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UBS Investment Research: MetLife, 'Great Outlook, but Over Time'

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Analysts at UBS Investment Research took a look at MetLife (NYSE:MET) during Investor Day and concluded that the company has a “great outlook, but over time.”

Although MetLife’s global outlook looks strong, its ROE targets may take longer to come to fruition than investors would like. MetLife is currently targeting a 12-14% op ROE by 2016, up from 10.3% in 2011, despite headwinds.

In order to achieve 2016’s ROE targets, MetLife hopes to employ a mix shift toward protection products with stable returns, $1billion of efficiency gains and growth in high return emerging markets.

MetLife’s management targets an emerging markets earnings mix of 20%+ by 2016.  MetLife also hopes to capitalize on its group benefits expertise and aims to grow its non-US group benefits earnings by $250 million by 2016, from $280 million in 2014.

Upon the completion of MetLife’s Alico acquisition from AIG, the company has expanded its global footprint and enhanced the geographical reach of its international division rendering it more competitive on the world stage. MetLife views the heavier international presence, especially in emerging markets as a crucial tool that will raise ROE and lower its risk profile. MetLife also hopes to expand its direct business by selling life insurance to a notoriously underserved middle market in the US.

There are still risks MetLife must work to mitigate. It hopes to lower its Beta as well as its cost of capital by reducing its involvement with market-risk products (i.e., variable annuities) while boosting protection products (i.e., group, A&H and whole/term life).

Other risks for the company include the possibility of weaker-than-expected economic, credit and equity market performance that analysts worry could deteriorate MetLife’s capital cushion thus hindering its ability to deploy excess liquidity and capital at more attractive returns. Other risks include, a persistent pressure on alternative investment returns, adverse mortality, morbidity and policyholder behavior. Rising regulatory and rating agency capital requirements and unfavorable currency exchange rate changes.