MetLife May End Up Looking More Like Aflac and Unum

MetLife may eventually end up looking more like Aflac.

The 152-year-old insurance giant announced last week that it has agreed to acquire 100% of Versant Health, the Baltimore-based parent of Davis Vision and Superior Vision, from private equity firm owners for about $1.675 billion in cash.

MetLife has also started the process of selling its property and casualty business, for an estimated price of more than $3 billion, according to press reports.

MetLife converted its old individual life and annuity arm into a separate company, Brighthouse Financial, in 2017. And the company has been developing an accident insurance product that may, in some respects, be similar to the kind of accident insurance that a company like Aflac might be provide.

MetLife executives said, during a conference call they held to discuss the Versant deal with securities analysts, that they’re making the deal partly to expand in an attractive, growing vision benefits market, and partly because the vision benefits market looks a lot safer than some other markets.

Resources

A copy of MetLife’s Versant deal slidedeck is available here.
An article about Aflac’s approach to the dental and vision market is available here.

John McCallion, MetLife’s chief financial officer, said the vision benefits business is a business with attractive profit margins that’s not capital-intensive.

And, McCallion said, “It’s not interest-sensitive.”

Michel Khalaf, MetLife’s chief executive officer, also emphasized the stability of the vision benefits business. “It’s predictable, with well-established utilization rates and the ability to reprice at regular intervals,” he said. “And it’s recession-resistant. It is, like dental, a must-have service.”

Company executive said that underlying vision benefits demand has been growing about 5% per year, and that the deal price reflects the possible effects of COVID-19-related turmoil.

MetLife has also acquired pet insurance, digital estate planning and health savings accounts businesses in recent years, and provides insurance coverage and other services for 41 million U.S. employees and dependents, company executives said.

Executives did not saying anything about more interest-sensitive products, such as group life insurance or group disability insurance.

Competitive Position

COVID-19 may have some effect on sales over the next few years, but that effect has been factored into the deal price.

MetLife has been strongest in the national accounts benefits market sector, while Davis and Superior have focused mainly on serving small and midsize employers, with only one-quarter of their revenue coming from employers with more than 5,000 employees, MetLife executives said.

Versant’s companies served about 9,000 employer groups and provide vision benefits for 35 million people, MetLife executives said.

Combining Versant’s vision benefits companies with MetLife’s existing vision benefits operations should give MetLife a 17% share in the vision benefits market, with 38 million vision plan enrollees, according to MetLife.

The P&C Unit

MetLife’s P&C unit gets about 65% of its $3.7 billion in annual premiums from auto insurance and 35% from homeowners insurance.

Ryan Krueger and Meyer Shields, securities analysts at Keefe, Bruyette & Woods, have suggested that the buyer could be Travelers, Hartford, Liberty Mutual, Farmers, Nationwide or American Family .

The Money

Khalaf, MetLife’s CEO, said company managers feel comfortable with spending money on stock buybacks and attractive deals because of factors such as a reasonable level of stability in the stock market, and the company’s own deep pools of cash.

“We were sitting on $6.6 billion in liquidity at the end of the second quarter,” Khalaf said. “That gave us significant financial flexibility.”