01—Abstract
Summary
Summary of the 10-K filed February 21, 2020. Cited figures are marked; the original filing is the authoritative source.
MetLife's 2019 Form 10-K shows a company in transition under its 'Next Horizon' strategy, which pivots toward protection-oriented and fee-based businesses and emphasizes free cash flow.
Net income attributable to MetLife rose to $5.9 billiona in 2019 from $5.1 billion in 2018, and net income available to common shareholders was $5.7 billion ($6.06 diluted EPS). Adjusted earnings available to common shareholders rose $306 million to $5.8 billion, helped by roughly $539 million of notable tax-related benefits, partly offset by $332 million of unit cost initiative expenses and a $143 million after-tax unfavorable actuarial assumption review. The balance sheet strengthened materially, with total stockholders' equity of $66.1 billion (up from $52.7 billion), largely driven by a $13.1 billion swing in accumulated other comprehensive income as interest rates fell.
Management guides to a 65% to 75% free cash flow to adjusted earnings ratio over 2020 to 2021, targets $20 billionb of free cash flow over five years, and projects 12% to 14% adjusted ROE. Capital return remained significant, with $16.0 billion returned to shareholders from 2016 through 2019 and $985 million left on the buyback authorization.
Key risks include a sustained low interest rate environment that compresses investment spreads and pressures DAC/VOBA amortization, long-term care and variable annuity guarantee exposures, litigation and regulatory matters (including group annuity reserve issues that led to material weaknesses disclosed in 2018 and shareholder suits), and holding company dependence on subsidiary dividends. The 10-K also flags the pending sale of MetLife Hong Kong, the acquisitions of PetFirst and Willing, and the upcoming COVID-19 pandemic risk noted in the filing's risk factors.
02—Key points
Key Highlights
- Net income attributable to MetLife, Inc. of $5.9 billion in 2019, up from $5.1 billion in 2018; net income available to common shareholders of $5.7 billion, or $6.06 diluted EPS
- Adjusted earnings available to common shareholders up $306 million to $5.8 billion, aided by about $539 million of notable tax settlements and benefits
- Total revenues of $69.6 billion, with net investment income rising to $18.9 billion from $16.2 billion
- Total stockholders' equity of $66.1 billion, up from $52.7 billion, reflecting a $13.1 billion AOCI gain as interest rates declined
- Free cash flow guidance of 65% to 75% of adjusted earnings for 2020 to 2021, targeting about $20 billion over five years and 12% to 14% adjusted ROE
- Dividends of $1.74 per share declared in 2019; $985 million remaining under the $2.0 billion repurchase authorization
- Sustained low interest rates, group annuity reserve issues, and holding company reliance on subsidiary dividends are the principal risk factors
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 21, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $69.62B$67.94B | +2.5% |
| Operating Expenses | $13.69B$13.71B | −0.2% |
| Operating Income | $5.72B$4.98B | +14.8% |
| Interest Expense | $656.00M$827.00M | −20.7% |
| Net Income | $5.91B$5.13B | +15.2% |
| EPS (Basic) | $6.10$4.95 | +23.2% |
| EPS (Diluted) | $6.06$4.91 | +23.4% |
| Shares Outstanding (Basic) | 937.60M1.01B | −6.8% |
| Shares Outstanding (Diluted) | 944.40M1.01B | −6.9% |
05—Questions
Frequently Asked Questions
How did MetLife's core profitability trend in 2019?
Adjusted earnings available to common shareholders rose $306 million to about $5.8 billion, but the increase relied heavily on tax settlements. Underwriting was unfavorable, the annual actuarial assumption review cost $143 million after tax, and unit cost initiative expenses reached $332 million after tax.
What is management's capital return outlook?
MetLife expects to generate about $20 billion of free cash flow over five years and targets a 65% to 75% free cash flow to adjusted earnings ratio over 2020 and 2021. It returned about $16.0 billion to shareholders from 2016 through 2019 and maintains a $3.0 to $4.0 billion liquid asset buffer at the holding companies.
Why did shareholders' equity increase so sharply?
Total MetLife stockholders' equity rose to $66.1 billion from $52.7 billion, mainly because accumulated other comprehensive income increased by $11.3 billion net of tax as long-term interest rates fell and fixed income valuations rose. Net income and preferred issuance also contributed, partly offset by buybacks and dividends.
What are the main risks for investors to monitor?
The sustained low interest rate environment could compress investment spreads and accelerate DAC/VOBA amortization. Other risks include long-term care and variable annuity guarantee liabilities, litigation tied to group annuity reserving, regulatory actions, and the holding company's dependence on dividends from insurance subsidiaries.
What strategic changes were underway?
The Next Horizon strategy centers on Focus, Simplify, and Differentiate, with a shift toward protection-oriented and fee-based businesses. MetLife acquired PetFirst (closed January 2020) and Willing, and agreed to sell MetLife Hong Kong, which is expected to close in 2020 subject to regulatory approvals.
06—Continue