MetLife Seals Taiwan Deal - Analyst Blog
March 30 2011 - 5:30AM
Zacks
The Wall
Street Journal has reported that MetLife
Inc. (MET) has finally been able to
vend its Taiwan life insurance unit to Chinatrust Financial
Holdings Co. for about $180 million. This is the second desperate
attempt of the company to move out of Taiwan given the limited
scope for growth in the region.
Previously, in April 2010, the company had almost sealed a deal
with Waterland Financial Holdings Co., a tiny financial firm in
Taiwan, who had agreed to purchase it for about $112 million.
However, the deal did not culminate since the regulatory
authorities in Taiwan were skeptical about the financial health of
Waterland.
Furthermore, in January 2010, Taiwan Life Insurance Co. offered
$122 million to buy MetLife’s insurance wing in Taiwan. However,
the deal failed to materialize due to some undisclosed issues.
MetLife is taking this step to strategize its investments, which in
turn would help the company shore up growth in the long run.
MetLife had entered the Taiwanese market in 1988 and has 400,000
clients there. However, management of MetLife has been considering
exiting Taiwan since last year when the global economic breakdown
created an unprofitable investment environment and financial losses
in the Taiwan unit.
Additionally, MetLife faced other operating challenges in Taiwan
that include amendments in International Accountancy Standards,
cues of tightening monetary policies following China and other
regulations where foreign insurers have been debarred from
investing in government bonds.
Moreover, MetLife is not the first foreign investment company to
exit Taiwan. In 2009, London-based Prudential plc
(PUK) along with Dutch companies like the ING Group
NV (ING) and Aegon NV (AEG) are known to
have pulled out their businesses from Taiwan.
Further, in January this year, American International
Group Inc. (AIG) also vended off its Nan Shan Life
Insurance Co. in Taiwan, to Ruen Chen conglomerate, for a cash deal of
$2.16 billion. Even AIG managed to sell the unit at its second
attempt, long after its decision in October 2009 and after having
faced several stumbling blocks in the process.
Overall,
MetLife is on a development and restructuring mode to keep pace
with the economic volatility. While the company is set to
wind up its operations in Taiwan, it acquired American Life
Insurance Co. (ALICO) from AIG in November last year.
The addition of the global life insurer, ALICO, is expected to
diversify the company’s income sources while also mitigating the
risks arising from other core operations of MetLife in the US,
primarily the auto and home segment. This is reflected by management’s
assumption of a 30% growth in premiums, fees and other revenues, in
the range of $45.8–$47.0 billion, in 2011.
Moreover, this growth momentum is also expected to contribute to
the return on equity, which is estimated to be about 11% for 2011.
MetLife has also increased its investment portfolio by about 25%
with the inclusion of ALICO.
However, the macro risks related to the low interest rate
environment and a deflation scenario in Japan, along with the
recent catastrophes, coupled with sluggish recovery in the US and
Japan are
likely to remain on the surface throughout 2011.
Amid these weak factors, MetLife believes that the latest ALICO
transaction is poised to boost MetLife fundamentally by
contributing to
its international operating earnings including international
life and international accident and health.
While we think MetLife should continue to benefit from its
diversified business mix as well as its leading brand, losses in
the investment portfolio are likely to impact the results in the
upcoming quarters.
AEGON N V (AEG): Free Stock Analysis Report
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