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.)

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

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  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

Trading Center