Morningstar | MetLife Produces a Solid First Quarter, New CEO Is Shifting Toward Growth
MetLife recorded a fairly uneventful first quarter, but the strategy of the company’s new CEO is coming increasingly into focus. Annualized ROE in the quarter was 10%, a level that is not necessarily impressive but is in line with our expectations for the franchise. We will maintain our $52 fair value estimate and no-moat rating.Looking across the company’s segments, the U.S. saw an 11% year-over-year increase in adjusted earnings. The improvement was almost entirely due to the group benefits business, which benefited from expense controls and a mild flu season. On a constant currency basis, adjusted earnings were up 13% in the Asia region due mainly to volume growth. While we appreciate the growth prospects of this region, we would note that it has produced relatively poor returns for MetLife. MetLife Also saw strong constant currency adjusted earnings growth of 23% in the EMEA region, but again returns in this area have been relatively weak. Latin America, the region that produces returns on par with the U.S., saw more muted growth.
New CEO Michel Khalaf provided further commentary on his strategy on the call. The company in recent years has been in “de-risking†mode, shifting the business toward a model that management believed would allow for more stable production of profitability and cash flow, and divesting more volatile businesses such as Brighthouse. Based on his comments, we think Khalaf believes that MetLife now has a stable enough footprint to shift toward growth. We don’t have any major qualms about this strategy, and with the capital markets environment becoming less adverse, higher growth might be beneficial. However, both the industry and MetLife historically have struggled at times to earn adequate returns, and it remains an open question whether future growth will prove value creative.
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.
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