Morningstar | MetLife Is Operationally Leveraged to the Capital Markets
Like other life insurers, MetLife is operationally leveraged to the capital markets. This has made for tough sledding in the post-crisis period, with the low-interest-rate environment presenting an ongoing headwind for the company. But this trend looks set to reverse, and in the long run an eventual increase in rates should allow the company to generate better returns, although a lack of a moat around the business minimizes the opportunity for sustainable excess returns.MetLife has also dealt with some operational misteps recently. Management discovered that the processes by which the company attempts to locate missing or unresponsive annuity and pension recipients were insufficient and historical reserve releases related to this issue were inappropriate. As a result, it has had to restate historical results. The amount of the reserve charge is not material to our overall valuation, but we believe this situation highlights the opaque nature of life insurance accounting and supports our high uncertainty rating for MetLife. While management was up front about the fact that there were clear and ongoing internal mistakes made, the problem was self-reported, which could lead to a more favorable regulatory view.On the positive side, MetLife has taken steps to adjust its business. The company spun off Brighthouse, which represented a substantial portion of its retail operations, and accounted for about 20% of its operating earnings. The divested operations include the bulk of its variable annuity business. We view this move favorably and like the overarching strategy to shift MetLife toward greater transparency and more stable cash flow production. We don't believe this will lead to a moat, but a move away from more complex business is a positive change for shareholders in the long run, in our view. We also like that the company did not drag its feet on selling off its remaining stake this year despite the drop in Brighthouse's shares following the spin-off. All in all, we think management made the best of a bad situation.MetLife, through its subsidiaries and affiliates, provides insurance, annuities, employee benefits and asset management. The company's segments include: United States; Asia; Latin America; Europe, the Middle East and Africa; and MetLife Holdings. In the United States, the company provides a variety of insurance and financial services products, including life, dental, disability, property and casualty, guaranteed interest, stable value and annuities to both individuals and groups. Outside the United States, the company provides life, medical, dental, credit and other accident and health insurance, as well as annuities, endowment and retirement and savings products to both individuals and groups.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.