Morningstar | MetLife Turns in a Good 3Q
Metlife’s third-quarter results were largely favorable, and the adjusted annualized ROE of 12.9% was in line with the last couple of quarters. Management has aggressively moved to position MetLife in a more stable operation that produces reliable levels of profitability and cash flow, and this trend could be a sign that management’s strategy is paying off. We will maintain our $52 fair value estimate and no-moat rating.Looking across regions, the U.S. was the strongest performer and saw a sizable sequential and year-over-year uptick in returns. Management pointed to stronger fundamentals in life operations, and P&C operations benefited from lower catastrophe losses.
International results were mixed. Latin America returns are at a reasonable level and improved sequentially, But Asia and EMEA declined a bit and are at levels that we view as value destructive. While international markets offer growth, we remain somewhat skeptical about whether that growth will prove value creative over time.
The interest rate environment is becoming less adverse for the company, with recurring investment income up 7% year over year, and MetLife’s new money yield was up about 50 basis points compared with last year. Still, with new money yields still a bit below the average roll-off rate, there is still room for improvement.
All in all, we are pleased with recent trends at MetLife, and we think there is room for the company to sustain better returns as capital market conditions become less adverse. However, our fundamental concerns about the life insurance industry remain, and we don’t believe MetLife has meaningfully differentiated itself from its peers or industry dynamics.
Concurrent with earnings, MetLife announced a new $2 billion share repurchase authorization. The company has aggressively returned capital in recent years, and management’s current strategy and focus on reliable cash flow generation would suggest this will remain a focus. We view this positively, as the life insurance industry is fully mature and we see limited value-creative investment opportunities for the business.
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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