Breaking News

MetLife Suffers Due To Low Interest Rate, Eyes Recovery

By Zacks Investment ResearchStock MarketsSep 20, 2019 07:43AM ET
MetLife Suffers Due To Low Interest Rate, Eyes Recovery
By Zacks Investment Research   |  Sep 20, 2019 07:43AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

For MetLife, Inc. (NYSE:MET) , one of the largest providers of life insurance, persistently low interest rate has led to a decline in net investment income over the years.

Due to low interest rates, MetLife had to invest insurance cash flows and reinvest the cash flows (received from investments) in lower yielding instruments. Notably, net investment income has declined to $15.6 million in 2018 from $22.4 billion in 2013, implying a decline of 30%.

Moreover, borrowers tend to prepay or redeem the fixed income securities, mortgage loans and mortgage-backed securities in the company’s investment portfolio in order to borrow at lower market rates. This has led to a decline in investment income.

Also, some of the company’s products, such as fixed annuities expose it to interest rate risk. Low interest rates reduce margins on these products i.e. the difference between the amounts that MetLife is required to credit on contracts and the rate of return that it can earn on investments intended to support obligations under these contracts.

The difference between interest earned and interest credited (also called margin) is a key metric for the management of, and reporting for, many of the company’s businesses.

Low interest rate results in lower margin that leads to acceleration in amortization of certain intangible assets such as deferred acquisition cost (DAC) and Value of Business Acquired (VOBA). Significantly lower margins have caused the company to accelerate amortization, thereby reducing net income in some periods.

Given the fact that low interest rate environment is here to stay, MetLife has taken recourse to other ways to protect its profitability. It continues to be proactive in its investment and interest crediting rate strategies as well as its product design and product mix. To mitigate the risk of unfavorable consequences from the low interest rate environment in the United States, MetLife applies disciplined asset/liability management (“ALM”) strategies, including the use of interest rate derivatives.

MetLife has also taken business actions, such as shifting the sales focus to less interest rate sensitive products. In addition, the company is well diversified across product, distribution and geography. Certain of its businesses reported within its Latin America, EMEA, and Asia (exclusive of Japan business) segments are not significantly interest rate or market sensitive and have limited sensitivity to U.S. interest rates.

The company expects its non-U.S. businesses to grow faster than its U.S. businesses and, over time, become a larger percentage of its total business.

This geographical divergence will substantially mitigate the negative impact of a sustained low interest rate environment in the United States.
Based on a near to intermediate-term analysis of a sustained lower interest rate environment in the United States, the company anticipates adjusted earnings to increase, although at a slower growth rate.

Year to date, MetLife’s shares have fallen 1.9% compared with its industry’s decline of 4.24%. Other life insurers that have been facing low interest rate headwinds are Prudential Financial Inc. (NYSE:PRU) , Lincoln Financial Group Inc. (NYSE:LNC) and American International Group, Inc. (NYSE:AIG) .

The stock carries a Zacks Rank #2 (Buy). Also, the stock has an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space. The stock has witnessed the Zacks Consensus Estimate for current-year earnings being revised 1.25% upward over the last 30 days.

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

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.6% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

Lincoln National Corporation (LNC): Free Stock Analysis Report

American International Group, Inc. (AIG): Free Stock Analysis Report

MetLife, Inc. (MET): Free Stock Analysis Report

Prudential Financial, Inc. (PRU): Free Stock Analysis Report

Original post

Zacks Investment Research
MetLife Suffers Due To Low Interest Rate, Eyes Recovery
MetLife Suffers Due To Low Interest Rate, Eyes Recovery

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email