The Many Merits of MetLife

S&P rates the insurance giant 5-STARS, citing its strong competitive advantages and robust earnings outlook

by Tanjila Shafi From Standard & Poor's Equity Research

We believe MetLife (MET; recent price, $68.42), a large, well-diversified company, will be able to thrive in the current competitive insurance environment. In our view, the company will be able to expand its market share by leveraging its strong brand name, substantial distribution capabilities, and leading position in a broad range of protection and asset-accumulation products.

Furthermore, we anticipate that the company will use its considerable excess capital for share buybacks and for acquisitions, especially in the international arena. With our strong earnings outlook for 2007 and beyond, we see significant upside potential for MetLife shares. The stock carries Standard & Poor's highest investment recommendation of 5-STARS (strong buy).

MetLife is one of the largest insurance and financial-services companies in the U.S. The company benefits from a strong brand, a solid financial position, and a large distribution network, in our view. According to the American Council of Life Insurers, MetLife was the largest life insurer in the U.S. in 2005, based on total assets. As of February, 2006, MetLife had access to 71% of the world's life insurance markets, up from 36% in 2004. Formerly a mutual insurance company, MetLife demutualized and issued publicly traded stock in April, 2000.

Segment Breakdown

MetLife is organized into five business segments: institutional, individual, auto & home, international, and reinsurance. The institutional segment accounted for 42% of consolidated revenues in 2006 (42% in 2005); the individual segment, 30% (31%); the auto and home segment, 6.2% (6.9%); the international segment, 9.2% (8.1%); and the reinsurance segment, 10% (10%). The corporate, other, and eliminations segment, including MetLife Bank operations, accounted for 2.4% (1.9%) of consolidated revenues in 2006.

The institutional segment offers a variety of group insurance and retirement & savings products and services to corporations and other institutions and their respective work forces. The institutional segment is comprised of three subsegments: group life, retirement & savings, and non-medical health.

Accounting for 16% of 2006 consolidated revenues, group life offers on a group basis the following products: term life, variable universal life, universal life, survivor income benefits, and dependent life. The retirement & savings subsegment (15%) includes a variety of annuity and investment products, such as guaranteed interest products, accumulation and income annuities, defined contribution plan services, and separate account assets. The non-medical health subsegment (11%) offers products including accidental death and dismemberment, long-term care, short and long-term disability, critical illness, and dental insurance.

The individual segment markets a broad range of protection and asset-accumulation products to individual customers. The individual segment is comprised of four main subsegments: traditional life, variable & universal life, annuities, and other. Accounting for 15% of 2006 consolidated revenues, the traditional-life subsegment consists of both term-life and whole-life products. The variable & universal life subsegment represented 4.7% of 2006 consolidated revenues. The annuities segment (9.3%) includes both fixed and variable annuities. The other subsegment (1.5%) consists of disability and long-term care insurance products.

The auto and home segment offers property and casualty insurance coverage to employees at their employer's work site. The products are also marketed by agency distribution groups and independent agents.

The international segment offers life insurance, accident & health insurance, credit insurance, annuities, and retirement & savings products to individuals and groups. The company has operations in 16 foreign countries: Japan, South Korea, Taiwan, Australia, Hong Kong, China, Mexico, Chile, Brazil, Argentina, Uruguay, Britain, Belgium, Poland, Ireland, and India. The acquisition of Travelers in 2005 greatly enhanced the size and scope of MetLife's international presence.