Building on a solid recovery
in 2010, MetLife is looking to produce substantial operating profit
growth in 2011 and beyond. Underpinning the US’ largest life
insurer’s optimism is recently-acquired Alico which provides
much-needed global diversification at a time when its home market
presents a gloomy picture.
Go deeper with GlobalData
Speaking
at an investors’ conference held in December 2010, MetLife’s
chairman, president and CEO A Robert Henrikson painted an
optimistic picture of the US’s largest life insurer’s progress in
2010 and prospects for 2011 and beyond.
“As we close out 2010, MetLife
expects to generate solid growth in premiums, fees and other
revenues, higher net investment income and a 62% increase in
operating earnings compared with 2009,” said Henrikson.
Specifically, MetLife forecasts
full year 2010 net income to be between $2.8bn and $3.2bn ($3.13 to
$3.57 per share), including net investment and net derivative gains
and losses. For 2009, MetLife reported a net loss of $2.4bn ($2.89
per share), which included derivative losses of $3.3bn after
tax.
Premiums, fees and other revenues
in 2010 are expected to be between $35.6bn and $36.0bn, up about 5%
from $34bn in 2009. Operating earnings for 2010 are expected to be
between $3.8bn and $3.9bn compared with $2.4bn in 2009.
Henrikson also noted that MetLife’s
cost-cutting Operational Excellence initiative reached $700m in
pre-tax annualised savings in 2010, $100m more than its goal.
However, the most significant development in 2010 was MetLife’s
acquisition of American Life Insurance Company (Alico) from
American International Group, in a deal worth $15.5bn.
The deal was closed on 1 November 2010, with the full
integration and rebranding of Alico anticipated to be completed in
2013. One-time costs of about $500m are anticipated to be incurred
in the integration which is also expected to result in annual
expense savings of about $100m.
Massive geographic gain
With the
acquisition of Alico, MetLife became a leading competitor in Japan,
the world’s second-largest life insurance market, and materially
advanced its position in Europe. It also moved MetLife into a top
five market position in many high growth emerging markets in Latin
America, where it was already the largest life insurer, as well as
in Central and Eastern Europe and the Middle East. Alico operates
in about 55 countries while MetLife was previously active in only
10.
Alico is also set to be a major
growth-driver.
“With our leading positions in the
US and our expanded global reach resulting from the acquisition of
Alico, we are poised to achieve strong results next year and
beyond,” said Henrikson.
In 2011, MetLife is looking to
increase premiums, fees and other revenues 30% to between $45.8bn
and $47bn, while operating earnings are expected to increase by 38%
(the mid-point of its target range) to between $5.1bn and $5.5bn.
MetLife is also looking to improve operating return on equity to
between 10.6% and 11.4% in 2011, to between12% to 14% in 2013 and
to between 13% to 15% in 2014.
Acquisition of Alico will also
alter the geographic spread of MetLife’s source of revenue and
income significantly. In 2011 it is anticipated that about a third
of premiums, fees and other revenues will be generated by
international operations and that their contribution to operating
earnings will exceed 40% of MetLife’s total.
The significance of the Alico
acquisition is also highlighted by MetLife’s muted predictions for
performance in its home market. Presenting the outlook for US
operations in 2011, MetLife’s US business president William
Mullaney put premiums, fees and other revenues in 2011 at between
$19.37bn and $29.97bn, an increase based on the mid-points of 2010
and 2011 estimates of only 2.7%.
Even gloomier was Mullaney’s estimate of US operating earnings
in 2011 which he put at between $3.015bn and $3.235bn. Based on the
mid-points of 2010, and 2011 estimates, this would represent a
decline of 5.7% in 2011. Mullaney said factors retarding MetLife’s
performance in the US include unemployment, which “continues to
pressure the top line”, and low interest rates.
Japan is key
In 2011, success in the tough
Japanese market will be a key factor in realising MetLife’s goals.
MetLife is optimistic and predicts that sales in Japan in 2011 will
be between $1.8bn and $1.95bn. The mid-point of this range will
represent an increase of about 20% compared with 2010. The main
driver of sales growth in Japan is anticipated to be the bank
distribution channel which MetLife predicts will produce a 58%
increase in sales in 2011.
Japan is expected to
contribute 41% of Metlife’s estimated international premiums, fees
and other revenues of between $15.4bn and $16bn in 2011, and 54% of
international operating earnings of between $2.23bn and
$2.47bn.
Excluding Japan, MetLife’s
operations in the Asia-Pacific region are forecast to produce sales
of about $1.35bn, up 22% compared with 2010. Strong growth is also
predicted for MetLife’s operations in Europe where sales are
forecast to increase by 34% in 2011 to about $1.2bn.
In the Middle East and South Asia,
sales growth of 22% is forecast to about $300m, while in Latin
America sales growth is expected to be a more subdued 10% to about
$1.4bn.
If all goes according to plan, Henrikson’s claim that MetLife is
now “a worldwide industry leader” will be well founded.
