MetLife (MET) Taking Steps To Counter Macro, Regulatory Risks

On Aug 9, we issued an updated research report on the insurer Metlife Inc. (NYSE:MET) . In the most recently reported second quarter, the insurer’s earnings of 83 cents per share missed the Zacks Consensus Estimate of $1.36 by 39%. Earnings also plunged 47% year over year. Foreign currency, equity markets and interest rates spoilt the sport.

MetLife seems bothered by regulatory hurdles and macroeconomic factors. The company got a brief breather after a U.S. District Court decision relieved it of its SIFI status in April. The company, which got the SIFI status in Sep 2014, was contesting this designation since Jan 2015. The SIFI designation cast a special supervision on the company by the Federal Reserve thus stifling its independence in the use of capital, which will also hamper its operational and financial flexibility.

This lifting of the SIFI tag, however, provided only temporary relief since the Financial Stability Oversight Council (FOSC) appealed to overturn the U.S. District Court decision in June. The FSOC can now attempt to re-designate MetLife at a later date. Prudential Financial Inc. (NYSE:PRU) and American International Group Inc. (NYSE:AIG) are still carrying the SIFI tag.

MetLife is suffering due to a low interest rate environment as evident from a decline in investment income. Also, its variable investment income is suffering from poor performance by hedge funds.

METLIFE INC Price and Consensus

METLIFE INC Price and Consensus | METLIFE INC Quote

The company also remains exposed to catastrophe losses. Its property and casualty segment experienced earnings volatility in the past due to weather-related losses.

MetLife is also experiencing lower business generated from Japan because of the withdrawal of single premium and Accident & Health Yen products in 2015. This was done to tackle the low interest rate headwind faced by the company in Japan. Also, the deconsolidation of its India operations will hamper the company’s earnings from the Asia region.

Nevertheless, the company has taken a number of steps to counter the headwinds. Primary among these is the separation of its U.S. Retail business. The company has also made a number of acquisitions and divested businesses generating low returns to focus on the profitable ones. The company’s focus on expense management will also shield its bottom line.

MetLife carries a Zacks Rank #4 (Sell). A better-ranked player in the space is James River Group Holdings, Ltd. (NASDAQ:JRVR) , with a Zacks Rank #2 (Buy).