01—Abstract
Summary
Summary of the 10-K filed March 7, 2005. Cited figures are marked; the original filing is the authoritative source.
MetLife's 2004 Form 10-K shows a company that grew earnings sharply: net income rose 24% to $2.76 billiona ($3.65 diluted EPS), with income from continuing operations up 43% to $2.71 billion.
The improvement was driven by a $485 millionb after-tax swing in net investment gains (from a $582 million loss in 2003 to a $182 million gain), higher interest rate spreads of roughly $302 million after tax in Institutional and Individual, and continued top-line growth. Total revenues reached $39.0 billion, and premiums, fees and other revenues grew 8% to $26.4 billion. Total assets were $356.8 billion and stockholders' equity was $22.8 billion, up from $21.1 billion, with return on equity of 12.5%.
The filing also flags several items investors should weigh. MetLife announced an $11.5 billionc agreement on January 31, 2005 to acquire most of Citigroup's Travelers Life & Annuity and international insurance businesses, with about $1 to $3 billion paid in MetLife stock and the remainder in cash funded by cash, debt, mandatorily convertible securities and asset sales. Share repurchases have been suspended as a result.
The company also sold SSRM Holdings for $328 milliond in January 2005, producing about $150 million of discontinued-operations income, and is marketing two New York properties and considering selling some or all of its roughly 52% stake in Reinsurance Group of America. Legal exposure is substantial and includes asbestos claims (about 108,000 pending), sales practices suits, demutualization litigation, broker commission investigations and SEC Wells Notices. Management says it believes adequate provisions have been made, but it acknowledges that an adverse outcome could be material to quarterly or annual results.
Regulatory capital and liquidity appear adequate. Metropolitan Life's total adjusted capital exceeds RBC thresholds, and the holding company's bank holding company ratios are above well-capitalized minimums.
Liquid assets were $136 billion at the insurance group level and $2.1 billion at the holding company. The holding company's 2004 dividend doubled to $0.46 per share.
02—Key points
Key Highlights
- Net income rose 24% to $2,758 million in 2004 from $2,217 million, and diluted EPS rose to $3.65 from $2.94.
- Income from continuing operations increased 43% to $2,708 million, helped by a swing from net investment losses of $582 million in 2003 to gains of $182 million in 2004.
- Total revenues grew to $39.0 billion, and premiums, fees and other revenues increased 8% to $26.4 billion across most segments.
- Pending $11.5 billion acquisition of most of Citigroup's Travelers life and annuity and international insurance businesses (expected to close in summer 2005), with $1-3 billion paid in MetLife stock; share buybacks suspended.
- Dividend doubled to $0.46 per share for 2004, and the company repurchased about $1.0 billion of stock during 2004.
- Sold SSRM Holdings for $328 million in January 2005, recognizing about $150 million of discontinued-operations income; also marketing 200 Park Avenue and One Madison Avenue and considering selling part of its RGA stake.
- Significant litigation and regulatory exposure, including about 108,000 asbestos claims, sales practices suits, demutualization class actions, broker commission investigations and SEC Wells Notices; management believes provisions are adequate but warns that adverse outcomes could be material.
03—Questions
Frequently Asked Questions
How much did MetLife's earnings grow in 2004, and what drove the increase?
Net income rose 24% to $2.76 billion, and diluted EPS rose to $3.65 from $2.94. The main drivers were a $485 million after-tax improvement in net investment gains, roughly $302 million higher after-tax interest rate spreads in the Institutional and Individual segments, and revenue growth across most businesses. These gains were partly offset by a $86 million after-tax charge for a change in accounting (SOP 03-1).
What is the Citigroup/Travelers acquisition, and how will it be paid for?
On January 31, 2005, MetLife agreed to buy certain Citigroup subsidiaries, including most of The Travelers Insurance Company and substantially all of Citigroup's international insurance businesses, for $11.5 billion, subject to adjustment. About $1-3 billion will be paid in MetLife stock, and the rest in cash funded by cash on hand, debt, mandatorily convertible securities and asset sales. The deal is expected to close in summer 2005, and Citigroup will enter into ten-year distribution agreements with MetLife.
Is MetLife financially strong enough to absorb its large litigation exposure?
Management believes its reserves for probable and estimable losses are adequate and that pending matters are not likely to have a material adverse effect on consolidated financial position. However, the filing notes that large or indeterminate claims, such as the asbestos cases and multiple class actions, could have a material impact on net income or cash flows in particular quarters or years. Capital ratios are above regulatory requirements: Metropolitan Life's total adjusted capital exceeds RBC thresholds, and the holding company's bank capital ratios exceed well-capitalized levels.
Why did MetLife suspend share repurchases, and what does that mean for shareholders?
MetLife suspended its buyback program because of the pending Travelers acquisition. The company had repurchased about $1.0 billion of stock in 2004, including a $300 million accelerated share repurchase in December, and roughly $710 million remained on the authorization at year-end. Future repurchases will depend on capital position, credit ratings, market conditions and the stock price. Shareholders should expect cash to be directed to the acquisition rather than buybacks for now.
04—Continue