01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
MetLife, Inc. (MET) reported 2013 GAAP net income available to common shareholders of $3.25 billiona ($2.91 diluted EPS), up from $1.20 billion in 2012, which was depressed by a $1.9 billion non-cash goodwill impairment on its U.S. Retail annuities business.
Total revenues were essentially flat at $68.2 billionb, while operating earnings available to common shareholders rose 11% to $6.29 billion, driven by higher asset-based fees, portfolio growth and lower interest credited expense, partly offset by lower yields. Net derivative losses of $3.2 billion, driven by rising interest rates and currency moves, were the main drag on GAAP results. The balance sheet is large, with $885 billion in total assets and a $496.4 billion general account portfolio, 71% of which is fixed maturity securities.
Stockholders' equity declined to $61.6 billionc, mainly because accumulated other comprehensive income fell from $11.4 billion to $5.1 billion as interest rates rose. The company completed the ProVida acquisition in Chile, and it has announced plans to merge three U.S. life insurers and an offshore reinsurer (the Mergers), expected in Q4 2014.
Key risks for investors include the possibility that MetLife is designated a non-bank systemically important financial institution (SIFI) by the FSOC, which could bring enhanced capital requirements and limits on dividends and buybacks; regulatory scrutiny of captive reinsurance; a sustained low interest rate environment; variable annuity guarantee exposure; and litigation, including asbestos and unclaimed property matters. The company targets a 12% to 14% operating return on common equity excluding AOCI by 2016, and the Board declared a $0.275d quarterly dividend.
02—Key points
Key Highlights
- GAAP net income available to common shareholders of $3.25B ($2.91 diluted EPS) vs. $1.20B in 2012, which included a $1.9B goodwill impairment
- Operating earnings available to common shareholders up 11% to $6.29B; operating earnings rose to $6.41B
- Total revenues of $68.2B, roughly flat year over year; net derivative losses of $3.2B weighed on GAAP results
- General account investment portfolio of $496.4B, with 71% in fixed maturity securities; total assets of $885.3B
- Stockholders' equity fell to $61.6B, largely from a drop in AOCI from $11.4B to $5.1B as interest rates rose
- Acquired ProVida (Chile's largest private pension administrator) for $1.9B in October 2013; announced Mergers of MICC, MLI-USA, MLIIC and Exeter expected Q4 2014
- Potential non-bank SIFI designation (FSOC Stage 3) remains an overhang on dividends and buybacks; company held 1.26B of share repurchase capacity but made no repurchases in 2013
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $68.20B$68.15B | +0.1% |
| Operating Expenses | $16.60B$17.75B | −6.5% |
| Operating Income | $3.24B$1.15B | +181.1% |
| Interest Expense | $854.00M$871.00M | −2.0% |
| Net Income | $3.37B$1.32B | +154.4% |
| EPS (Basic) | $2.94$1.12 | +162.5% |
| EPS (Diluted) | $2.91$1.12 | +159.8% |
| Shares Outstanding (Basic) | 1.11B1.07B | +3.3% |
| Shares Outstanding (Diluted) | 1.12B1.08B | +3.7% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings improve so much in 2013?
Most of the improvement reflects the absence of the $1.9 billion ($1.6 billion after tax) goodwill impairment on the U.S. Retail annuities unit recorded in 2012. Pre-tax income rose to $4.05B from $1.44B, though 2013 still absorbed $3.2B of net derivative losses tied to interest rate and currency moves.
Is the dividend safe, and can MetLife buy back stock?
The company declared a $0.275 quarterly common dividend for Q1 2014, about $310M in aggregate, and paid $1.12B in common dividends in 2013. Buybacks were not made in 2013 despite $1.3B of remaining authorization. Preferred and junior subordinated debt contain dividend stopper provisions, and a non-bank SIFI designation could further restrict capital returns.
What is the biggest regulatory risk?
The FSOC has moved MetLife to Stage 3 of its non-bank SIFI review. If designated, the Federal Reserve could impose enhanced capital, liquidity and stress testing standards, which could limit dividends and repurchases. Regulators are also scrutinizing the use of affiliated captive reinsurers, which MetLife uses to support reserves and variable annuity hedging.
How exposed is MetLife to a continued low interest rate environment?
Management estimates a hypothetical sustained low-rate scenario would reduce operating earnings by about $75M in 2014 and $205M in 2015, with a further $50M and $120M mark-to-market impact on non-hedge-accounting derivatives. The company says it expects to largely offset this through crediting rate actions, product mix and its growing non-U.S. businesses, which are about 14% of 2013 operating earnings in Latin America and EMEA.
06—Continue