MetLife, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report; quarterly figures below are unaudited. Amounts are U.S. dollars unless stated otherwise.
Business context
MetLife is a global insurer and asset manager offering life insurance, annuities, employee benefits and related services. Its six reporting segments are Retail, Group, Voluntary & Worksite Benefits, Corporate Benefit Funding, Latin America, Asia and EMEA, plus Corporate & Other. Its general account investment portfolio was $508.2 billion at year-end, invested primarily in fixed-income securities and mortgage loans.
Key financial metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $69.951 billion | $73.316 billion | Down 4.6% |
| Net income attributable to MetLife | $5.310 billion | $6.309 billion | Down 15.8% |
| Net income available to common shareholders | $5.152 billion | $6.187 billion | Down 16.7% |
| Diluted EPS | $4.57 | $5.42 | Down 15.7% |
| Operating earnings available to common shareholders | $5.484 billion | $6.560 billion | Down 16.4% |
| Net cash provided by operating activities | $14.129 billion | $16.376 billion | Down 13.7% |
| Net investment income | $19.281 billion | $21.153 billion | Down 8.8% |
| Net derivative gains | $38 million | $1.317 billion | Down $1.279 billion |
| Common stockholders’ equity | $67.949 billion | $72.053 billion | Down 5.7% |
Operating earnings were 8.1% of operating revenue in 2015, versus 9.4% in 2014. Return on common equity was 7.5%, down from 9.4%. Fourth-quarter net income was $842 million, or $0.70 diluted EPS, compared with $1.527 billion and $1.30 in Q4 2014.
At year-end, total assets were $877.933 billion, including $301.598 billion of separate-account assets, matched by separate-account liabilities. Debt included $18.023 billion of long-term debt and $100 million of short-term debt, alongside $4.139 billion of collateral financing arrangements and $3.194 billion of junior subordinated debt securities. Short-term liquidity was $11.1 billion and liquid assets were $229.4 billion. The NAIC-based combined RBC ratio was 537%, up from 437%; the statement-based ratio was 513%, up from 398%.
Material changes and drivers
- Operating earnings fell $1.1 billion, primarily due to lower investment yields, less favorable underwriting, annual actuarial assumption updates and a substantial tax-related charge. Portfolio growth partly offset these pressures.
- Net investment income decreased as sustained low rates reduced reinvestment yields and returns on limited partnerships and securities lending declined.
- Net derivative gains fell sharply, reflecting market movements and changes in variable-annuity guarantee valuations, including policyholder behavior assumptions. Such accounting marks can create earnings volatility.
- Retail annuity sales rose 15% and life sales rose 17%; overall sales growth nevertheless declined from 2014. Group voluntary-product growth was offset by lower core group sales amid competition.
- MetLife repurchased $1.930 billion of common stock and paid $1.653 billion in common dividends. It issued $1.5 billion of Series C preferred stock and repurchased or redeemed $1.502 billion of Series B preferred stock.
Outlook, unusual items and risks
- Management expected 2016 operating ROE, excluding AOCI other than foreign currency translation adjustments, of approximately 11%. It cautioned that it could not expand its outlook until there was more clarity on the planned Separation.
- In January 2016, MetLife announced it would pursue separating a substantial portion of Retail and certain related businesses through a possible public offering, spin-off or sale. Structure, timing and completion remained uncertain and subject to approvals and market conditions.
- 2015 included a $792 million after-tax non-cash charge related to an uncertain U.S. foreign-tax-credit position, comprising a $557 million tax charge and $362 million of interest expense before tax. The company continued to contest the tax issue.
- Under a hypothetical sustained low-rate scenario, management estimated operating earnings would be reduced by approximately $65 million in 2016, $210 million in 2017 and $375 million in 2018, before the effects of the proposed Separation.
- Key risks include interest-rate, credit, equity and currency movements; variable-annuity guarantees and hedge effectiveness; policyholder behavior and reserve assumptions; catastrophe and claims experience; investment impairments and mortgage-loan credit; reinsurer and derivative-counterparty performance; and access to liquidity and collateral.
- MetLife was designated a non-bank SIFI and challenged the designation in court; enhanced capital requirements remained uncertain. It was also designated a global systemically important insurer. Regulatory limits on subsidiary dividends may constrain holding-company cash and shareholder distributions.
- Litigation and regulatory matters include asbestos claims, unclaimed-property disputes, sales-practice inquiries and a FINRA variable-annuity investigation. The company estimated reasonably possible losses above accruals of $0–$460 million for matters where it could estimate a range; some matters could not be quantified. It reported no material adverse findings from state insurance examinations during 2013–2015.
Investor verification priorities
- Confirm the composition and cash-flow impact of the $792 million after-tax tax-position charge, and track the IRS dispute and any further assessments or refunds.
- Review the reconciliation of GAAP net income to operating earnings, including variable-annuity derivative marks, annual assumption changes and non-GAAP adjustments.
- Assess the proposed Separation’s final perimeter, transaction form, capital allocation, regulatory approvals and implications for ratings and SIFI status.
- Verify statutory capital, RBC calculations, dividend capacity at insurance subsidiaries, and the effect of the $1.5 billion capital contribution to MetLife USA paid in February 2016.
- Monitor liquidity and collateral demands, securities-lending exposures, debt maturities and the sustainability of dividends and repurchases.
- Review developments in asbestos, unclaimed-property, sales-practice, mortgage-related and other legal matters, including losses not currently estimable.