MetLife (MET) showed a strong performance in the third quarter of 2012 as operating earnings were up by 47% over the prior year. Expansion in developing Asian markets and a deviation from capital intensive and interest rate sensitive products like variable annuities helped the insurance giant even as revenues for the quarter were about the same as last year at $16.6 billion. A one-time after-tax goodwill impairment of $1.6 billion affected the top-line as the company reported net loss of $984 million.
Our $38 price estimate for MetLife’s stock is 10% above the current market price.
MetLife reported a 17% year-on-year increase in operating income from Asia. Income from premiums, fees and other revenues (PFOs) was up 7% even as total insurance sales declined by 8%. Higher life insurance sales in Japan were offset by declines in other countries, including Australia. MetLife established a foothold in Japan with the acquisition of ALICO from AIG (AIG) in 2010. The insurer has since been able to build on the business as Japan PFO’s grew 9% in the last quarter over the same period last year while annual growth in Korea was 11%.
Outside of Asia, MetLife is focused on growth in Latin America where it reported a 15% year-on-year increase in operating earnings driven by growth in Mexico and higher investment income. We expect an increase in MetLife’s share of the international insurance market as it builds on the momentum it has gained in the last few years.
Variable Annuity Sales Down As Expected
MetLife was the top seller of variable annuities in 2011.  This year, however, the company has taken a conscious decision to cut back on the equity-linked product, leading to a 25% drop in sales in the first half of the year. This trend continued in the September quarter as variable annuity sales fell by 46% year-on-year. The effect of declining sales was mitigated by a 9% increase in PFOs from the group, voluntary & work site benefit business as total operating revenues reported for the Americas were in-line with last year’s figures. We expect MetLife to maintain its share of the U.S. life insurance market as it leverages the reputation it has built.
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