01—Abstract
Summary
Summary of the 10-K filed February 19, 2021. Cited figures are marked; the original filing is the authoritative source.
MetLife's 2020 Form 10-K (filed February 19, 2021) shows a company generating $67.8 billiona in total revenues and $5.4 billion in net income attributable to MetLife, Inc. (net income available to common shareholders of $5.2 billion, down from $5.7 billion in 2019).
The decline was driven primarily by lower investment yields, a higher effective tax rate on adjusted earnings, a larger annual actuarial assumption review charge ($378 millionb versus lower in 2019), and an unfavorable change in net investment gains (losses), partially offset by a favorable change in net derivative gains from falling long-term interest rates. Adjusted earnings available to common shareholders fell $144 million to $5.6 billion, while the company reported $4.5 billion of holding company liquid assets, above its $3.0–$4.0 billion target. The filing frames MetLife's strategy around its 'Next Horizon' pillars of Focus, Simplify and Differentiate.
Key 2020 actions included the agreed sale of MetLife P&C to Farmers Group for $3.9 billionc (expected to close in Q2 2021), completed sales of MetLife Russia (closing January 2021) and MetLife Seguros de Retiro, and the acquisitions of Versant Health ($1.8 billion) and PetFirst. Management guided to a 2020–2021 average free cash flow to adjusted earnings ratio of 65%–75% and roughly $20.0 billion of cumulative free cash flow over 2020–2024, while flagging that the 12%–14% adjusted ROE target could be missed in 2021 given COVID-19, low rates and private equity return assumptions. The main investor watch items are the persistent low-interest-rate environment (with the Federal Reserve expected to keep rates near zero through 2023), COVID-19 impacts on mortality and claims, Level 3 fixed maturity securities that rose 57% to $29.5 billion, the pending MetLife P&C exit, ongoing litigation tied to group annuity reserving and related material weaknesses disclosed in 2018, and the $3.0 billion share repurchase authorization announced in December 2020 with $2.8 billion remaining at year-end.
02—Key points
Key Highlights
- Net income attributable to MetLife, Inc. was $5.4 billion in 2020 versus $5.9 billion in 2019; net income available to common shareholders was $5.2 billion ($5.68 diluted EPS) versus $5.7 billion ($6.06 diluted EPS).
- Adjusted earnings available to common shareholders declined $144 million to $5.6 billion, driven mainly by lower investment yields and a higher effective tax rate (19% on adjusted earnings in 2020 versus 10% in 2019).
- Total revenues were $67.8 billion versus $69.6 billion, with net investment income down to $17.1 billion from $18.9 billion, reflecting lower investment yields.
- The pending sale of MetLife P&C to Farmers Group for $3.9 billion in cash, expected to close in Q2 2021, is reported as held-for-sale, and the 10-year Farmers partnership will place personal lines products on MetLife's Group Benefits platform.
- Holding company liquid assets of $4.5 billion exceeded the $3.0–$4.0 billion target; free cash flow of all holding companies was $4.0 billion (71% of adjusted earnings available to common shareholders, versus 86% in 2019).
- Capital return: $1.2 billion of common stock repurchased and $1.7 billion of common dividends paid in 2020; a new $3.0 billion repurchase authorization was announced in December 2020 with $2.8 billion remaining.
- Level 3 fixed maturity securities AFS increased 57% to $29.5 billion, and non-agency exposure to stressed sectors (energy, airports, cruise lines, airlines) totaled $12.9 billion, or 2.4% of total investments.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 19, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $67.84B$69.62B | −2.6% |
| Operating Expenses | $13.15B$13.69B | −3.9% |
| Interest Expense | $632.00M$656.00M | −3.7% |
| Net Income | $5.42B$5.91B | −8.3% |
| EPS (Basic) | $5.72$6.10 | −6.2% |
| EPS (Diluted) | $5.68$6.06 | −6.3% |
| Shares Outstanding (Basic) | 907.80M937.60M | −3.2% |
| Shares Outstanding (Diluted) | 913.20M944.40M | −3.3% |
05—Questions
Frequently Asked Questions
How did MetLife's core earnings change in 2020 and what drove it?
Adjusted earnings available to common shareholders fell $144 million to $5.6 billion. The main drivers were lower investment yields and a higher effective tax rate, partly offset by higher net investment income from a larger asset base and lower expenses, including interest credited. The 2020 annual actuarial assumption review also added a $203 million after-tax notable charge to adjusted earnings.
What is the status of the MetLife P&C divestiture and how does it affect future results?
MetLife agreed in December 2020 to sell Metropolitan Property and Casualty Insurance Company to Farmers Group for $3.9 billion in cash. The deal is expected to close in the second quarter of 2021, subject to regulatory approvals. MetLife P&C is excluded from adjusted earnings from that point, and management expects pressure on the direct expense ratio in 2021 because MetLife P&C has a lower direct expense ratio than the rest of the company.
Is MetLife on track for its capital and free cash flow targets?
Management expects the average annual free cash flow to adjusted earnings ratio over 2020–2021 to be 65%–75%, and it remains on track for about $20.0 billion of free cash flow over 2020–2024. However, the company said it could fall below its 12%–14% adjusted ROE target range in 2021 given COVID-19, low interest rates and assumed private equity returns. It also expects to remain within or above its $3.0–$4.0 billion holding company cash target.
What are the biggest risks investors should monitor from this filing?
The most significant risks are the prolonged low interest rate environment (the Federal Reserve projects low rates until at least 2023), which compresses investment spreads and can accelerate DAC/VOBA amortization; COVID-19 effects on mortality, morbidity and investment portfolio credit quality; the growth of Level 3 securities; and litigation and regulatory matters, including group annuity reserving issues tied to previously disclosed material weaknesses and the Westland Police securities class action, for which the Company has accrued the full settlement amount.
How much capital was returned to shareholders in 2020?
MetLife repurchased $1.2 billion of common stock under its repurchase authorizations (26.4 million shares) and paid $1.7 billion in common stock dividends during 2020. It also paid $202 million of preferred dividends. The company issued $1.96 billion of new preferred stock (Series F and Series G) and redeemed $1.0 billion of Series C preferred stock, and a new $3.0 billion common repurchase authorization was announced in December 2020.
06—Continue