On Tuesday, Fitch Ratings affirmed all the debt and credit
) and its operating subsidiaries, reflecting its dominant market
position and financial flexibility amid the low rate interest
Accordingly, Fitch asserted the issuer default rating (IDR) of
"A" for MetLife, while the financial strength ratings (FSR) were
maintained at "AA-" for some of the company's domestic life
insurance units. Meanwhile, the outlook for all the ratings
The ratings agency believes that MetLife maintains a
diversified business mix and is one of the globally leading
brands.Moreover, the ALICO acquisition from
American International Group Inc.
) in November 2010 has become a feather in MetLife's cap.
The ALICO acquisition has increased MetLife's investment
portfolio and expanded its global investment market reach. The
acquisition is also well-aligned with the company's long-term
strategy of achieving growth through international expansion. Its
effects are already being witnessed by a diversified income and
product mix along with solid growth in the company's Japanese
operations, which is expected to generate a statutory solvency
margin ratio of over 800% in 2012, thereby outperforming the peer
Moreover, MetLife enjoys strong liquidity with risk-based
capitalization (RBC) of 450% and statutory earnings of $2.7
billion as of September 30, 2012, for its US-based life insurance
divisions. Despite the lingering concerns regarding the low
interest rate and economic volatility, MetLife has been
successfully maintaining its investment portfolio and enterprise
risk at efficient levels, primarily through annuity risk hedging
programs, thereby securing a competitive advantage in the
In May last year, MetLife had also charted out its long-term
return on equity (ROE) growth goals of 12-14% to be achieved by
2016, driven by higher operating earnings from emerging
economies. On similar growth prospects, Fitch estimates the
company to generate reported ROE of 10-11% in 2013, while
MetLife's GAAP interest coverage ratio is projected to be between
6x and 7x for 2012.
Nevertheless, the ongoing low interest rate environment has
been adversely affecting MetLife's exposure in the equity market,
which again faces intense volatility, according to Fitch.
Additionally, the company's financial leverage of 28% at the end
of September 2012 remains a cause for concern, although the
ratings agency anticipates an improvement in 2013 given the
repayment of some debt along with accretion in retained
Fitch also elucidated the possibility of a rating upgrade
provided MetLife maintains a number of factors. These include the
RBC ratio above 450%, debt-equity ratio lower than 25%, interest
coverage ratio in the band of 8x-10x and successful integration
of ALICO. On the flip side, the ratings could be downgraded if
NAIC RBC ratio falls below 350%, debt-equity ratio rises above
30% and interest coverage ratio dips below 5x in future.
While MetLife has come a long way from the troughs of the
recent recession, we believe that the company is poised to pace
its growth as the economy rebounds in the intermediate term.
Despite being adequately liquid, the company is unable to
return wealth to shareholders in full capacity due to its
comprehensive capital plan, which has been rejected thrice by the
Federal Reserve based on the size and scale of its banking
operations. This Zacks Rank #5 stock (Strong Sell) is scheduled
to release its fourth-quarter 2012 earnings after the market
closes on February 13, 2013.
AMER INTL GRP (AIG): Free Stock Analysis
METLIFE INC (MET): Free Stock Analysis Report
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