MetLife’s Strong International Franchise Won't Be Hurt by Russia-Ukraine Tensions

MetLife (NYSE: MET  ) , the largest life insurer in the U.S., has a strong international brand. Its acquisition of the American Life Insurance Company from American International Group (NYSE: AIG  ) in 2010 significantly expanded the company's international presence in the Asia-Pacific, Latin America, and Europe.

While the Russia-Ukraine crisis, fiscal reforms in some of its key international markets, pension changes in Poland, and tough comps in Asia provide near-term challenges, over the long term the company is expected to register double-digit growth in most of its international markets.

Latin America
Latin America is a key component of MetLife's emerging market story. MetLife operates in seven countries in Latin America and its largest businesses are in Mexico, Chile, and Argentina.

Mexico, where the company is the No. 1 insurer with a 30% market share, generates nearly half of MetLife's earnings in Latin America. Chile is its next largest market, and there MetLife has both an agency insurance business and ProVida, a mandatory pension provider.

Source: Company documents

ProVida should enhance MetLife's earnings growth
MetLife's acquisition of ProVida, the largest pension fund administrator in Chile by assets under management, also increased its footprint in China and this should enhance its earnings growth in 2014. 

MetLife expects low double-digit growth in premiums, fees, and other revenues, or PFOs, in Latin America from 2014-2016. However, it estimates that its operating earnings will grow at an even faster rate as investment spending normalizes and margins improve. 

MetLife is constantly making efforts to expand its footprint in Latin America and further penetrate high-income segments of the market, which should lead to continued growth.

MetLife's Latin America franchise also includes the company's growing direct business. This business could become substantial, with billions of dollars of sales annually that include affinity marketing for products with low capital intensity, including accident & health, personal auto, and accidental death.

MetLife should be able to achieve its targets despite near-term headwinds
While the company faces near-term headwinds that include fiscal reforms in Chile and Mexico and the implementation of Solvency II in Mexico, over the long term the company should be able to achieve low double-digit top-line growth. 

Momentum in direct marketing, development of agency channels in Brazil, Chile, and Colombia, expansion of employee benefits, and continued solid growth in the core business should all help accelerate growth in operating earnings.

Europe, the Middle East, and Africa
MetLife currently operates in 30 countries in the EMEA region, where it has its largest operations in Poland. Within the EMEA region, MetLife also has significant long-term growth potential in emerging markets, which account for about 80% of its operating earnings.

While the pension reforms in Poland and the unrest in Russia and Ukraine have caused disruptions in sales, MetLife continues to highlight significant growth potential in emerging markets that include Russia, Poland, Turkey, and the Gulf states, etc. Over time, the company expects 10%-12% growth in PFO in emerging markets.

Asia
MetLife also has a strong presence in Asia. The company currently operates in nine countries in Asia, where Japan and Korea are its largest markets. As the company expands its operations in the emerging markets, it plans to shift its Asia business mix from about 85%-90% of earnings coming from Japan in 2013 to 75%-80% by 2016.

Compared to market growth of only 2%-3%, MetLife is targeting long-term PFO growth in Japan of 5-7% driven by increased accidental and health, or A&H, benefit sales, growth in the affluent senior population, and the company's scale across multiple distribution channels.

The company is not only taking measures to increase its sales, it is also taking steps to limit expense growth to 50% or less of its revenue, which should result in improved margins. The principal drivers of expense control include improving persistency (~90% currently), reducing expense ratios, and investing in technology to drive efficiency.

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While the Russia-Ukraine crisis, fiscal reforms in some of its key international markets, pension changes in Poland, and tough comps in Asia provide near-term challenges, over the long term the company is expected to register double-digit growth in most of its international markets.


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