MetLife, Inc. — 2019 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2019, filed February 20, 2020. MetLife provides insurance, annuities, employee benefits and asset management across the U.S. and international markets. Its reporting segments are U.S., Asia, Latin America, EMEA and MetLife Holdings, with results also reported for Corporate & Other. This is an annual filing, not a standalone fourth-quarter report.
Key financial metrics
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total revenue | $69.6 billion | $67.9 billion | Up 2.5% |
| Net income | $5.9 billion | $5.1 billion | Up $781 million |
| Net income available to common shareholders | $5.7 billion | $5.0 billion | Up $739 million |
| Diluted EPS | $6.06 | $4.91 | Up 23% |
| Adjusted earnings available to common shareholders | $5.8 billion | $5.5 billion | Up $306 million, or about 6%; non-GAAP measure |
| Net cash from operating activities | $13.8 billion | $11.7 billion | Up $2.0 billion |
| Free cash flow, all holding companies | $4.9 billion | $3.4 billion | Free-cash-flow ratio was 86% vs. 62%; non-GAAP measure |
| Total assets | $740.5 billion | $687.5 billion | Separate account assets included |
| MetLife stockholders’ equity | $66.1 billion | $52.7 billion | AOCI rose to $13.1 billion from $1.7 billion |
| Short-term liquidity | $9.8 billion | $11.1 billion | Excludes pledged or otherwise committed assets |
Net investment income increased to $18.9 billion from $16.2 billion. Premiums declined to $42.2 billion from $43.8 billion, while interest credited to policyholder account balances rose to $6.5 billion from $4.0 billion. Net investment gains were $444 million versus a $298 million loss; net derivative gains fell to $628 million from $851 million. The 2019 effective tax rate was 13%, compared with 19% in 2018.
Debt categories on the balance sheet totaled approximately $17.8 billion at year-end 2019, versus $17.3 billion in 2018, comprising short- and long-term debt, a collateral financing arrangement and junior subordinated debt. Cash and cash equivalents were $16.6 billion. Management reported $221.4 billion of liquid assets across the company and $4.2 billion at holding companies.
Material changes versus 2018
- Adjusted earnings improved, primarily from certain tax settlements and higher net investment income associated with portfolio growth. Higher interest-crediting expense, unfavorable underwriting and the annual actuarial assumption review partly offset the gains.
- Overall sales increased: stronger U.S. Group Benefits, Latin America and EMEA sales more than offset lower Asia sales, particularly in Japan. U.S. pension risk-transfer sales were lower than in 2018, which included a large transaction.
- GAAP results benefited from a $742 million favorable year-over-year change in net investment gains, including 2018 losses on retained Brighthouse shares and higher 2019 gains on fixed-maturity security sales. Derivative gains were $223 million lower.
- Common dividends declared rose to $1.74 per share from $1.66. MetLife repurchased $2.3 billion of shares in 2019, compared with $4.0 billion in 2018; $985 million remained under the July 2019 authorization at year-end.
Outlook, commentary, risks and unusual items
- Strategy and targets: MetLife’s Next Horizon strategy emphasizes Focus (free cash flow and capital deployment), Simplify (efficiency and customer experience) and Differentiate (brand, scale, talent and innovation). Management projected 12%–14% adjusted return on equity, excluding most AOCI, over the near term, and a 65%–75% free-cash-flow-to-adjusted-earnings ratio for 2020–2021, assuming a 10-year Treasury yield between 1.5% and 4.5%.
- Capital deployment: Management expected approximately $20 billion of free cash flow over five years and aimed to maintain $3 billion–$4 billion of liquid assets at holding companies. It projected about $900 million of pre-tax expense-margin expansion in 2020 following completion of unit-cost restructuring charges in 2019, and planned more than $1 billion of incremental technology and innovation investment over five years.
- Notable items: 2019 adjusted earnings included a $317 million tax benefit tied to the deemed-repatriation transition tax resolution, a $222 million benefit from an IRS audit settlement, $332 million of after-tax unit-cost initiative expenses, a $143 million after-tax actuarial-review charge and a $17 million after-tax increase in long-term-care IBNR reserves. Management cautions that adjusted earnings and free cash flow are non-GAAP measures.
- Portfolio and interest-rate exposure: Prolonged low rates may compress investment spreads, increase liabilities and pressure earnings; market, credit, equity, currency and real-estate movements can also affect results and liquidity. The filing’s hypothetical low-rate scenario estimated a cumulative $275 million unfavorable adjusted-earnings impact over 2020–2022, alongside volatile derivative effects.
- Long-term care and guarantees: Future policy benefits for long-term-care business were $12.5 billion. Variable-annuity guarantees, reserve assumptions, policyholder behavior and hedging effectiveness remain significant sources of earnings and capital variability.
- Transactions and contingencies: MetLife agreed to sell MetLife Hong Kong; the transaction was pending at year-end, with a $140 million after-tax loss recorded and closing expected in 2020 subject to approvals. The filing estimates $0–$250 million of reasonably possible litigation losses above accruals for matters where a range could be estimated; other matters, including asbestos claims, could not be estimated reliably. The recorded asbestos liability was $457 million. A New York regulatory consent order resulted in a $19.75 million fine and $1.5 million of customer restitution.
- Controls and audit: Deloitte gave unqualified opinions on the financial statements and internal control over financial reporting as of December 31, 2019. The filing describes material weaknesses identified in 2018 involving certain group annuity and assumed variable-annuity reserves; investors should review the remediation and related legal and regulatory disclosures.
Important facts for investors to verify
- Separate sustainable operating earnings from tax benefits, investment gains and other notable items; review the company’s adjusted-earnings reconciliations.
- Assess the quality and sensitivity of long-term-care, group-annuity and variable-annuity reserves, including the assumptions and hedges supporting them.
- Confirm the status and financial impact of the MetLife Hong Kong sale and monitor any required approvals or changes to reported results.
- Review holding-company liquidity, subsidiary dividend capacity, capital ratios and the constraints on future dividends and share repurchases.
- Track litigation, unclaimed-property investigations and the remediation of previously reported reserve-control weaknesses.