MetLife Beats by a Penny - Analyst Blog

MetLife Inc.’s (MET) fourth quarter adjusted operating earnings (excluding after-tax net investment gains and losses) came in at $793 million or 96 cents, compared to $132 million or 17 cents in the year-ago quarter. Results were only a penny ahead of the Zacks Consensus Estimate of 95 cents. Reported net income was $289 million compared to a net income of $954 million in the prior-year quarter.
 
The upside was primarily due to a strong growth in the US business segment, higher premium income and variable annuity deposits. However, overall results were negatively impacted primarily by the lower investment income driven by negative returns from real estate funds as well as from international ventures.
 
Total revenue for the reported quarter decreased 11.6% to $12.3 billion from $14.0 billion in the prior-year quarter. Earned premiums for the quarter increased 10.2% year-over-year to $7.2 billion. Net investment income was flat sequentially but increased 11.1% year-over-year to $4.0 billion.
 
Total operating earnings from the US business increased dramatically by 218% year-over-year to $882 million. The robust augmentation was attributable to strong business growth, significant equity market improvements, the unlocking of deferred acquisition costs and other adjustments, higher net investment income and improved interest spreads. The US business premiums, fees and other revenues were up 11% year-over-year at $7.8 billion, with increases of 32% in Retirement Products, 26% in Corporate Benefit Funding and 8% in Insurance Products.
 
The Auto & Home segment's operating earnings decreased 25% year-over-year to $84 million due to the current weak market conditions. The International segment's operating earnings also decreased 73% year-over-year to $21 million. The double-digit business growth across all regions was more than offset by the charge related to changes in assumptions for measuring the effects of inflation on certain inflation-indexed fixed maturity securities.
 
MetLife Bank operating earnings were $65 million, up significantly from $13 million in year-ago quarter. Corporate & Other operating loss decreased 26% year-over-year to $175 million. During the reported quarter, MetLife recorded $62 million (8 cents per share) after income tax, in operational excellence charges and certain one-time expenses.
 
For full year 2009, adjusted operating earnings (excluding after-tax net investment gains and losses) decreased to $2.4 billion or $2.87 per share as compared to $2.7 billion or $3.62 per share in 2008. Total revenues decreased 19.5% to $41.1 billion. At the end of 2009, total assets were $539.3 billion, up 8% over 2008.
 
As of December 31, 2009, book value per share excluding AOCI increased substantially to $37.54 compared to $27.33 as of December 31, 2008. Reported book value (including AOCI) per share improved to $41.23 as of December 31, 2009, versus $45.29 as of December 31, 2008.
 
Recent Developments

Recently, MetLife had been involved in an advanced round of negotiations with American International Group Inc. (AIG) to purchase its American Life Insurance Co. ("ALICO") unit for about $14−$15 billion. Although a final agreement is awaited, we believe the acquisition will help MetLife expand its global investment market reach as ALICO sells life insurance in more than 50 countries. The acquisition will also accelerate MetLife’s long-term growth strategy.
 
On February 1, 2010, Fitch rating agency reportedly downgraded MetLife’s long-term issuer default rating to "A" from "A+" after a periodic analysis that reflected higher-than-expected loss projections in the company’s investment portfolio due to the current market volatility that is hampering a healthy economic recovery while also extending the duration of the commercial real estate markets’ downtrend. However, Fitch affirmed its short-term ratings while maintaining its "Stable" outlook on MetLife. Fitch analysts believe that the company has a secured exposure to future investment losses that is supported by its statutory capital and a modest upside in the operating earnings’ projection.
 
The short-term outlook is further enhanced by MetLife’s expectation of operating earnings growth by about 50% in 2010. This is estimated to be in the range of $3.3 billion to $3.6 billion or $4.00 to $4.40 per share. Further, revenue growth is estimated to be about 8% in 2010. Hence, we believe that MetLife is poised to propel its growth as the economy rebounds in the near to medium term.

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