MetLife, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are with December 31, 2015. MetLife is a global life insurance, annuities, employee benefits and asset management company. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $18,433 | $18,710 |
| Net income attributable to MetLife | $2,201 | $2,158 |
| Net income available to common shareholders | $2,195 | $2,128 |
| Diluted EPS | $1.98 | $1.87 |
| Operating earnings | $1,335 | $1,668 |
| Operating earnings available to common shareholders | $1,329 | $1,638 |
| Net cash from operating activities | $1,964 | $2,686 |
| Total assets | $917,428 | $877,933 |
| Total liabilities | $841,463 | $809,437 |
| Total equity | $75,965 | $68,419 |
- Revenue included premiums of $9.693 billion, net investment income of $4.559 billion, net investment gains of $15 million and net derivative gains of $1.335 billion.
- Cash flow: investing activities used $5.739 billion and financing activities provided $4.240 billion; cash and cash equivalents ended at $13.290 billion, up $538 million during the quarter.
- Balance-sheet debt-related amounts included $100 million of short-term debt, $17.915 billion of long-term debt, $4.127 billion of collateral financing arrangements and $3.168 billion of junior subordinated debt securities.
- Management reported short-term liquidity of $11.7 billion and liquid assets of $239.1 billion at March 31. These measures exclude specified pledged or otherwise committed assets.
Changes from the prior comparable period
- Revenue declined about 1.5%, while net income attributable to MetLife rose about 2.0%; diluted EPS increased from $1.87 to $1.98.
- Operating earnings available to common shareholders fell $309 million, about 19%, primarily due to lower investment yields. Management cited a $410 million adverse impact from market factors, partly offset by $168 million of benefit from business growth.
- Net investment income fell $902 million, while net derivative gains increased $514 million. Management attributed the derivative improvement mainly to interest-rate movements and a favorable change in the nonperformance-risk adjustment on embedded derivatives; such gains can be volatile and do not necessarily reflect underlying operating performance.
- Investment impairments on fixed maturity and equity securities rose to $129 million from $18 million, including $51 million of equity-security impairments. Net cash from operations decreased $722 million.
- Comprehensive income increased to $8.388 billion from $3.101 billion, reflecting a substantial increase in other comprehensive income; accumulated other comprehensive income was $10.865 billion at quarter-end versus $4.771 billion at year-end.
Outlook, commentary and significant items
- Management expected 2016 operating return on common stockholders’ equity, excluding AOCI other than foreign currency translation adjustments, to be approximately 11%. It said it could not expand its outlook until there was more clarity on the proposed business separation.
- MetLife announced plans to separate a substantial portion of its U.S. Retail business and certain portions of Corporate Benefit Funding and Corporate & Other; alternatives under evaluation included an IPO, spin-off or sale. No final form or completion was assured.
- Under a February 28 agreement, MassMutual would acquire MetLife’s U.S. Retail advisor force and related assets, including MetLife Securities, for approximately $300 million, subject to customary adjustments and closing conditions including regulatory approval. MetLife recorded related software and employee-benefit charges.
- A change in India’s foreign investment law led MetLife to deconsolidate its India operating joint venture effective January 1, 2016. MetLife also moved Japan operations to calendar-year reporting without retrospective application; the filing says this change was not material to consolidated statements, but it affects comparability.
- The D.C. District Court rescinded MetLife’s non-bank SIFI designation on March 30, 2016; FSOC appealed on April 8. MetLife remained designated a global systemically important insurer, with related capital standards still developing.
- Other risks include sustained low interest rates and weaker investment yields, equity and currency volatility, variable-annuity guarantees, credit and real-estate exposures, reinsurance and counterparty performance, liquidity needs, and regulatory changes. Management noted overall sales declined year over year despite growth in selected products.
- For specified litigation matters, the estimated aggregate reasonably possible loss in excess of accruals was $0–$475 million; additional matters could not be estimated. Management said adverse outcomes could affect particular quarterly or annual results. The filing also cites asbestos claims, sales-practices matters and other litigation.
- MetLife had no remaining common-stock repurchase authorization at March 31. The board declared a second-quarter dividend of $0.40 per share after quarter-end, compared with $0.375 per share declared for Q1.
Key facts for investors to verify
- Whether reported GAAP earnings are being interpreted separately from operating earnings, and how derivative and embedded-derivative movements affected each measure.
- Progress, terms, regulatory approvals and financial effects of the proposed separation and the MassMutual transaction.
- Whether the 2016 operating ROE outlook remains achievable given low yields, foreign-exchange movements, sales trends and the pending restructuring.
- Developments in the FSOC appeal and G-SII capital requirements, and any resulting effects on capital distributions or product competitiveness.
- Changes in investment impairments, mortgage-loan credit quality, securities-lending liquidity exposure, and estimated legal and asbestos liabilities.