uploads///Investment income and yields

Strong Balance Sheets Will Likely Support Life Insurers’ Growth


Mar. 15 2016, Updated 10:08 p.m. ET

Expanding book

Metlife’s (MET) balance sheet contracted marginally in 2015 to $878 billion—compared to $902 billion in 2014. The company’s value of long-term investment declined due to weak financial markets. The company has long-term debt of $21 billion with a debt-to-equity ratio 0.3x. This shows that it has a healthy balance sheet.

Prudential Financial’s (PRU) balance sheet stood at $757 billion. It was a marginal contraction from $767 billion in the previous year. The company maintained $1.3 billion of excess liquidity to repay maturing operating debt, to fund operating needs, and to deploy overtime for strategic and capital management purposes.

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Dividend payout

Historically, insurance players (XLF) rewarded shareholders with dividend yields of 2%–4%. They engaged in share repurchases. Metlife paid an annual dividend of $1.48 in 2015. This translated into an annual dividend of 3.4%. Among its peers, MetLife is among the players on the higher side in terms of the dividend yield. It’s after Prudential Financial and Principal Financial (PFG). However, it’s ahead of Manulife (MFC) and Aflac (AFL).

In 2015, Prudential deployed $2 billion in dividends and share repurchases. The company paid an annual dividend of $2.4. This translated into a dividend yield of 3.8%. The capital generated by its core operations expanded in 4Q15. It was backed by a positive impact from interest rates and lower benefits and expenses. Its overall leverage fell to 0.25x as of December 31, 2015. Prudential is also targeting $1.5 billion of share repurchases in 2016.

Capital requirements

An insurance company’s capital requirements are stipulated by regulatory bodies. Insurance companies must maintain capital in the form of liquid assets to pay unexpected large claims. In the US, insurers are required to maintain risk-based capital. The risk-based capital ratio is calculated as the ratio of the capital available to an insurer to the required capital. For Metlife and Prudential Financial, their balance sheets and strong risk management led to the smooth expansion of their operations globally.


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