On Monday, Thomson Reuters reported that MetLife Inc. (MET) may dispose of its insurance business in Taiwan by the end of April this year. Chinatrust Financial, Yuanta Financial and Mercuries Life Insurance were reported to have submitted bids to acquire the MetLife unit. However, details remain undisclosed and a final decision is expected in the near future.
This is, however, not the first time that MetLife has attempted to vend its Taiwan unit. In April 2010, the company had almost sealed a deal with Waterland Financial Holdings Co., a tiny financial firm in Taiwan, who had agreed to purchase it for $112 million. However, the deal did not culminate since the regulatory authorities in Taiwan were skeptical about the financial health of Waterland.
Additionally, in January 2010, Taiwan Life Insurance Co. offered $122 million to buy MetLife’s insurance wing in Taiwan. However, the deal did not materialize due to some undisclosed issues. MetLife is taking this step to shore up its finances post the global economic crisis.
MetLife had entered the Taiwanese market in 1988 and has 400,000 clients there. However, management of MetLife has been considering exiting Taiwan since last year when the global economic breakdown created an unprofitable investment environment and financial losses in the Taiwan unit.
Additionally, MetLife faced other operating challenges in Taiwan that include amendments in International Accountancy Standards, cues of tightening monetary policies following China and other regulations where foreign insurers have been debarred from investing in government bonds.
Moreover, MetLife is not the first foreign investment company to exit Taiwan. In 2009, companies like the ING Group NV (ING) (Dutch), Prudential Financial Inc. (PRU) (London) and Aegon NV (AEG) (Dutch) are known to have pulled out their businesses from Taiwan.
Further, last month, American International Group Inc. (AIG) also vended off its Nan Shan Life Insurance Co. in Taiwan, to Ruen Chen conglomerate,for a cash deal of $2.16 billion. Even AIG managed to sell the unit on its second attempt, long after its decision in October 2009 and having faced several hiccups in the process.
Overall, MetLife is on a development and restructuring mode to keep pace with the economic volatility. While the company is set to wind up its operations in Taiwan, it acquired American Life Insurance Co. (“ALICO”) from AIG in November last year.
The addition of the global life insurer, ALICO, is expected to diversify the company’s income sources while also mitigating the risks arising from other core operations of MetLife in the US, primarily the auto and home segment. This is reflected by management’s assumption of a 30% growth in premiums, fees and other revenues, in the range of $45.8–$47.0 billion, in 2011.
Further, this growth momentum is also expected to contribute to the return on equity, which is estimated to be about 11% for 2011. MetLife has also increased its investment portfolio by about 25% with the inclusion of ALICO.
However, the macro risks related to the low interest rate environment and a deflation scenario in Japan coupled with sluggish recovery in the US and Japan is expected to persist throughout 2011. Amid these weak factors, MetLife believes that the latest ALICO transaction is poised to boost MetLife fundamentally by contributing to the company’s international operating earnings including international life and international accident and health.
While we think MetLife should continue to benefit from its diversified business mix as well as its leading brand, losses in the investment portfolio are likely to impact the results in the upcoming quarters.
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