- The fourth quarter top line was affected by a $855
after-tax net derivative loss.
- Operating income was up 10% from the prior year.
- The AFP Provida acquisition in Chile will help growth in
Latin America where the company reported a 20% y-o-y increase
in operating income for Q4.
- Asian operating income was hampered by a change in
actuarial assumptions, but sales growth observed in Japan,
Korea and Australia.
- Variable annuity sales down 51% in the fourth quarter as
the company continues to reduce risk through the equity linked
) reported net income of $96 million for the fourth quarter of
2012, down 90% from the 2011 net income. This decline was
influenced by a $855 after-tax net derivative loss. MetLife has a
derivatives program to reduce its exposure to low interest rates
and so rising long term interest rates during the fourth quarter
led to a loss for the insurer. Changes in variable annuity
policyholder behavior assumptions, a tightening of its credit
spread and foreign currency fluctuations also caused derivative
losses. Superstorm Sandy also led to higher claims in the property
and casualty division with after tax catastrophe related losses
reaching $70 million.
Excluding these losses, MetLife reported operating earnings of
$1.4 billion for the quarter, up 10% from the operating income
reported in the fourth quarter of 2011. This result was helped by a
strong performance in the U.S., Latin America and the EMEA region
(Europe, the Middle East and Africa) even though the Asian division
reported a 24% drop in operating income.
$39 price estimate for MetLife's stock
is in line with the current market price.
See our full analysis of MetLife
New Acquisition Could Drive Growth In Latin
MetLife reported a 20% year-on-year increase in operating income
from its Latin American operations in the fourth quarter of 2012.
Although a one-time tax benefit helped the top line, the company
also saw organic growth. Total sales for the region increased by
26% while premium revenue increased by 6% over the prior year
driven by strong performances in Brazil, Argentina, Mexico and
Speaking of Chile, the country has huge potential for future
growth with a sovereign debt rating of A+ from S&P and Moody's
and a high 5-year projected GDP growth rate of 4.7%. MetLife is
already the biggest life insurer in the country and is looking to
enter the pension domain with an agreement with BBVA to acquire the
largest pension provider in the country, AFP Provida, for $2
billion in cash. According to Chilean law, all employees are
required to contribute a fixed percentage of their salaries to a
pension provider which charges a fee based on the contribution.
This system is different from the U.S., where management and
administrative fees are charged as a percentage of assets under
management. Provida currently has near 30% market share in the
pension domain in the country and will help MetLife achieve its
goal of expansion in developing markets.
Plans For Growth In Asia
A change in actuarial assumptions had a negative impact of $62
million on operating earnings from Asia, but the company still
observed business growth. Premiums, fees and other revenues from
the region increased by 11% over the 2011 figure with strong sales
in Korea, Japan and Australia. The company is looking to expand in
developing countries of Asia and has entered a collaboration with
one of India's biggest national banks, Punjab National Bank, to
form the PNB MetLife India Insurance Company Limited.
India provides a big platform for expansion with the world's
second highest population, a high GDP growth rate and a low life
insurance penetration (premiums as a percentage of GDP) of 4.4%. In
contrast, the U.S. life insurance market, which accounts for about
30% of MetLife's revenue, is quite mature with a penetration of
Cutting Back On Variable Annuities
MetLife was the biggest seller of equity linked variable
annuities in 2011, but it decided to reduce its market exposure by
cutting back on sales in 2012. The company reported a 51% decline
in fourth quarter sales of the product in the U.S., with full year
sales down to $17.7 billion from $28.4 billion in 2011. The company
expects sales to be around 10.5 billion in 2012, with a reduced
risk profile. The insurer launched a new living benefit variable
annuity product, GMIB Max V in February, with a reduced roll-up
rate and a reduced withdrawal rate.
Despite cutting back in variable annuities, the U.S. retail
division reported 43% increase in operating income driven primarily
by higher investment income. Revenue from premiums and fees for the
quarter was up 4% due to an increase in separate account fees. We
expect a short term decline in MetLife's share of the market in the
coming years as the company continues to cut back on variable
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