MetLife, Inc. MET recently inked a risk transfer deal with the retirement and life insurance company, Global Atlantic Financial Group, in sync with prudent risk management efforts undertaken by the former within its closed-block businesses.
The insurer will reinsure U.S. retail life insurance and fixed annuity statutory reserves of roughly $19.2 billion with Global Atlantic. Out of the total reserves reinsured, $14 billion relates to U.S. retail life insurance products of MetLife, while the remaining comprises fixed annuities. The risk transfer transaction is likely to be completed in the second half of 2023.
The total value of the transaction is anticipated to be around $3.25 billion for MetLife, which consists of a ceding commission of roughly $2.25 billion and freed-up capital of $1 billion. Additionally, the same is likely to be beneficial to MET’s adjusted earnings per share and will also help the insurer to achieve the adjusted return on equity target of 13% to 15%.
A significant amount of capital release might have provided an impetus to MetLife to engage in the prudent deployment of capital through share buybacks. To this effect, concurrent with the risk transfer transaction disclosure, management sanctioned an increase of $1 billion in its share buyback authorization.
This marks the second buyback capacity increase announcement in the month of May 2023, with the first one being the $3 billion program announcement on May 3. Therefore, the total buyback authorization outstanding currently stands at around $4 billion.
The reinsurance transaction reflects MetLife’s intensified focus on minimizing enterprise risk and boosting growth-related investments. Such transactions generally aim to limit losses suffered by insurance companies, reduce exposure to substantial risks and boost capacity.
Meanwhile, reinsurance contracts also offer an opportunity for MetLife to sustain its solid capital deployment record. A solid financial position substantiated by sound cash reserves and sufficient cash-generating abilities remains in place for MET. Apart from regular share buybacks, the insurer also pays out dividends to shareholders.
Management approved a quarterly dividend hike of 4% in April 2023. The company’s dividends have witnessed a 12-year CAGR of 9%. Its dividend yield of 3.9% lies higher than the industry’s average of 2.8%.
Shares of MetLife have declined 22.1% in a year, compared with the industry’s 16.6% fall. MET currently carries a Zacks Rank #3 (Hold).
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Stocks to Consider
Some top-ranked stocks in the insurance space are Assurant, Inc. AIZ, Universal Insurance Holdings, Inc. UVE and American International Group, Inc. AIG. While Assurant sports a Zacks Rank #1 (Strong Buy), Universal Insurance and American International carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Assurant’s earnings surpassed estimates in three of the last four quarters and missed the mark once, the average surprise being 18.18%. The Zacks Consensus Estimate for AIZ’s 2023 earnings suggests an improvement of 25%, while the same for revenues suggests growth of 2.7% from the respective year-ago reported figures. The consensus mark for AIZ’s 2023 earnings has moved 24.4% north in the past 30 days.
The bottom line of Universal Insurance outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 93.83%. The Zacks Consensus Estimate for UVE’s 2023 earnings is pegged at $2.00 per share. A loss of 41 cents per share was reported in the prior year. The same for revenues suggests an improvement of 7.3% from the prior-year actual. The consensus mark for UVE’s 2023 earnings has moved 21.2% north in the past 30 days.
American International’s earnings surpassed estimates in three of the trailing four quarters and missed the mark once, the average surprise being 9.22%. The Zacks Consensus Estimate for AIG’s 2023 earnings suggests an improvement of 44.6%, while the same for revenues suggests growth of 8.5% from the respective year-ago reported figures. The consensus mark for AIG’s 2023 earnings has moved up 1.2% in the past seven days.
The Universal Insurance stock has gained 17.3% in a year. However, shares of Assurant and American International have declined 31% and 9%, respectively, in the same time frame.
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