MetLife, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone Q4 filing; quarterly figures below are unaudited. Dollar amounts are U.S. dollars.
Business context and reporting period
MetLife is a global insurer and provider of annuities and employee benefits, serving approximately 90 million customers in more than 50 countries. Its businesses span U.S. insurance, retirement and benefit funding, auto and home insurance, and international operations. 2011 included a full year of ALICO results, compared with only one month in 2010, an important factor in year-over-year growth.
The company announced a planned reorganization into Americas, EMEA and Asia regions and a global employee benefits business. It also agreed to sell most of MetLife Bank’s depository business and its Caribbean, Panama and Costa Rica insurance operations; both sales were pending at year-end.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| GAAP total revenue | $70.3 billion | $52.3 billion |
| Income from continuing operations, after tax | $7.0 billion | $2.7 billion |
| Net income attributable to MetLife | $7.0 billion | $2.8 billion |
| Net income available to common shareholders | $6.7 billion | $2.7 billion |
| Diluted EPS | $6.29 | $3.00 |
| Operating earnings, non-GAAP | $5.5 billion | $4.0 billion |
| Operating earnings available to common shareholders, non-GAAP | $5.4 billion | $3.8 billion |
| Net cash from operating activities | $10.3 billion | $8.0 billion |
| Net investment income | $19.6 billion | $17.5 billion |
GAAP revenue rose 34% and operating earnings rose 39%. Management attributed most of the operating earnings increase to the ALICO acquisition, with portfolio growth and sales also contributing. GAAP results were particularly affected by derivative movements: net derivative gains were $4.8 billion, versus losses of $265 million in 2010; net investment losses were $867 million.
Net cash used in investing activities was $22.2 billion and net cash from financing activities was $9.4 billion. Cash and cash equivalents decreased $2.6 billion to $10.5 billion. The company reported a $16.2 billion short-term liquidity position and $258.9 billion of liquid assets under its broader definition. Total assets were $799.6 billion and total equity was $60.2 billion.
At year-end, the balance sheet showed $23.7 billion of long-term debt and $686 million of short-term debt, plus $4.6 billion of collateral financing arrangements and $3.2 billion of junior subordinated debt. General account investments were approximately $522 billion; net investment yield declined to 4.88% from 5.37%. The common dividend was $0.74 per share for the year. Common equity was diluted by acquisition-related share issuances; settlement of the $3.0 billion equity units is expected to issue approximately 67.8 million to 84.7 million additional shares over three dates beginning in 2012.
Q4 and material changes
In Q4 2011, unaudited total revenue was $16.7 billion and net income was $1.2 billion, versus $12.7 billion and $85 million, respectively, in Q4 2010. Net income available to common shareholders was $1.125 billion versus $51 million; diluted EPS was $1.06 versus $0.05. The substantial quarterly earnings variation should be read alongside the large, market-sensitive derivative gains and losses.
Segment operating earnings increased in Insurance Products to $1.5 billion from $1.3 billion, Corporate Benefit Funding to $1.1 billion from $920 million, Japan to $1.2 billion from $94 million, and Other International Regions to $1.0 billion from $686 million. Retirement Products declined to $733 million from $803 million; Auto & Home fell to $104 million from $300 million, principally due to catastrophe claims. These comparisons are affected by ALICO’s partial-year inclusion in 2010.
Outlook, commentary, risks and unusual items
- Outlook: Management expected a solid improvement in 2012 operating earnings over 2011, citing premium and fee growth, disciplined underwriting, expense control, ALICO integration and continued asset-liability management. It expected strong variable annuity flows to support separate-account fees, while acknowledging catastrophe risk and low-rate investment pressure.
- Accounting change: Adoption of revised DAC guidance in Q1 2012 was expected to reduce DAC by $3.1–$3.6 billion and equity by $2.1–$2.4 billion, net of tax, retrospectively. Management expected a negative 2012 operating earnings effect, principally in Japan, but no ongoing cash-flow impact.
- Bank exit and dispositions: 2011 included $212 million of after-tax charges related to MetLife Bank events; management expected another $90–$110 million after-tax in 2012 for the forward mortgage origination exit, with no expected effect on operating earnings. The company continued reverse mortgage origination and servicing at the time of the filing.
- Claims and other items: The company recorded a $117 million after-tax reserve charge related to use of the Social Security Death Master File, $40 million of after-tax ELNY-related expense, and $39 million of incremental Japan earthquake and tsunami claims and operating expenses. Severe U.S. weather increased Auto & Home catastrophe losses by $187 million versus 2010; its combined ratio including catastrophes rose to 104.9% from 94.6%.
- Investments and guarantees: 2011 included $405 million of impairment charges on Greek sovereign debt; total recognized fixed-maturity and equity OTTI was approximately $1.0 billion. Variable annuity guarantees remain sensitive to equity markets, interest rates, volatility, policyholder behavior and counterparty performance. The company reported $5.8 billion of gross unrealized losses on available-for-sale fixed-maturity and equity securities.
- Capital and regulation: MetLife reported a 10.25% total risk-based capital ratio and a 9.98% Tier 1 ratio at the holding-company level. The Federal Reserve did not approve proposed 2011 capital actions, including a dividend increase; MetLife submitted a 2012 capital plan, with the assessment pending. Planned bank-holding-company deregistration depended on completing the bank exit and remained subject to possible FSOC designation as a non-bank systemically important institution.
- Contingencies: The filing estimates reasonably possible litigation losses in excess of accruals at approximately $0–$200 million for matters where an estimate could be made, but says some matters, including asbestos and mortgage-servicing inquiries, cannot be reliably estimated. Further losses or costs may be material in particular periods.
Important facts for investors to verify
- Separate recurring operating earnings from GAAP earnings, especially the impact of derivative and nonperformance-risk valuation changes.
- Confirm the timing, proceeds, approvals and final charges associated with the MetLife Bank and Caribbean Business exits.
- Track 2012 operating performance against management’s outlook, including variable annuity flows, investment yield, catastrophe claims and ALICO integration costs.
- Review the realized and unrealized investment loss profile, sovereign exposures, valuation assumptions and variable annuity guarantee hedging effectiveness.
- Monitor the DAC accounting transition, capital-plan approval, dividend and repurchase constraints, and developments in Death Master File, asbestos and mortgage-servicing matters.