How Much Of Metlife's Top Line Comes From Its U.S. Segment: 30%, 50% or 70%?
MetLife ( MET ) is a leading provider of insurance services with operations spread across the United States, Latin America, Asia Pacific, Europe as well as Middle East regions. In its recently reported Q2 2019 earnings, the company reported a 17% drop in revenues y-o-y mainly driven by a 43% decrease in U.S. segment revenues. Under normal circumstances, this would be a major cause for concern, given that the U.S. segment is responsible for a little over 50% of Metlife’s revenues . But as the figure for Q2 2018 had been unusually high due to a large pension risk transfer, investors were quick to ignore the sharp year-on-year decline.
Trefis has analyzed the importance of Metlife’s U.S. segment to its business model in an interactive dashboard, along with our expectations for the next three. Trefis estimates MetLife’s valuation to be $52 per share which is roughly 10% higher than the current market price. Additionally, you can see more Trefis data for Insurance companies here.
A Quick Look At MetLife’s Revenues
MetLife reported $67.9 billion in Total Revenues in FY 2018. This included 5 revenue streams.
U.S. Segment: $37 billion in FY 2018 (55% of Total Revenues) – provides group benefits, retirement & income solutions, and property & casualty insurance to both businesses and individuals in the U.S.
Asia Segment: $11.8 billion in FY 2018 (17% of Total Revenues) – offers life insurance, accident & health insurance, and retirement & savings plan to businesses and individuals in 10 Asian markets along with Japan.
Latin America Segment: $5.1 billion in FY 2018 (8% of Total Revenues) -provides life insurance, accident & health insurance, retirement & savings, and credit insurance to businesses and individuals in 7 Latin American jurisdictions along with Mexico & Chile.
EMEA Segment: $2.9 billion in FY 2018 (4% of Total Revenues) -offers retirement & savings, and insurance products (like life, accident & health, credit) to businesses and individuals across Gulf region, Poland, the UK, and Turkey.
MetLife Holdings & Corporates: $11.1 billion in FY 2018 (16% of Total Revenues) – offers insurance (like term, variable etc.) and various annuities products.
Furthermore, the company invests insurance premiums collected across all its insurance products in assets such as bonds, equities, and mortgages – revenues for which are included in the applicable geographical segment.
How Have MetLife’s Revenues Changed Over The Last Three Years And What To Expect In The Next Three?
Total Revenues have seen steady growth over the last three years, from $60.8 billion in 2016 to $67.9 billion in 2018.
Although revenues are expected to decrease by 4% y-o-y in 2019 because of a one-time boost in the figure for 2018 from a large pension risk transfer, they are expected to recover and grow at around 4% annually over the next two years.
Overall, MetLife revenues are expected to cross $70.9 billion by 2021
How Have MetLife’s U.S. Segment Revenues Changed Over The Last Three Years?
U.S. segment revenues have grown at an average annual rate of 12.2% over 2016-2018.
Over this period, its share of Total Revenue jumped from 48.5% to almost 55% (although the figure for 2018 is an outlier due to the one-time boost in Q2 2018).
What To Expect From U.S. Segment Revenues Over The Next Three Years?
U.S. Segment revenues can be divided into 4 revenue streams: premiums, net investment income, universal life and investment-type product policy fees, and other revenues.
U.S. Segment premiums are expected to decline by 11% to $25.1 billion in 2019 (due to the large pension risk transfer transaction in 2018). Further, U.S average account balance would see a slight decrease of 2% coupled with a 180 bps drop in premiums as a % of account balance in 2019. Both these key metrics should then continue with their upward trend over 2020-21 and would continue to drive revenues for the U.S. segment.
Net investment income is likely to see a marginal decrease in 2019 due to the weak investment scenario over the first half of the year weighing on the account balance. However, it should grow at an annual rate of 5% for the next two years, due to the expected recovery in U.S. average account balance and slight increase in investment income as a % of account balance. This would enable the net investment income to cross $7.6 billion by 2021.
Universal life and investment-type product policy fees won’t see much change from the 2018-level of $1.1 billion in the next three years. This could be attributed to nearly flat policy fees as a % of account balance, which is expected to remain between 0.7-0.8% over the coming years.
Other revenues are expected to grow at an average annual rate of 2% for the next three years, but it would have a negligible impact on total revenues.
Taken together, we expect U.S. Segment Revenues to increase steadily to $38.3 billion by 2021
This implies an increase in U.S. Segment’s contribution to MetLife’s Total Revenue from an estimated 52% in 2019 to over 54% in 2021 (as revenue share of 54.5% in 2018 was an outlier).
Per Trefis, MetLife’s Revenues ( shows key revenue components ) are expected to cross $65.3 billion in 2019 – leading to an EPS of $5.64 for the year. This EPS figure coupled with a P/E multiple of 9.3x, works out to a price estimate of $52 for MetLife’s stock ( shows cash and valuation analysis ), which is 10% ahead of the current market price.
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