It hardly pays off to be in the life insurance trade these days. With trends like decreasing consumer interest in purchasing life insurance and payouts to settle charges stemming from improper methods used to pay life insurance claims, it seems that it's high time for the industry to shake itself up a little.
That's exactly what Metlife (NYS: MET) is doing. The company just recently announced its new business plan, which entails cultivating a global presence and making emerging markets more of a priority, as well as nurturing a more customer-oriented U.S. business market. With this new direction, management hopes to bolster its return on equity to approximately 13% by 2016, from a level of a bit over 10% for last year.
Metlife has been suffering quite a bit for the last year or so, as it was assessed penalties for some lousy business decisions it has made over the years. One example: using Social Security's Death Master File to find deaths, which would allow the company to stop annuity payments to customers who had died, but then not looking further to find beneficiaries for deceased life insurance policyholders. Metlife and fellow insurer Prudential (NYS: PRU) have both been smacked with huge settlement fees for these types of shenanigans, which could cost Metlife up to $500 million when all is said and done.
Getting into the mortgage loan business was not a great idea for Metlife, either, and it may suffer fines and other penalties related to faulty loans originated by its First Horizon National unit beginning in 2008. After failing the Fed's stress test earlier this year, Metlife has decided to leave the banking business and is currently working on divesting itself of all of its finance-related subsidiaries.
Metlife's Q1 losses of $94 million following losses in the derivatives market paled in comparison to those of Prudential, which booked a loss of nearly $1 billion during the same time period. Canadian counterpart Manulife (NYS: MFC) has been experiencing market volatility north of the border. Recently, all three insurers placed bids for parts of ING Group's (NYS: ING) Asian life-insurance unit, which is being sold to satisfy its bailout debt to the Dutch government. The franchise could serve as an easier way of breaking into the Asian market, which has proved difficult for North American companies.
A Fool's take
Despite all of its issues, Metlife delivered a sweet Q1 report last month, showing decent year-over-year increases in both EPS and revenue. The company is taking the bull by the horns, shedding non-profitable and troublesome businesses and setting its sights on expansion in emerging markets. If the company truly learned its lesson from the recent life insurance dust-up and concentrates on its core customer base, it might have much happier news to deliver to investors this time next year.
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At the time this article was published Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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