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The recent announcement of the relaxation of capital measures for insurers in the U.S. has boosted the share price of MetLife Inc. (MET - Analyst Report). The stock hit a new 52-week high at $54.93 on Jun 4. This global multi-line insurer’s shares rose about 5.4% since the company reported its first-quarter 2014 results at the end of Apr 2014.

The improved momentum of this Zacks Rank #3 (Hold) stock was driven by disciplined expense management along with a strong focus on streamlining operations. The latest five-year credit agreement further boosts liquidity.

Yesterday’s closing price represents a strong one-year return of about 23.9%, against 18.2% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 6,333.4K.

Earnings Review

On Apr 30, MetLife reported first-quarter 2014 operating earnings per share of $1.37, underperforming both the Zacks Consensus Estimate and the year-ago number by 2.1% and 6.8%, respectively. Operating earnings fell 4% year over year to $1.56 billion. However, MetLife delivered positive earnings surprises in 2 of the last 4 quarters with an average beat of 2.5%.

Results reflected growth across the Americas, Asia and EMEA (Europe Middle East Africa),  higher investment income, expense control and derivative gains, leading to improved book value per share and dividend hike. These were partially offset by declined return on equity (ROE) and higher legal costs.

Rationale

The U.S. Senate has passed a unanimous bill to ease a provision in the Dodd-Frank Act, which will now simplify capital rules for systemically important financial institutions (SIFI) insurers. This also differentiates these insurance companies from the stricter capital compliances of traditional banks, thereby aiming to build a safe financial system. Subsequently, MetLife entered into five-year credit agreement worth $4 billion, which can be expanded up to $5 billion.

Overall, MetLife’s long-term growth outlook appears reasonable amid the regulatory challenges and market risks. The company’s capital position also remains one of the sturdiest in the industry, and is cushioned by a diversified portfolio mix and a leading brand. Going forward, the company’s efforts to enhance operating leverage and shareholder return should impress the ratings agencies and investors.

Some better-ranked insurers that warrant a look include OneBeacon Insurance Group Ltd. (OB - Snapshot Report), Old Republic International Corp. (ORI - Snapshot Report) and Hallmark Financial Services Inc. (HALL - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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