01—Abstract
Summary
Summary of the 10-K filed February 27, 2015. Cited figures are marked; the original filing is the authoritative source.
MetLife, Inc. (MET) reported its FY2014 Form 10-K, filed February 27, 2015, showing a strong earnings rebound with net income attributable to MetLife of $6.3 billiona (vs. $3.4 billion in 2013) and operating earnings available to common shareholders of $6.56 billion (up from $6.26 billion).
The improvement was driven largely by a $4.6 billionb favorable swing in net derivative gains (to $1.3 billion from a $3.2 billion loss), which is volatile and non-operating, while operating results improved more modestly on higher net investment income from portfolio growth, higher asset-based fees, and lower interest credited expense, partly offset by unfavorable mortality/morbidity and the impact of falling investment yields from the sustained low interest rate environment. The balance sheet expanded to $902 billion in total assets, with stockholders' equity rising to $72.1 billion, and the company's general account portfolio at $516.8 billion. Management is targeting a 12%-14% operating ROE (excluding AOCI) by 2016, but now expects the lower end of that range, citing reduced share repurchases, regulatory uncertainty around MetLife's designation as a non-bank systemically important financial institution (SIFI), low U.S. interest rates, and the stronger U.S. dollar's effect on foreign operations.
The company repurchased $1.0 billionc of stock in 2014, declared a 2014 common dividend of $1.33 per share (up from $1.01), and has begun 2015 buybacks of about $739 million through February 23, 2015. Key risks for investors include the non-bank SIFI designation (which MetLife is contesting in federal court), potential enhanced capital requirements from the Federal Reserve, ongoing reserve financing/captive reinsurance scrutiny by regulators, variable annuity guarantee exposures, the sustained low interest rate environment compressing investment margins, and European and emerging-market economic uncertainty.
02—Key points
Key Highlights
- Net income attributable to MetLife, Inc. rose to $6.3 billion in 2014 from $3.4 billion in 2013, though much of the gain reflects a $4.6 billion favorable swing in net derivative gains (losses) to $1.3 billion.
- Operating earnings available to common shareholders increased to $6.56 billion from $6.26 billion, driven by higher net investment income from portfolio growth, higher asset-based fees, and lower interest credited expense.
- Total revenues grew to $73.3 billion and the general account investment portfolio totaled $516.8 billion at December 31, 2014.
- Management now expects operating ROE (excluding AOCI) at the lower end of its 12%-14% target range by 2016, citing regulatory uncertainty, lower share repurchases, low interest rates, and FX headwinds.
- MetLife was designated a non-bank SIFI by the FSOC on December 18, 2014; the company filed suit on January 13, 2015 to rescind the designation, which could bring enhanced Federal Reserve capital requirements.
- Shareholder returns increased: 2014 common dividends declared totaled $1.33 per share (vs. $1.01), $1.0 billion of stock was repurchased in 2014, and an additional $739 million was repurchased in early 2015.
- Stockholders' equity reached $72.1 billion at year-end 2014, up from $61.6 billion, largely due to a $5.5 billion increase in accumulated other comprehensive income.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 27, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $73.32B$68.20B | +7.5% |
| Operating Expenses | $17.09B$16.60B | +2.9% |
| Operating Income | $4.80B$3.24B | +47.9% |
| Interest Expense | $874.00M$854.00M | +2.3% |
| Net Income | $6.31B$3.37B | +87.3% |
| EPS (Basic) | $5.48$2.94 | +86.4% |
| EPS (Diluted) | $5.42$2.91 | +86.3% |
| Shares Outstanding (Basic) | 1.13B1.11B | +2.1% |
| Shares Outstanding (Diluted) | 1.14B1.12B | +2.4% |
05—Questions
Frequently Asked Questions
Why did net income rise so sharply in 2014, and how much of that is repeatable?
Net income available to common shareholders rose to $6.19 billion from $3.25 billion, but a large part of the increase came from net derivative gains of $1.3 billion versus losses of $3.2 billion in 2013. These gains are driven by interest rate and currency movements and are not part of operating earnings. Operating earnings available to common shareholders rose a more modest 5% to $6.56 billion, which is a better gauge of underlying performance.
What is the non-bank SIFI designation and why does it matter to investors?
The Financial Stability Oversight Council designated MetLife as a non-bank systemically important financial institution in December 2014, subjecting it to Federal Reserve supervision and enhanced prudential standards. The Federal Reserve has not yet set the capital requirements that will apply, which could constrain MetLife's ability to pay dividends, repurchase stock, or write certain guaranteed products. MetLife filed a lawsuit in January 2015 seeking to rescind the designation.
How is the low interest rate environment affecting MetLife's profitability?
Sustained low rates have reduced investment yields on fixed maturity securities and mortgage loans, compressing spreads on products such as traditional life, fixed annuities, and guaranteed interest contracts. MetLife has offset some of this through lower interest crediting rates, derivatives, and product mix changes. Management estimates that a hypothetical continued low-rate scenario would reduce 2015 operating earnings only modestly, and it expects its non-U.S. businesses to grow as a share of earnings.
What are the main financial risks to watch in MetLife's filing?
Key risks include variable annuity guarantee exposures that can increase liabilities in volatile or declining equity markets, the possibility of regulators restricting captive reinsurance used to fund statutory reserves, a potential ratings downgrade that could raise collateral requirements, asbestos-related litigation (with the liability increased to $690 million), and exposure to European and emerging-market economic and political instability, including Argentina, Russia, and Ukraine.
06—Continue