MetLife, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. MetLife provides insurance, annuities, employee benefits and asset management through U.S., Asia, Latin America, EMEA and MetLife Holdings segments.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $15.562 billion | $18.310 billion |
| Net income | $363 million | $4.401 billion |
| Net income attributable to MetLife common shareholders | $290 million; $0.33 diluted EPS | $4.366 billion; $4.75 diluted EPS |
| Adjusted earnings available to common shareholders (non-GAAP) | $1.965 billion | $1.449 billion; up $516 million |
| Net cash from operating activities | $1.496 billion | $1.847 billion |
| Total assets / total equity at quarter-end | $769.8 billion / $66.1 billion | December 31, 2020: $795.1 billion / $74.8 billion |
| Cash and cash equivalents at quarter-end | $19.6 billion | $19.8 billion at December 31, 2020 |
GAAP revenue fell despite higher premiums ($10.327 billion versus $9.466 billion) and net investment income ($5.314 billion versus $3.061 billion), principally because net derivative results swung to a $2.235 billion loss from a $4.201 billion gain. The filing attributes much of the year-over-year earnings volatility to changing interest rates and equity markets, with certain non-qualifying hedges recognized in earnings without an offsetting change in the hedged items. Adjusted earnings, a non-GAAP measure, increased on stronger investment returns and lower interest credited expenses, partly offset by unfavorable underwriting and the P&C disposition.
At March 31, long-term debt was $14.509 billion, short-term debt $302 million, junior subordinated debt $3.153 billion and the collateral financing arrangement $833 million. MetLife reported $10.3 billion of short-term liquidity and $219.6 billion of liquid assets, excluding pledged or otherwise committed assets. The $3.0 billion unsecured revolving credit facility had no borrowings and $2.5 billion remaining availability; the company said it was in compliance with applicable financial covenants.
Common stock repurchases were $999 million and common dividends were $408 million during the quarter. The quarterly common dividend declared was $0.46 per share. AOCI declined to $10.397 billion from $18.072 billion, principally reflecting market-related unrealized investment and derivative losses. The filing does not provide a single operating-margin measure as a key reported metric.
Material changes and segment results
- Adjusted earnings available to common shareholders rose by $516 million year over year. Management cited stronger private-equity returns, higher net investment income from a larger asset base, lower interest credited expenses, and lower corporate-related expenses. Unfavorable underwriting reduced adjusted earnings by $268 million.
- Segment adjusted earnings were: U.S. $784 million versus $780 million; Asia $623 million versus $350 million; Latin America $40 million versus $95 million; EMEA $71 million versus $78 million; MetLife Holdings $618 million versus $277 million; and Corporate & Other a loss of $103 million versus a loss of $99 million. These are segment/non-GAAP measures.
- U.S. Group Benefits experienced higher COVID-19 and other life claims; the filing reports a $302 million adjusted-earnings decrease from unfavorable mortality there. Latin America adjusted earnings were pressured by COVID-19-related life claims, primarily in Mexico, and lower Chilean annuitizations.
- MetLife completed the sale of MetLife P&C in April 2021 for $3.9 billion cash. It expected to recognize an approximately $1 billion after-tax gain in Q2, subject to closing adjustments. The disposition reduced Q1 adjusted earnings by $109 million. The company also completed the sale of its Russian subsidiary in January 2021.
Outlook, risks and unusual items
- Management said the COVID-19 pandemic continued to affect claims, business activity and global equity, credit and real-estate markets. It described business continuity and customer-service operations as maintained, while noting uncertainty about the pandemic’s duration and economic effects.
- MetLife Holdings adjusted premiums, fees and other revenues are expected to decline approximately 5%–7% annually from expected run-off. The filing provides no broad company earnings guidance.
- Management expects continued sensitivity to interest rates, credit spreads, equity markets, foreign exchange, investment credit performance, policyholder behavior and derivative valuations. Sustained low rates may affect investment returns and insurance liabilities. LIBOR transition and regulatory, litigation, cyber, climate, catastrophe and competitive risks are also discussed.
- Mortgage and lease concessions related to COVID-19 continued, though management said the pace of mortgage concessions had slowed from 2020. Deferred mortgage payments at March 31 included $55 million commercial, $9 million agricultural and $34 million residential. The company reported 99% of its mortgage loans as performing.
- Litigation loss estimates in excess of accrued amounts were $0–$175 million for matters where a range could be estimated; other matters, including asbestos claims, could not be reliably quantified. Management said adverse outcomes could materially affect particular quarters or years. A nationwide class settlement in a securities case was approved on April 14, 2021; the full settlement amount had been accrued.
- MetLife expects adoption of the long-duration insurance accounting standard on January 1, 2023 to have a material impact on its financial statements; implementation and impact assessment were ongoing.
Important facts for investors to verify
- Reconcile the sharp GAAP earnings decline against adjusted earnings growth, especially the derivative losses, hedge offsets and the non-GAAP adjustments.
- Track the timing and final after-tax proceeds/gain from the completed MetLife P&C sale, including closing adjustments and the related strategic partnership.
- Monitor COVID-19 mortality and morbidity experience, mortgage concessions and credit-loss allowances, and the performance of stressed investment sectors.
- Assess the effect of interest rates and market movements on AOCI, capital, derivative collateral needs, variable-annuity guarantees and future investment income.
- Review litigation and regulatory developments, including asbestos claims, reserve-estimation matters, and the disclosed reasonably possible loss range.
- Confirm liquidity and capital capacity alongside planned repurchases, dividends, subsidiary dividend restrictions and the expected material accounting-standard transition.