MetLife (MET) And Units Receive Rating Action From A.M Best

MetLife Inc (NYSE:MET) and its subsidiaries have received rating action from A.M. Best. The rating giant has affirmed Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” of MetLife along with its Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR).

Moreover, A.M Best has reiterated the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICR of “aa-” of the Metropolitan Life Insurance Company, General American Life Insurance Company and Metropolitan Tower Life Insurance Company.

This apart, the rating giant has further affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a+” of MetLife’s Auto & Home affiliates group. The group includes Metropolitan Property and Casualty Insurance Company, seven fully reinsured subsidiaries and a separately rated subsidiary — Metropolitan Group Property and Casualty Insurance Company. The outlook of these Credit Ratings remained stable.

This rating actions acknowledges MetLife’s leading position in the group insurance market along with its vast geographic presence. The rating giant expects MetLife to gain steam from its focused business strategies like the spin-off of Brighthouse Financial. The divestment helped MetLife in lowering its exposure to softening interest rates and equity market sensitivity. Post the divestiture, MetLife generates almost half of its operating earnings from international business.

Notably, despite the sustained soft interest rate environment, MetLife managed to generate strong revenues, stable operating earnings and cash flows, indicating its operational efficiency. The rating giant believes that this will contribute to the company’s organic earnings growth along with improving expense management. MetLife has also been able to maintain its financial leverage and interest coverage ratios within A.M. Best's expectations.

However, these positives are partially offset by the high level of risks in its investment portfolio. A.M. Best believes that the risks stem from its securities lending and funding agreement-backed securities programs. Although operating leverage remains within A.M. Best’s guidelines for its current rating on a consolidated basis, the rating giant expects MetLife to successfully manage its leverage going forward.

MetLife is exposed to the possibility of earnings decline related to its run-off of MetLife Holdings segment and the Brighthouse spin-off in the short term. The present volatility within some existing business lines and stiff competition within group benefits and the emerging markets in which MetLife operates also remain headwinds. Well reflective of these negatives, its shares have gained 11% in the last year, underperforming the industry’s rally of 20%.

Coming to the subsidiaries of MetLife, the ratings reflect their strong capitalization and solid operating performance. The affiliates’ multiple-channel distribution network also adds to the extensive market expertise. National geographic diversification and marketing advantage derived from MetLife's established brand name recognition also helped these subsidiaries maintain their competitive edge. These ratings perfectly recognize the financial strength and support provided by MetLife to its units.

Nevertheless, the rating giant is concerned that these tailwinds are partially negated by MetLife Auto & Home's considerable amount of underwriting leverage, its exposure to catastrophic events and a dividend policy hindering surplus growth.

Zacks Rank and Stocks to Consider

MetLife presently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the insurance space can consider better-ranked stocks like CNO Financial Group, Inc (NYSE:CNO) , Unum Group. (NYSE:UNM) and Lincoln National Corp (NYSE:LNC) . All the three stocks carry a Zacks Rank #2 (Buy).

CNO Financial’s earnings surpassed expectations in three of the last four quarters with an average beat of nearly 6.7%.

Unum delivered positive surprises in each of the last four quarters with an average beat of 3.1%.

Lincoln National delivered positive surprises in all of the last four quarters with an average beat of 10.5%.

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