MetLife Seals Taiwan Deal

The Wall Street Journal has reported that MetLife Inc. (MET - Analyst Report) has finally been able to vend its Taiwan life insurance unit to Chinatrust Financial Holdings Co. for about $180 million. This is the second desperate attempt of the company to move out of Taiwan given the limited scope for growth in the region.

Previously, in April 2010, the company had almost sealed a deal with Waterland Financial Holdings Co., a tiny financial firm in Taiwan, who had agreed to purchase it for about $112 million. However, the deal did not culminate since the regulatory authorities in Taiwan were skeptical about the financial health of Waterland.

Furthermore, in January 2010, Taiwan Life Insurance Co. offered $122 million to buy MetLife’s insurance wing in Taiwan. However, the deal failed to materialize due to some undisclosed issues. MetLife is taking this step to strategize its investments, which in turn would help the company shore up growth in the long run.

MetLife had entered the Taiwanese market in 1988 and has 400,000 clients there. However, management of MetLife has been considering exiting Taiwan since last year when the global economic breakdown created an unprofitable investment environment and financial losses in the Taiwan unit.

Additionally, MetLife faced other operating challenges in Taiwan that include amendments in International Accountancy Standards, cues of tightening monetary policies following China and other regulations where foreign insurers have been debarred from investing in government bonds.

Moreover, MetLife is not the first foreign investment company to exit Taiwan. In 2009, London-based Prudential plc (PUK - Snapshot Report) along with Dutch companies like the ING Group NV (ING - Snapshot Report) and Aegon NV (AEG - Snapshot Report) are known to have pulled out their businesses from Taiwan.

Further, in January this year, American International Group Inc. (AIG - Analyst Report) also vended off its Nan Shan Life Insurance Co. in Taiwan, to Ruen Chen conglomerate, for a cash deal of $2.16 billion. Even AIG managed to sell the unit at its second attempt, long after its decision in October 2009 and after having faced several stumbling blocks in the process. 

Overall, MetLife is on a development and restructuring mode to keep pace with the economic volatility. While the company is set to wind up its operations in Taiwan, it acquired American Life Insurance Co. (ALICO) from AIG in November last year.

The addition of the global life insurer, ALICO, is expected to diversify the company’s income sources while also mitigating the risks arising from other core operations of MetLife in the US, primarily the auto and home segment. This is reflected by management’s assumption of a 30% growth in premiums, fees and other revenues, in the range of $45.8–$47.0 billion, in 2011.

Moreover, this growth momentum is also expected to contribute to the return on equity, which is estimated to be about 11% for 2011. MetLife has also increased its investment portfolio by about 25% with the inclusion of ALICO.

However, the macro risks related to the low interest rate environment and a deflation scenario in Japan, along with the recent catastrophes, coupled with sluggish recovery in the US and Japan are likely to remain on the surface throughout 2011.

Amid these weak factors, MetLife believes that the latest ALICO transaction is poised to boost MetLife fundamentally by contributing to its international operating earnings including international life and international accident and health.

While we think MetLife should continue to benefit from its diversified business mix as well as its leading brand, losses in the investment portfolio are likely to impact the results in the upcoming quarters.

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