Yesterday, rating agency A.M. Best asserted the credit and financial strength ratings (FSR) of MetLife Inc. (MET - Analyst Report) and its subsidiaries, while maintaining a stable outlook over all. This reflects the company’s favorable operating mix and balance sheet amid the low interest rate environment.
Accordingly, A.M. Best affirmed MetLife’s debt ratings along with the issuer credit rating (ICR) of “a-,” while its life and health insurance subsidiaries’ ICR and FSR have been avowed at “aa-” and “A+,” respectively.
The ratings agency validates MetLife’s strong brand name in the global insurance industry, which is based on its attractive product portfolio and disciplined underwriting approach. The company has an extensive basket of products that suits the consumers’ needs in the current economic position.
Alongside, MetLife remains healthily diversified with an expansive scale of distribution across the globe. Additionally, the ALICO acquisition from American International Group Inc. (AIG - Analyst Report) in November 2010 has strengthened its position in the rapidly growing and opportunity-generating regions of Asia-Pacific.
Moreover, the company’s ability to hedge and de-risk its investments has helped it diminish the risks related to its investment portfolio, particularly in the ongoing low interest rate environment. MetLife now focuses on less capital intensive and market sensitive products, which have been reducing its earnings volatility. Meanwhile, the company has restricted its expansion into variable annuity business in order to minimize its exposure to volatility from interest rates and equity markets.
As well, the company’s improved financial leverage and capitalization reflect its strong liquidity and ability to eliminate debt from time to time, without seeking help from the capital market. However, A.M. Best also elucidated the factors that cause severe risk to MetLife’s operating and financial leverage. These include the company’s higher underwriting expenses, catastrophe losses, competitive pressure and its inability to hike dividends and deploy capital efficiently, in order to retain the shareholders’ confidence.
MetLife has come a long way since the recent recession and we believe that the company is poised to pace up its growth as the economy rebounds in the intermediate term. If the refurbished capital plan, which scheduled to be submitted by early January 2013, gets approval from the Federal Reserve, MetLife will be able to deploy excess capital.
However, a rejection in the future could gravely raise the risk of rating downgrades. Hence, we maintain a Neutral recommendation on the stock with a Zacks Rank #3, which implies a short-term Hold rating.