EUR 850.00 For Business Accounts Only

Morningstar | MetLife Steady in 4Q

MetLife's fourth-quarter results were largely stable and in line with with recent results, in terms of adjusted earnings. We view the insurer's adjusted annualized ROE of 12.5% for the quarter and 12.6% for the full year as a solid showing for this no-moat franchise, given the current capital markets backdrop. We will maintain our $52 per share fair value estimate.

Looking across regions, the U.S. was the strongest performer, with adjusted earnings up 38% year over year; although it should be noted that results during the quarter were largely in line with earlier 2018 results. A strong showing in retirement was partially offset by flat results in group benefits and property & casualty. While the increase in retirement was driven largely by taxes, the underlying growth was still strong, with management noting that favorable underwriting and investment margins and solid volume growth overrode the negative impact of a relatively flat yield curve.

International results were mixed but overall somewhat weak, with year-over-year adjusted earnings growth in Latin America offset by declines in Asia and EMEA, and overall results falling from results earlier in 2018. Management pointed to less favorable underwriting conditions and weaker capital markets in some regions. While international markets offer growth, we remain somewhat skeptical about whether that growth will prove value creative over time.

Earlier this month, MetLife announced that CEO Steven Kandarian, who has led the company since 2011, will retire in May 2019 and be replaced by Michel Khalaf, the president of the U.S. business and EMEA. We don’t foresee any major strategic shifts as a result of this change. On the call, Kandarian suggested his tenure could be summed up by the word "de-risking." We would largely agree.

Obviously, in the wake of the 2008-09 financial crisis, a step-up in risk management was necessary, but we believe Kandarian went further, and has made material strides in lowering the company’s risk profile in more recent years, with the largest move being the spin-off of Brighthouse. While we don’t necessarily view this evolution as value creative, we think a moat is out of reach for life insurers such as MetLife given industry dynamics and appreciate Kandarian's efforts to attempt to put the company on a more stable footing.