Are MetLife Earnings Back on Track?

MetLife (NYSE: MET  ) will release its quarterly report on Wednesday, and shareholders couldn't be more optimistic about the company's future prospects. Yet even though the stock has traded at five-year highs recently, MetLife earnings haven't yet begun to grow in the way investors will want to see in the long run.

One important thing the financial crisis highlighted for MetLife and its peers is just how much risk insurance companies take on in the ordinary course of their business. In response to the financial devastation that the crisis wrought, MetLife has taken some big steps toward shoring up its business and focusing on its most profitable segments to generate long-term growth prospects. Let's take an early look at what's been happening with MetLife over the past quarter and what we're likely to see in its quarterly report.

Stats on MetLife

Analyst EPS Estimate

$1.33

Change From Year-Ago EPS

0%

Revenue Estimate

$17.33 billion

Change From Year-Ago Revenue

3.2%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Are MetLife earnings on the upswing?
Analysts are getting more enthusiastic about the prospects for MetLife earnings, having boosted their June-quarter estimates by $0.02 per share in recent months as well as raising their full-year 2013 consensus figures by more than 3%. The stock has responded quite favorably to those positive signs, with gains of almost 30% since late April.

MetLife is a giant in the life insurance business, and even though the life-insurance industry has seen a big decline in the overall number of policies outstanding over the past couple of decades, the business still represents a huge portion of the almost $850 billion in assets you'll find on MetLife's balance sheet.

Many of the problems MetLife and its peers have faced recently stem from products beyond vanilla life-insurance policies. A Moody's report last month discussed how MetLife, along with rivals Hartford Financial (NYSE: HIG  ) and Prudential (NYSE: PRU  ) , failed to protect against all the risks involved in the variable-annuity products they offered customers. By assuming that more customers would drop their annuities than actually did, MetLife and its peers have had greater-than-expected guarantee obligations under the annuities.

But MetLife was also recently involved in accusations of wrongdoing that resulted in substantial settlement liability. Along with Prudential, Hartford, AIG (NYSE: AIG  ) , and several other insurers, MetLife settled claims over allegedly charging life-insurance premiums against outstanding life-insurance policies even after the insured parties had already died. The insurers agreed to pay $763 million to heirs as part of a settlement involving attorneys general in several states.

The biggest potential issue for MetLife currently is the risk that it will be classified as a systemically important financial institution, subjecting it to additional regulatory scrutiny. Despite efforts to sell off its banking business in order to avoid the designation, MetLife entered the final stage of the process earlier this month, and it's looking increasingly likely that it will end up qualifying for the SIFI status.

In the MetLife earnings report, watch for comments about the impact of higher interest rates on the investment income that the company depends on to cover long-term losses from claims. The rate increases could create short-term drops in book value as existing bond portfolios lose value, but in the long run, greater income could make it easier for the company to earn a larger profit. 

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  • Report this Comment On July 29, 2013, at 2:16 PM, p2i wrote:

    I sold my MET stock because it will probably be designated as SIFI. I see it as a regulatory burden which could effect income substantially. The government will dictate when they can buy back stock and future dividend rate increases as they did under bank regulation.The bond portfolio will be hit by lower valuation, and I don't see much hope for the bond portfolio in the near future as a help to the stock price.

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