Sure Improvement at MetLife

For better or worse, and I'd argue worse for shareholders, MetLife (NYSE: MET  ) seems stuck with an image as a stodgy company unable or unwilling to take steps to meaningfully boost its returns on equity and, by extension, its value. I don't happen to agree and I think that while changes may take a little while to manifest themselves (huge supertankers aren't known for being nimble), the company is on the road to improvement.

Though its overall reported revenue rose just 4% in the second quarter, stripping out investment performance (a common convention in analyzing insurance stocks) leads to 11% growth in premiums and fees. Moving down the income statement a bit, we see that operating earnings were up 13% from the year-ago period: nice growth -- better than expected, actually -- and a sign that management has been improving the expense structure.

Looking at MetLife's business lines, only auto and home stands out negatively, as operating earnings here were down 2% on a difficult comparison. The other businesses -- institutional, individual, and international -- all delivered earnings growth of at least 22%. Earnings growth in the individual business segment is certainly being driven by the Travelers acquisition, and I think time will show that having Citigroup (NYSE: C  ) as a sales channel for annuities will help this business.

I think management at MetLife is willing to be a little more dynamic to improve results. There's ample real estate that can be sold, and the company certainly has the capital to make opportunistic acquisitions in an insurance and investment management industry that's still highly fragmented. Moreover, I'd like to see MetLife follow AIG (NYSE: AIG  ) , Prudential (NYSE: PRU  ) , and Aflac (NYSE: AFL  ) and get a little more involved in foreign operations. I realize that government regulations and restrictions in the BRIC countries (Brazil, Russia, India, and China) do limit some options, but there are large populations here becoming more wealthy over time.

I think patient investors could still make money with MetLife at these levels. Maybe not a lot of money, and maybe not very quickly, but perhaps with a bit more stability than other financial companies. After all, if MetLife proves its doubters wrong and is in fact able to boost its returns on equity, analysts may ultimately find themselves talking up these shares.

For more Foolishness on the insurance industry:

Aflacis recommended inMotley Fool Stock Advisor. What other stocks are at the top of Tom and David Gardner's list? Be our guest at the Stock Advisor website for 30 days and find out.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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