Inc. VOYA. Both these stocks carry a Zacks Rank #2 (Buy).