Posted on Feb 17, 2012 by Sergio Ulloa
MetLife Inc, America's largest life insurance group, reported a surge in fourth-quarter profit on Tuesday, mainly attributable to the continued development of its international insurance operations and pronounced derivative gains.
In a company filing, Metlife reported fourth quarter 2011 net income of US$1.1 billion, or US$1.06 per share, and operating earnings of US$1.4 billion, or US$1.31 per share, which equated to a 17 percent rise on 2010's figures and topped previous market estimates. The New York-based insurer credited much of this success to their recent acquisition of ALICO
, a major life insurance unit whom they bought from American International Group Inc (AIG) for US$16.4 billion in 2010. Metlife had long been looking to establish a more global brand and distribution platform. The acquisition of Alico, who had offices in over 50 countries, has provided the company with meaningful new sources of diversified earnings through their access to new Asian, European, Middle Eastern and Latin American insurance markets. Total international sales grew by 12 percent compared with the combined MetLife and Alico results in fourth quarter 2010.
This trend was made further evident in the MetLife full year report, which was released simultaneously on Tuesday. Buoyed by the Alico purchase, Metlife's international business (including premiums, fees and other revenues) was worth US$3.8 billion in 2011, with operating earnings growing by a remarkable 89 percent to US$570 million for the year. According to Metlife, these increases were partly offset by the negative impact of foreign currency exchange rates. In addition, in Latin America, Metlife's revenues grew due to increased premium levels in Mexico, Chile and Argentina. Premiums, fees and other revenues furthermore benefited from robust development in the Middle East and Eastern Europe, according to MetLife. The insurer also singled out its performance in Japan, where sales and operating earnings grew by 3 percent to US$326 million for the quarter. Higher net investment income and improved underwriting results in accident and health insurance enabled Metlife to improve their margins in mature, claims-heavy environment
. Premiums, fees and other revenues in Japan were US$1.8 billion, higher than in the fourth quarter of 2010 and relatively unchanged from the third quarter of 2011.
Metlife's investment activity has also played a big role in their substantial quarterly gains. Like other large insurance companies, MetLife use derivatives as part of their broader portfolio management strategy to hedge against a number of long-term risks, and this includes potential changes in interest rates and foreign currency exchange rates. Metlife reported total derivative net gains of US$351 million after tax during the fourth quarter 2011, a far cry from the US$1.1 billion derivative net loss noted in 2010. Net investment income in 2011 came in at US$4.94 billion in total. Total assets are now worth nearly US$800 billion, up by 9 percent from year-end 2010.
Metlife was able to report growth in its home US market
last year as well, despite facing a more difficult regulatory environment, low interest rates, and waning demand for certain insurance products. According to the company filing, Metlife's US-based premiums and other revenues rose by 7 percent to US$7.6 billion in 2011, principally on sales of retirement products and increased corporate benefit funding. US business operating earnings meanwhile increased by 4 percent to US$932 million on the year, due to improved underwriting results in group life and health insurance business lines.
While MetLife's international business has expanded, its performance in the US has remained relatively flat and this has necessitated the firm's recent global restructuring effort
. In November, MetLife reorganized its business structure into three different geographic regions - the Americas, Europe-Middle East-Africa, and Asia. This move will better reflect the company's improved global reach.and will target all the markets where sustainable premium growth is feasible more equally. Metlife are expected to report financial results under this new structure by the first quarter of 2012. According to some industry observers, MetLife's business in the US could improve through this reorganization. By bundling US insurance business together with their Latin American business, an under-penetrated and populous region forecast for growth, MetLife may be able to equalize mature market weaknesses in the short-to-medium term and manage its margins more effectively until, and if, US consumer spending behaviour improves.
Despite ongoing global economic volatility
, MetLife's executives expect that company profits could rise again in 2012, driven by both improved US retirement product sales and the continued development of international insurance markets. Steven A. Kandarian, Chairman and CEO of MetLife, explained in the company filing that the company had made admirable progress in 2011 and were by no means done yet. "MetLife had a solid year and a strong fourth quarter, even in the face of some significant market pressures. We delivered higher earnings per share over 2010. Our capital position is strong and getting stronger. And our ability to grow operating earnings in the face of low interest rates remains intact. In short, we think we're the best-positioned company in the life insurance sector to deliver shareholder value." In the aftermath of the global financial crisis, large multinational insurers like AIG, AXA and MetLife will need to find value by re-positioning their global operations to ensure they have access to insurance markets in the emerging economies that now offer the most profound earnings opportunities going forward.
Insurance Company Mentioned
MetLife is the largest life insurance company in the United States, with total assets of US$785 billion and over US$4.2 trillion of life insurance in force. Possessing over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.