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Will MetLife's Growth Be Affected by Pending SIFI Status?

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On Jan 3, 2017, we issued an updated research report on MetLife Inc (MET - Free Report) .

Over the last one year, shares of MetLife have gained 11.8% compared with Zacks categorized Multi Line Insurance industry’s gain of 11.2%. MetLife seems to have slightly outperformed its peers on the back of its consistent inorganic growth, intelligent expenses management programs and risk mitigating practices with the help of diversified business mix.

However, the company’s operation is challenged by a number of headwinds like exposure to foreign exchange volatility, regulatory hurdles and intense competition.

MetLife is witnessing high level of regulatory uncertainty stemming from its SIFI Status. The SIFI designation, if imposed, might put MetLife under the Federal Reserves supervision once again. The stringent capital rules are also likely to  tighten the company’s operational and financial flexibility.

The persistently soft interest rate environment has been limiting MetLife’s investment income growth during last few quarters. For the first nine months of 2016, the metric declined year over year, primarily due to weak hedge fund performance. Management expects that 2016 full-year variable investment income is likely to fall below the lower end of the company guided range of $1.2 billion.

Notably, the Federal Reserve has recently increased the interest rates in Dec, 2016 and with other insurance companies like Alleghany Corporation , First American Financial Corporation (FAF - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) , to name a few, MetLife is also likely to witness increasing investment income.

MetLife’s operations outside the U.S, in the regions of Asia, Middle East and Africa are severely exposed to varying foreign exchange rates that leave significant negative impact on the company’s operating earnings.

Nevertheless, the company’s solid efforts in making strategic acquisitions, mergers, alliances and divestures in order to boost growth in Asia, Europe, the Middle East, Africa and Latin America, have substantially supported its underwriting results. Management estimates that these emerging economies are likely to contribute about 20% to MetLife’s earnings by 2016.

MetLife’s commendable cost management also might have impressed its shareholders. By the end of 2019, it targets to achieve pre-tax run rate expense savings of $1 billion. The investors are likely have favored this stock also on the basis of its strong fundamentals that have supported MetLife to enhance shareholders’ value through frequent share repurchases and regular payment of dividends.

MetLife presently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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