01—Abstract
Summary
Summary of the 10-K filed March 1, 2018. Cited figures are marked; the original filing is the authoritative source.
MetLife's 2017 10-K (filed March 1, 2018) shows a company in transition: total revenues rose to $62.3 billiona and net income available to common shareholders improved to $3.9 billion from $747 million in 2016, helped largely by a $1.5 billion one-time benefit from U.S. Tax Reform and lower losses from discontinued operations.
Adjusted earnings available to common shareholders increased modestly to $4.2 billionb, and management pointed to the Separation of Brighthouse Financial as the key structural event, with the Brighthouse business now reported as discontinued operations and MetLife retaining a 19.2% stake. The most important issue for investors is the disclosure of material weaknesses in internal control over financial reporting. Deloitte issued an adverse opinion on internal control, tied to certain RIS group annuity reserves and assumed variable annuity guarantee reserves from a former Japan joint venture.
MetLife revised prior results to reflect reserve adjustments: a $510 millionc increase in group annuity reserves and an $896 million decrease in assumed variable annuity guarantee reserves, with some amounts treated as errors. Regulators (NYDFS, SEC) are investigating, and the filing discloses a possible securities class action. The company's ability to remediate these weaknesses promptly is a key risk to monitor.
On the capital side, MetLife returned substantial capital in 2017, repurchasing $2.9 billiond of common stock and paying $1.7 billion in common dividends. Management outlined a 2018 plan to return about $5.0 billion to common shareholders, including the planned exchange of the retained Brighthouse shares, while the NAIC-based combined RBC ratio remained above 400%.
02—Key points
Key Highlights
- Net income available to common shareholders rose to $3.9 billion ($3.62 diluted EPS) from $747 million in 2016, driven by lower discontinued-operations losses and a $1.3 billion net tax benefit from U.S. Tax Reform.
- Adjusted earnings available to common shareholders increased $202 million to $4.2 billion, with adjusted earnings up in the U.S. and Asia-adjacent segments and a drag from Corporate & Other.
- Two material weaknesses in internal control over financial reporting (RIS group annuity reserves and assumed variable annuity guarantee reserves) led Deloitte to issue an adverse ICFR opinion as of December 31, 2017.
- Reserve revisions: group annuity reserves increased $510 million pre-tax, while assumed Japan-related variable annuity guarantee reserves decreased $896 million pre-tax; prior periods were immaterially restated.
- Brighthouse Financial separation completed August 4, 2017; Brighthouse is reported as discontinued operations, and MetLife retains 22,996,436 shares (19.2%), which it intends to divest via exchange offer in 2018.
- Capital return: $2.9 billion of share repurchases and $1.7 billion of common dividends in 2017; $1.8 billion remained under the $2.0 billion repurchase authorization at year-end; 2018 baseline plan targets about $5.0 billion returned to shareholders.
- Regulatory and litigation overhang: NYDFS and SEC investigations into pension benefit practices and reserves, plus securities class action filings tied to reserve disclosures; the company states it has not accrued for potential losses on these matters.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $62.31B$60.79B | +2.5% |
| Operating Expenses | $13.62B$13.75B | −0.9% |
| Operating Income | $4.89B$3.48B | +40.6% |
| Interest Expense | $841.00M$874.00M | −3.8% |
| Net Income | $4.01B$850.00M | +371.8% |
| EPS (Basic) | $3.65$0.68 | +436.8% |
| EPS (Diluted) | $3.62$0.67 | +440.3% |
| Shares Outstanding (Basic) | 1.07B1.10B | −2.8% |
| Shares Outstanding (Diluted) | 1.08B1.11B | −2.7% |
05—Questions
Frequently Asked Questions
Why did MetLife receive a large tax benefit in 2017, and does it recur?
The 2017 results include a net tax benefit of about $1.3 billion from U.S. Tax Reform, which reduced the federal corporate rate from 35% to 21% and led to a $1.5 billion revaluation of net deferred tax liabilities, partly offset by a $170 million deemed repatriation charge and other items. This benefit is one-time in nature; management expects the 2018 effective tax rate to fall to roughly 18%–20%, but the tax reform accounting remains provisional and may change.
What do the material weaknesses mean for investors?
MetLife concluded its internal control over financial reporting was not effective at year-end 2017, and Deloitte issued an adverse opinion on ICFR. The weaknesses relate to controls over identifying unresponsive annuitants and calculating reserves for certain assumed variable annuity guarantees. Until remediation is complete and validated, investors face risks of further restatements, regulatory action, litigation, and potential pressure on financial strength and credit ratings.
How much capital is MetLife returning to shareholders?
In 2017 MetLife repurchased $2.9 billion of common stock and paid $1.7 billion in common dividends, with the quarterly dividend at $0.40 per share. Management's baseline 2018 plan calls for roughly $5.0 billion of returns through common dividends, share repurchases, and the anticipated Brighthouse exchange offer, subject to board approval, capital position, and regulatory approvals. Dividends on common stock can be restricted if preferred dividends or junior subordinated debt interest are not paid in full.
Is MetLife's insurance subsidiary capital adequate?
The company reported that its NAIC-based combined RBC ratio exceeded 400% at year-end 2017 and that its statement-based combined RBC ratio exceeded 390%, with all non-exempt U.S. insurance subsidiaries above company action level. The statutory capital position of the Japan operation was above four times the 200% solvency margin requirement. Investors should note that these ratios are calculated on an internally defined basis and that future NAIC regulatory changes could reduce them.
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