Standard & Poor's Ratings Services ("S&P") reiterated
its long-term counterparty credit rating of 'A-' on
MetLife Inc.
(
MET
) and long-term counterparty credit at 'AA-' and financial strength
ratings on its subsidiaries. The outlook was also revised to stable
from negative.
These rating affirmations came on the back of solid performance
exhibited by the company in managing its diversified investment
portfolio and enterprise risk to generate high quality earnings,
and simultaneously securing its competitive advantage in the
market. The rating agency believes that MetLife is well positioned
financially and its effort to sustain excess capital enables the
company to attain more flexibility in the operational process.
Given the company's improving capital position as well as
financial flexibility, the rating agency upgraded the outlook. The
rating agency stated that prudent control of interest rate and
equity market risks will act as a catalyst for future financial
strength.
S&P expects MetLife's core businesses to report solid
results, with international businesses performing exceptionally
well.
The rating agency also raised the ratings to 'AA-' from 'A+' on
American Life Insurance Co. (DE) ("Alico"), which became a part of
MetLife 18 months back. The outlook is stable.
S&P also upgraded MetLife Alico Japan to 'AA-/A-1+', given
its standing within the Alico and MetLife. The outlook is
negative.
The rating agency also upgraded the long-term financial strength
and counterparty credit ratings on MetLife Alico Life Insurance KK
(MetLife Alico Japan) to 'AA-' from 'A+' and short-term
counterparty credit rating on MetLife Alico Japan to 'A-1+' from
'A-1'. The outlook on the long-term rating is negative.
Nevertheless, the rating agency expects strong competition in a
few segments coupled with the prevailing low interest rate
environment to be headwinds for the company to improve its
operating performances. It estimates EBITDA in the band of $9-10
billion with EBITDA fixed-charge coverage of 6.5x to 7x. The rating
agency also expects debt leverage to be about 24% in 2012 and
financial leverage to be approximately 35%. It estimates share
buybacks of about $2 billion.
S&P stated that a rating upgrade is unlikely going forward
given the uncertain macro environment. However, if MetLife
maintains a sound capital position, it would advocate favorably for
the company. On the flip side, S&P would be forced to downgrade
the rating if MetLife fails to maintain its competitive advantage
in the market and the adverse market condition wears down its
operational efficiency, resulting in an erosion in retained
earnings.
In a separate development, Fitch Ratings reiterated its ratings
on MetLife and its subsidiaries. The affirmation included ratings
assigned on the insurance subsidiaries covering life at 'AA-'
Insurer Financial Strength ("IFS") along with Issuer Default Rating
("IDR") at 'A'. The outlook is stable.
The affirmation was based on the company's continued strong
financial performances. The rating agency noted that prevailing low
interest rates continues to be a hindrance for the company as well
as for the industry at large.
Nevertheless, the interest rate hedging program will help in
reducing the adverse effect on earnings in the medium term. The
rating agency expects return on equity in 2012 to improve to the
11%-12% range on the heels of improved earnings from International
segment and moderate growth in U.S.
Apart from this, Fitch also assigned 'AA-' rating to MetLife
Global Funding I and MetLife Institutional Funding II. It also
assigned 'F1+' rating on MetLife Short Term Funding LLC.
Fitch believes that these rating actions will ensure the credit
worthiness of the notes program and along with that even the legal
structure of these agreements will be brought under the purview of
revision.
Fitch stated it could consider further rating upgrades provided
MetLife maintains the NAIC RBC ratio above 450%, debt-equity ratio
remains lower than 25%, interest coverage ratio is in the band of
8x-10x and successfully integrate Alico.
The rating would be subject to downgrade if NAIC RBC ratio falls
below 350%, debt- equity ratio more than 30% and interest coverage
ratio goes below 5x.
Last week, Fitch also affirmed IDR and IFS on
Prudential Financial Inc.
(
PRU
), a close competitor of MetLife. The rating agency affirmed an IDR
of "A-"and an IFS rating of "A+".
We retain our long-term Neutral recommendation on MetLife. The
quantitative Zacks #3 Rank (short-term Hold rating) for the company
indicates no clear directional pressure on the stock over the near
term.
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis
Report
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