The Rising Influence of Rising Affluence

[DewDiligence]

Re: MET’s surprising (45%) sell-off

There must be fear of exposure to payouts on policies.

There’s an investor misconception based on the company’s name (MetLife) that MET is primarily a life-insurance company. MET was primarily a life-insurance company for many years, but it is now a diversified financial-services company. In 2017, MET spun off its US life-insurance business to BHF (https://www.metlife.com/about-us/newsroom/2017/august/metlifecompletesspin-off-of-brighthouse-financial/ ), leaving Japan as the only major country where MET continues to sell life insurance. All told, life insurance is now a small part of the overall corporate pie.

So, investors who think MET will be on the hook for outsized COVID-19 death payments are mistaken.

What would be the worse case hit for them?

Prolonged very low (or negative) interest rates. MET’s asset portfolio that provides the actuarial support for future claims is heavily weighted in bonds. As the bonds in MET’s portfolio mature, declining interest rates have forced MET to reinvestment at lower and lower coupon rates, thereby reducing earnings.

Still, even the historic collapse in interest rates we’ve recently seen doesn’t fully justify the 45% sell-off MET has experienced in the past 30 days.