MetLife reported earnings on
Wednesday, August 1st with operating earnings of $1.33 beating analysts’
mean estimate by 9 cents and our own estimates by 8 cents per share. Variable
annuity sales were greatly reduced down 34% for the quarter and 6% year over year
as MetLife works to balance its growth and risk. Operating profit in the firm’s
Asia region was up 61% year over year as life insurance sales in Japan rose in
comparison to the tsunami burdened Q2 of last year. Shares closed up 4.2% on
Thursday and as of this writing are up 10.5% outpacing the SP500 by 8.8% over
the same period.
Management
still projects an ROE of 12% to 14% by 2016 despite the low interest rate
environment. In the event that 10-year Treasuries remain at 1.4% they feel they
will still be able to hit the low end of that range. MetLife has thus far been
very successful with its hedging program with a 1.4 billion derivatives gain
tied to low interest rates this quarter and has multiple products that it can
adjust interest rates on to adapt to market conditions.
On the
regulatory front MetLife’s application to complete the sale of MetLife bank to
GE Capital is under review by the FDIC and management did not speculate on a
timeframe for any action. The possibility of MetLife being classified as a nonbank
SIFI still looms over the stock but it is unclear what the impact may be as the
rules are not yet clear.
Our
outlook is positive as MetLife continues to focus on sound pricing and
underwriting with appropriate levels of risk management.
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