Metlife Inc (NYSE:MET) Mitigates Interest Rate Risk

September 30, 2016

Managing Director Sam Peters of ClearBridge Investments says that while MetLife Inc (NYSE:MET) may not look investable to some right now, the company has strong fundamentals, and management is taking steps to lessen interest rate risk.

Most people tell me life insurers are not investable right now with where interest rates are, and I would tell you, if interest rates go higher for whatever reason, there are going to be a lot of things that are not investable, but the life insurance companies will actually become investable, so it’s a little bit of an inversion.

But the key with MetLife is that the management team is acting. They don’t have blinders on, they’re not waiting to get bailed out by interest rates, and they are spinning out their legacy life business later this year and early next year. That will get rid of the big interest rate tail risk, which is the main reason that people consider this not an investable company.

But MetLife still has some excess capital. They’ve got a very good balance sheet, they’ve taken out quite a lot of expenses, and they continue to do that. They’ve been generating good free cash flow, and despite the very, very low interest rates, they are still earning a return on equity of around 10% with very depressed earnings and very depressed fundamentals. Again, interest rates are not flattering them right now, and the company is trading at about one time tangible book value and about 60% of GAAP book, so historically, very cheap.

sam-peters
Sam Peters