The credit crisis wreaked havoc on the market values of the investment portfolios of most life insurers. With financial markets and liquidity returning back to normal, the values of bonds, real estate, and equities on the balance sheet are returning to normalized levels. This was the case for MetLife (NYSE:MET) during its second quarter. Its core operations continued to perform well and an upcoming purchase will add very appealing international exposure. (To learn more about the credit crisis, see Credit Crisis: Introduction).

IN PICTURES: 8 Ways To Survive A Market Downturn

Second Quarter Revenue Review

Total operating revenues improved 5% to $12.8 billion as premium, fee and other revenue from the core insurance and annuity operations grew 4% to $8.7 billion. The U.S. business accounted for the vast majority (nearly 83%) of operating revenue and grew 2% on the back of strong sales of retirement products due to "excellent underwriting results in group life; improved experience in dental and solid underwriting results in individual life."

The international business reported robust 13% growth on strong trends in each of its three key regions in Asia, Latin America and Europe. International is a small percentage of the existing operations but will increase greatly as MetLife expects to complete the acquisition of ALICO from AIG (NYSE:AIG) by the fourth quarter.

Net investment income from MetLife's investment portfolio grew 7% to $4.1 billion to account for the rest of total operating revenues. Most of this came from derivative gains, which the company uses to hedge its variable annuity risk as well as interest rate and foreign exchange volatility.

Profit Recap
Net income reached $1.5 billion and was a vast improvement from the $1.4 billion loss in last year's quarter that stemmed primarily from unrealized investment losses as a result of the credit crisis. This worked out to $1.23 per diluted share and handily beat quarterly analyst projections. (To learn more, see Predicting Investment Losses.)

Outlook
For the full year, analysts expect revenue to grow 7.5% to nearly $52.5 billion and earnings to reach $4.32 per share. Profit comparability from last year is limited due to the volatility in the investment portfolio and hefty write-downs that have quickly reversed course.

Unrealized losses in the investment portfolio continued to reverse course during the quarter. Management detailed $14.2 billion in unrealized gains "as widening spreads were more than offset by declining interest rates."

Overall, this sent book value soaring 48% to $45.51 per share.

The Bottom Line
MetLife shares have returned nearly 20% so far this year and are back over $40 per share. However, they still trade below book value and at a reasonable 10x forward earnings projections. Archrivals including Prudential Financial (NYSE:PRU) and Lincoln National (NYSE:LNC) also trade below book value but operate primarily in the United States. MetLife will be much more international once it acquires ALICO. International rivals including China Life (NYSE:LFC) and Prudential plc (NYSE:PUK) trade well above book, which in China Life's case reflects its compelling growth potential. MetLife's top-line and profit growth potential will improve markedly with ALICO.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!