Monday, December 05, 2005

MetLife Maintains 2006 Guidance

Insurer predicts revenue and earnings growth in 2006 but investors were hoping for raised guidance

By Shaheen Pasha, CNN/Money staff writer, December 5, 2005: 1:59 PM EST

New York ( - MetLife Inc. expects to post 2005 earnings of $4.27 to $4.32 a share and 2006 earnings of $4.25 to $4.50 a share, driven in part by the insurer's acquisition of Citigroup's Travelers Life & Annuity and more growth in its international business.

Return on equity, however, should fall to 12. 4 percent to 13.1 percent next year on an operating basis, below its 2005 projected result of 14.4 percent to 14.6 percent. On a normalized basis -- excluding Travelers -- executives said 2005 ROE would have been 13.5 percent.

Speaking Monday at the company's investor day meeting in New York, MetLife's chief financial officer William Wheeler said his company would have earned about $3.80 a share without the acquisition of Travelers, which closed in July. The estimates were generally in line with MetLife's previous forecast.

Investors were disheartened by the outlook, sending shares of Metlife lower, although the stock recently rebounded from its lows.

"I think the issue is that they didn't raise their guidance as some people, myself, included, expected," said John Nadel, equity analyst at Fox-Pitt Kelton. "If it wasn't for the (interest) rate environment, I think the guidance would have gone up because the underlying businesses are doing very well."

Analysts, on average, expect 2005 operating earnings of $4.29 a share, according to Thomson First Call.

"Fundamentally 2006 should be a good year with good topline growth and solid underwriting margins," he said.

But Wheeler said the company does face some headwinds from the low interest rate environment that will compress its investment spread and bring down the yield on its general accounts.

But Fox-Pitt Kelton's Nadel said that the fact that the company isn't lowering its guidance despite its cautious views about the interest rate environment suggest that the company expects other areas of the business to outperform.

Executives were bullish about the prospects for the company's international business, although it only comprises between 8 percent to 10 percent of MetLife's overall earnings. -

William Toppeta, president of the company's international operations, said the Travelers acquisition opened up markets in established economies such as Japan and the European Union. He said the transaction allowed the company to broaden its reach in Brazil, China and Hong Kong and increased MetLife's international customer base to 15 million from 9 million.

"We're halfway to our goal of 30 million outside of the U.S. by 2010," he said.

Toppeta said the company sees 2005 operating earnings of $220 million to $240 million, up from $165 million in 2004.

He added that the company expects to invest $125 million in the international business next year, up from $87 million in 2005. Among its expected initiatives, MetLife will launch a wealth management business in the U.K. next year as well as a pension business in Mexico.

The company will also consider "opportunistic" acquisitions and join ventures going forward but only if potential deals will prove to be accretive for the company, he said.

For the fourth quarter, Wheeler said the company expects to earn 99 cents to $1.04 a share, hurt in part by the impact of Hurricane Wilma on its auto and home business, as well as an additional pretax cost of $66 million from the integration of the Travelers deal.

William Mullaney, president of the company's auto and home business, said the company is setting aside more money in its catastrophe budget to deal with the expectation of increasingly severe hurricanes going forward.

In addition, Mullaney said the company is buying more reinsurance, even as it expects reinsurance costs to rise, and MetLife will also reassess its exposure to catastrophe-prone areas.

"If there is overexposure, we will take steps to reduce that exposure," he said.

Looking ahead, he said the company expects Travelers to be "significantly accretive" in 2006, but MetLife does expect to incur another $40 million to $45 million in integration costs from the acquisition, largely in the first half of the year.