MET MetLife Inc

Yesterday, Fitch Ratings affirmed all the debt and credit ratings of MetLife Inc. (MET) and its operating subsidiaries, reflecting consistent growth from ALICO acquisition amid the low rate interest environment.

Accordingly, Fitch asserted the issuer default rating (IDR) of "A" for MetLife, while the financial strength ratings were maintained at “AA-” for some of the company’s domestic life insurance units. Meanwhile, the outlook for all the ratings remains stable.

The ratings agency believes that MetLife maintains a diversified business mix and one of the strongest brands in the U.S. Moreover, the ALICO acquisition from American International Group Inc. (AIG) in November last year has become a feather in MetLife’s cap.

The ALICO acquisition has increased MetLife’s investment portfolio by about 25%, which thereby expands its global investment market reach and also accelerates its long-term global growth strategy. In the first half of 2011, the international segment has posted earnings of $1.07 billion against $289 million in the year-ago period, primarily backed by ALICO.Overall, the deal isprojected to be accretive to earnings by 40–45 cents per share and is likely to have a positive effect on return on equity (ROE) by 100 basis points in 2011.

However, the ongoing low interest rate environment has been adversely affecting MetLife’s exposure in the equity market, which again faces intense volatility, according to Fitch Ratings. The current interest rate environment is likely to continue putting pressure on the spreads.

Additionally, the company has significant investments in alternative investments and variable annuity business. Although MetLife's variable annuity hedging program is performing well in 2008–2009, the risk associated with the hedging of variable annuity programs is expected to mar the desired upside in earnings.

Previously, in February 2010, Fitch had slashed MetLife's long-term issuer default rating by a nick to "A" from "A+" after a periodic analysis that reflected higher-than-expected loss projections in the company’s investment portfolio.

While MetLife has come a long way from the troughs of the recent recession, we believe that the company is poised to pace up its growth as the economy rebounds in the intermediate term. The company is scheduled to release its third quarter earnings after the market closes on October 27, 2011.

 
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