Financial investigation of Aflac Inc. and Met Life

Financial investigation of Metlife Inc.

Highlights

Strong Balance Sheet with Positive SCAP results

$400 million cost savings effort underway

International expansion

Flight to MetLife as affray weakens

Reports 3Q09 profits on October 30

Forecasting EPS of 82 cents in 3Q, 86

4Q, and $3.85 in 2010

Target Price variety of $35.58 to $43.85

Company Profile

MetLife, Inc offers life insurance, annuities, automobile and homeowner's insurance, banking, employee benefits, and other financial products to individuals and institutions in the US, Europe, and parts of Asia and Latin America. I t generated revenues of roughly $51 billion in 2008 and is the world's fifth largest life insurer by market cap. MetLife participated in the Supervisory Capital Assessment Program (SCAP) although it was the only participating company that was not a TARP recipient. It graded out as the company with the lowest total potential losses and received the fifth best rating in terms of tier one common capital adequacy. It recently issued $1.25 billion in debt that was several times oversubscribed. In the table below from the company's annual report, the 2008 financials information is summarized by business segment. It generates roughly 12% of its revenues from it international business segment.

Financial Analysis

MetLife has seen its book equity place improve to $27.6 billion in 2Q09 from a $23.5 billion in 1Q09. It is still ways away from the 2006-2008 level of the mid $30 billion. Because of capital pressures, it has had to keep more cash on the sidelines (a high of $24 billion at year-end 2008) since mid 2008, which has put pressure on its ROE. MetLife has moved some of this cash into short-term treasuries to earn some yield without hitting capital, but this is still a far cry from what it could earn by putting the money in higher yielding alternatives. It still has a cash position of $13 billion, which is about twice its 2006-07 levels. MetLife's price-to-earnings (17.4 vs. 16.4 for commerce) and price-book-ratios (1.24 vs. 1.26 for commerce) are in line with the average of the life protection commerce, although it has glimpsed powerful one year income development of 8.12% while the commerce has had contradictory 12.49% growth. While from an EPS perspective, it declined 13.7% annually, the industry suffered a worse fate of negative 55.1%. From a capital viewpoint, the SCAP workout determined there was no need to lift added capital. It reported tier one capital of 9.2% and tier one common capital of 8.5% versus averages of 11.5% and 6.7% from the other participants.

Financial Projections

Based on management's declarations and good presentation, it anticipated a rebound in ROE for the 3Q09. I am projecting a ROE of 8.5%. With the cash cushion still present, it may be a few years before we see low to mid teens in ROE that MetLife has produced in the past. Helping earnings is the flight-to-MET phenomenon that has occurred because of its relative financial strength. There should be less noise coming from one-time charges against earnings. Overall, I estimate EPS at 82 cents-per-share in the third ...