METLIFE INC quarterly report, Q2 FY2021

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MetLife, Inc. — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021. MetLife provides insurance, annuities, employee benefits and asset management across U.S., Asia, Latin America, EMEA and MetLife Holdings, with results also reported in Corporate & Other. Figures below are in U.S. dollars; financial statements are unaudited.

Financial performance and condition

  • Q2 revenue and earnings: Total revenue was $18.5 billion, up from $14.1 billion a year earlier. Net income attributable to MetLife common shareholders was $3.37 billion ($3.83 diluted EPS), versus $68 million ($0.07 diluted EPS). Results included substantial investment and derivative gains and the completed sale of MetLife P&C; the year-over-year comparison was also affected by volatile prior-year results.
  • First-half results: Revenue was $34.1 billion versus $32.4 billion. Net income available to common shareholders was $3.66 billion ($4.13 diluted EPS), down from $4.43 billion ($4.84 diluted EPS), chiefly reflecting a $5.3 billion unfavorable year-over-year change in net derivative gains and losses, partly offset by higher adjusted earnings and investment gains.
  • Underlying measure: Adjusted earnings available to common shareholders, a non-GAAP measure, increased to $2.09 billion in Q2 from $758 million, and to $4.05 billion for the first half from $2.21 billion. Management attributed improvement mainly to higher investment yields, private-equity returns and release of a legal reserve. COVID-19-related underwriting experience and the P&C disposition were offsets.
  • Revenue mix and expenses: First-half premiums were $19.46 billion (up from $18.20 billion), net investment income $10.59 billion (up from $7.15 billion), net investment gains $1.74 billion (versus a $57 million loss), and net derivative losses $1.81 billion (versus gains of $3.49 billion). First-half total expenses were $29.31 billion, up from $26.57 billion. The filing does not provide a single directly comparable operating margin; GAAP results include significant market-sensitive items.
  • Cash flow: First-half operating cash flow was $3.75 billion, compared with $2.69 billion. Investing activities used $45 million, versus $9.73 billion used in the prior-year period; financing activities provided $1.07 billion, versus $14.84 billion. Cash and cash equivalents were $25.04 billion at June 30, up from $19.80 billion at year-end.
  • Liquidity and debt: Management reported $13.4 billion of short-term liquidity and $226.6 billion of liquid assets at June 30. Long-term debt was $14.52 billion, short-term debt $393 million, junior subordinated debt $3.15 billion and collateral financing arrangements $818 million. MetLife said it was in compliance with applicable financial covenants.
  • Equity and investments: Total equity was $69.4 billion, down from $74.8 billion at year-end; MetLife stockholders’ equity was $69.1 billion. Fixed-maturity securities were $340.7 billion and mortgage loans were $81.5 billion. 94.9% of fixed-maturity securities were investment grade. Net unrealized investment gains attributable to MetLife fell to $18.6 billion from $23.7 billion, primarily reflecting market-value changes.

Material changes and notable items

  • MetLife completed the sale of MetLife P&C in April for $3.9 billion cash and recorded a $1.4 billion pretax gain ($1.1 billion after tax). Management said the disposition reduced adjusted earnings by $83 million in Q2 and $192 million in the first half.
  • In July, MetLife agreed to sell its Poland and Greece subsidiaries for $738 million total consideration, including an expected $43 million pre-closing dividend. The pending sale generated a $190 million after-tax loss in Q2 and the first half; closing was expected in the first half of 2022, subject to approvals and other conditions.
  • Q2 net investment gains included $1.16 billion of non-investment portfolio gains, principally reflecting the P&C sale. Investment gains also included gains on real estate sales; the Poland and Greece loss partly offset these items.
  • MetLife repurchased $2.1 billion of common stock in the first half and redeemed $500 million of Series C preferred stock. On August 4, the Board authorized an additional $3.0 billion of common-stock repurchases.
  • After quarter-end, MetLife redeemed $500 million of 3.048% senior notes due 2022, recording a $17 million premium expense.

Outlook, commentary and risks

  • Management expected the direct expense ratio, excluding specified notable direct-expense items and pension risk transfers, to be below 12.3% for full-year 2021 and 2022. The filing reported no other material change to the previously disclosed consolidated outlook.
  • Management cited higher private-equity returns and lower interest-crediting costs as favorable factors, while fixed-income yields remained lower. It reported unfavorable underwriting, including COVID-19-related mortality and claims, with impacts varying by segment. MetLife Holdings’ adjusted revenues were expected to decline about 5%–7% annually from run-off.
  • The company continued customer accommodations and certain mortgage-loan payment deferrals. It noted continuing uncertainty around the pandemic, global markets, interest rates, credit and real-estate conditions, foreign exchange, derivatives, investment valuations, policyholder behavior and claims assumptions.
  • Mortgage-loan concessions remained in place for certain borrowers, especially in retail and hotels; deferred payments at June 30 included $30 million commercial, $4 million agricultural and $34 million residential. Management reported that 99% of mortgage loans were performing, and that 100% of commercial mortgage loans were current excluding loans with pandemic-related deferrals.
  • Legal and regulatory matters include asbestos claims, group-annuity and variable-annuity reserve-related inquiries and litigation, and other proceedings. MetLife estimated reasonably possible losses in excess of accruals of $0–$175 million for matters where a range could be estimated; it could not estimate loss ranges for certain other matters. It cautioned that adverse outcomes could materially affect quarterly or annual income or cash flow.
  • MetLife expects adoption of long-duration insurance-contract accounting guidance in 2023 to have a material impact on its financial statements. Management reported disclosure controls were effective and no material quarterly change to internal control over financial reporting; the filing said there were no material changes to previously disclosed risk factors.

Important facts for investors to verify

  • How much of Q2 and first-half GAAP earnings and adjusted-earnings growth is recurring versus attributable to the P&C sale, market movements, private-equity returns and the legal-reserve release.
  • The drivers and sensitivity of derivative results, including non-hedge-accounting volatility and variable-annuity guarantee assumptions.
  • COVID-19 mortality and claims trends by segment, and whether mortgage deferrals or investment-credit conditions lead to higher credit losses.
  • Completion timing and final proceeds, taxes and financial impact of the Poland and Greece disposition.
  • Capital and liquidity available after repurchases and dividends, including regulatory limits on subsidiary dividends; also monitor execution of the new $3.0 billion repurchase authorization.
  • Developments in reserve-related investigations and litigation, asbestos exposure, and implementation costs and effects of the 2023 long-duration-contract accounting standard.