MetLife Continues To Languish In An Out-Of-Favor Sector

Maybe the nicest thing I can say about MetLife (MET) is that it has suffered no worse than its sector, with the shares down 4% over the past year and more or less in line with Lincoln (LNC) and Prudential (PRU), while Unum (UNM) has fallen more than 20%. The issues for investors remain more or less the same – worries about spread pressure, worries about credit quality risk in fixed income, worries about the growth potential of mature markets, and probably most importantly, worries about the status of reserves in long-term care insurance books.

I continue to believe MetLife is undervalued, but it’s hard to identify a catalyst for a turnaround in sentiment. A successful/benign completion of its actuarial review of its LTC business would certainly help, but I think investors are firmly in the “we’ll believe it when we see it” camp when it comes to the potential of the LTC business, as well as the company’s cost-cutting targets and growth initiatives. I continue to see fair value in the low-to-mid $50s, which when combined with the dividend, suggests a pretty good return for this unpopular name.

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MetLife Continues To Languish In An Out-Of-Favor Sector

Prudential PLC Marrying Strong Growth With Disciplined Capital Return

All things considered, I think the changes in the insurance markets are starting to favor P&C insurers again over life insurers, but that doesn't mean that there still aren't opportunities in the life space. Names like ageas (OTCPK:AGESY) and AXA (OTCQX:AXAHY) have done pretty well, and there is ongoing opportunity in names like Aviva (OTCPK:AVVIY). I'm also adding Prudential PLC (PUK) to this list, as I believe this company's high-growth Asian operations, better-than-assumed U.S. operation, and improvable U.K. operations all contribute to a value that is about 10% above today's price. I'd also note that Prudential PLC has prioritized returning capital to shareholders, with a 5% annual growth target and over 10% actual growth over the past decade-plus.

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Prudential PLC Marrying Strong Growth With Disciplined Capital Return

Seeking Alpha: Separating The 'Coulds' And 'Woulds' At Genworth

It's been over a year since I wrote about Genworth (NYSE:GNW), and a lot has happened since. The roughly 50% drop tells you a lot of what you need to know about how things have gone, particularly as the "some reasons to worry" that I mentioned in regards to the company's reserve situation in long-term care exploded into a capital-destroying crisis. Along the way, management has lost a lot of the credibility that it once enjoyed and that's not a trivial detail for an insurance company.

There are a lot of options in front of Genworth that could at least theoretically improve the value. Restructuring the long-term care business could improve visibility and investor confidence, and there are some interesting options for the mortgage insurance businesses. All of that said, I'm worried that management believes it can just keep patching the holes as they appear and lacks the willingness to take a bigger swipe at restructuring the business for future profitability. Given that opinion, while I see meaningful potential value in a turned-around Genworth, I'm not inclined to take on the risk.

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Separating The 'Coulds' And 'Woulds' At Genworth