Are MetLife Earnings Back on Track?

Are MetLife Earnings Back on Track?

MetLife will release its quarterly report on Wednesday, and shareholders couldn't be more optimistic about the company's future prospects. Yet even though the stock has traded at five-year highs recently, MetLife earnings haven't yet begun to grow in the way investors will want to see in the long run.

One important thing the financial crisis highlighted for MetLife and its peers is just how much risk insurance companies take on in the ordinary course of their business. In response to the financial devastation that the crisis wrought, MetLife has taken some big steps toward shoring up its business and focusing on its most profitable segments to generate long-term growth prospects. Let's take an early look at what's been happening with MetLife over the past quarter and what we're likely to see in its quarterly report.

Stats on MetLife

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$17.33 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Are MetLife earnings on the upswing?
Analysts are getting more enthusiastic about the prospects for MetLife earnings, having boosted their June-quarter estimates by $0.02 per share in recent months as well as raising their full-year 2013 consensus figures by more than 3%. The stock has responded quite favorably to those positive signs, with gains of almost 30% since late April.

MetLife is a giant in the life insurance business, and even though the life-insurance industry has seen a big decline in the overall number of policies outstanding over the past couple of decades, the business still represents a huge portion of the almost $850 billion in assets you'll find on MetLife's balance sheet.

Many of the problems MetLife and its peers have faced recently stem from products beyond vanilla life-insurance policies. A Moody's report last month discussed how MetLife, along with rivals Hartford Financial and Prudential , failed to protect against all the risks involved in the variable-annuity products they offered customers. By assuming that more customers would drop their annuities than actually did, MetLife and its peers have had greater-than-expected guarantee obligations under the annuities.

But MetLife was also recently involved in accusations of wrongdoing that resulted in substantial settlement liability. Along with Prudential, Hartford, AIG , and several other insurers, MetLife settled claims over allegedly charging life-insurance premiums against outstanding life-insurance policies even after the insured parties had already died. The insurers agreed to pay $763 million to heirs as part of a settlement involving attorneys general in several states.

The biggest potential issue for MetLife currently is the risk that it will be classified as a systemically important financial institution, subjecting it to additional regulatory scrutiny. Despite efforts to sell off its banking business in order to avoid the designation, MetLife entered the final stage of the process earlier this month, and it's looking increasingly likely that it will end up qualifying for the SIFI status.

In the MetLife earnings report, watch for comments about the impact of higher interest rates on the investment income that the company depends on to cover long-term losses from claims. The rate increases could create short-term drops in book value as existing bond portfolios lose value, but in the long run, greater income could make it easier for the company to earn a larger profit.

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Fool contributor Dan Caplinger owns warrants on AIG. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends AIG. The Motley Fool owns shares of AIG and has the following options: long January 2014 $25 calls on AIG. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published