Financial Analysis and Performance Evaluation of Metlife.inc Report

This report provides a financial analysis of Metlife.inc, focusing on its historical performance through ratio analysis. It examines earnings, liquidity, and solvency ratios to assess the company's financial health. The report uses vertical analysis of the balance sheet and income statement to determine growth rates and identifies factors affecting financial performance, including underwriting, liquidity, profitability, and leverage. It includes an introduction to Metlife.inc, its market position, and financial data. The analysis covers premium growth, risk retention, loss ratio, expense ratio, combined ratio, investment yield, and return on net worth. The report concludes with recommendations to enhance business performance based on the financial analysis.

ECONOMICS AND BUSINESS

Contents
Introduction................................................................................................................................3
Introduction to Metlife.inc.........................................................................................................3
Financial analysis and performance...........................................................................................5
Recommendation......................................................................................................................10
Conclusion................................................................................................................................11
References................................................................................................................................13

Introduction
The report brings out to discussion on financial analysis of Metlife.inc by considering the
historical performance. In order to consider the analysis of financial performance, it is seen
that report uses a tool named “Ratio analysis.” Financial analysis includes the use of financial
data to examine the organisation’s performance and recommend how we can improve it. The
report considers vertical analysis on the basis of balance sheet and income statement to
identify and determine the growth rate. The report selects the analysis of historical analysis of
two years.
Further, on the basis of the financial analysis for the improvement, the report brings out
recommendation to enhance the business performance. Financial ratio is used as a holistic
assessment of the financial performance of MetLife.inc. Set of ratios is used to evaluate
insurance organisations with three specific categories such as earnings, solvency, and
liquidity ratio (Siddikee et al., 2018). The aim of this study is to examine several factors,
which affect financial performance of the insurance organisations. This attempt to create
comprehensive examination of company`s performance. Objectives include identification of
effect of underwriting, liquidity, profitability, and leverage so that it can avail conclusion and
suggestion for the top-level management and the decision-making to deal with variables
affecting the financial performance to improve the organisation`s operational performance
(Niresh, & Silva, 2018).
Introduction to Metlife.inc
MetLife Inc. Is holding company for Metropolitan Life Insurance Corporation by knowing
them as MetLife established on 24th March 1868. The company is largest global providers of
annuities, employee benefit programs, and insurance with 90 million over the 60 nations
(Med life private limited, 2018). The completed mutualisation procedure changes stock life

insurance organisation as being owned by persons to Mutual Corporation operating it without
external stakeholders. With affiliating to its subsidiaries, the company holds towards to
leading market positions in US, America, Europe, Asian pacific region, Japan, and Middle
East (Med life private limited, 2018). In 2016, the organisation has announced to spin off US
retail ventures inclusive of annuities, and life insurance for retail market (Ahmed, 2016). The
company faces huge level of competition in its industry with renowned names as
Massachusetts Mutual Life Insurance company , North-western Mutual life Insurance, New
York Life Insurance Company, AIG, Prudential financial, and Sun Life Financials. Here is
the more information of the company regarding its financial performance (Siddikee et al.,
2018). Below is the graphical representation of the average revenues earned by the
organisation for last ten years-
(Source: statista, 2019)
The below graphical representation shows the valuation of common stock held by the
organisation “Metlife” between 2014 to 2018.

(Source: statista, 2019)
Financial analysis and performance
Ratio analysis is a tool to analyse the business performance. The criteria for performance
includes earnings ratio, liquidity ratios, and solvency ratios.
Earnings ratio
Profitable operation is quite necessary for the insurance company to remain an easy-going
company. It focuses on insurer`s capability to effectively manage the strategies and maintain
competitive strengths in the growth opportunities of the company. Insuree also make sure that
it accomplish with the sustainable profitability. These are the most important indicators when
looking to assist in determination with the profitability named as net income, combined ratio,
and net worth. Taking out all the losses and expenses and then after dividing it by premium
determine this ratio (Siddikee et al., 2018).
Premium Growth-
This ratio indicates the growth in the company. This ratio is calculated as the difference
between Gross written premium of current and previous year and then dividing it from

previous year. Total premium includes direct and assumed written by the insurer before
deductions for the commissions and reinsurance. Written does not imply as collected but the
gross policy premium to collected as of issue date of policy in less to the payment plan
(Mandić, Delibašić, Knežević, & Benković, 2017).
The growth rate in related to the premium is seen as 9-11 percent due to higher sales of the
policies. Growth is observed where the insurer adopts the aggressive and the underwriting to
complete the state of competition and also increase the cash flows (Mathey, Feki, Jaques, &
Barras, 2019).
Risk retention-
It indicates level of risks as being retained by insurer, which plays an important role in risk
taking process. Business risk retention is the measure how policies in an insurance
organisation has its hand at specific time. This measurement considers the number of
underwritten plans, which is effective even after subtracting cancelled, and ceded to a
reinsurer. The core goal is to target organisational growth and also compare it to the several
policies, which remain inactive. A decreased retention risk is not good for the company.
When a person decides to tolerate all the risk by bearing all risks related to his property and
never cares to get his property insured (Qaisi, Tahtamouni, & Qudah, 2016). This case
signifies that one has to pay the losses from his own pocket. Most importantly, it is important
to understand high risks obtained or retained, the more fund has to be separated as
contingency fund. Therefore, mathematical calculations is against rate of retention and
payment of risk premium to the insurance companies. This ratio is the method of handling
high losses with greater possibility of happening that is required to be handled. Extreme
decreased business risk retention over time signifies that organisation is struggling and also
look for cost cutting so that it can decrease its losses. Increased business net retention

represents the organisation lead to the profit expansion and the growth strategies. As far as
the ratio is considered of 2017, med life has been maintaining almost 100 percent, which
signifies strength of insurance organisation. It shows a ratio to hold group of policies in
account when managing and maintaining accounts rather than ceding them towards the
reinsurers (Qaisi, Tahtamouni, & Qudah, 2016). On the other hand, the company
maintains .97 risk to be retained signifying that there is a reduced exposure to risks as being
associated with policies of ceding. The company has been maintaining appropriate risk
retention ratio for both the years 2017 and 2018 (Kripa, & Ajasllari, 2016).
Loss ratio-
This ratio measures the loss experience of the company, which is indicated as the proportion
of premium income earned each year. This loss ratio is the indication on nature of the risk
underwritten and adequacy of pricing of risks association. A good and considerable loss ratio
ideal range between 40 to 60 percent. This percent means that the company will collect
premiums more than the amount paid in claims. On the other hand, if company does not
maintain this percentage then it might face high loss or bad financial conditions on the
consistent basis (Med life private limited, 2017).
The loss ratio is seen as 31.17 percent in 2017 and it was 34.48 percent in 2018. This ratio
signifies moderate collection of premiums, which is far more than claims. Furthermore, the
company is able to make sufficient premiums rather than incurring losses. As the company
claims data in a sufficient and credible way where the development method is used on the
basis of claims that categorise claims according to period of time in which it was adjusted and
reported (Qaisi, Tahtamouni, & Qudah, 2016).
Expense ratio-

This ratio predicts the effectiveness of the insurance operation. This ratio is used for insurer,
which is analysed with the trends of the insurance business. This expense ratio indicates the
efficiency of the company before factoring it into claims on policies and investment losses.
The ratio of 100 percent signifies insurance organisation whether it is earning or it has been
writing more premium, which means it is paying it in terms of expense in order to generate
these premiums. Anyways, expense ratio represents the overall profitability ratio of the
company influenced by the loss ratio (Kripa, & Ajasllari, 2016). The company has a good
expense ratio as the company expenses, which are incurred minimum, influence it. A higher
expense ratio is due to increase in the market competition and inflation in territory of
operational activities (Alomari, & Azzam, 2017). On the other hand, it is important to
consider this ratio can fall as soon as actual expense remained constant and increase in the
premium rates (Kripa, & Ajasllari, 2016).
Combined ratio-
It is the measure through which insurance organisations to assist and determine the
profitability. To make it easy to understand, it must be conveyed and a ratio below the
percentage of 100 indicating the organisation to make an underwriting profits. When this
ratio is more than 100 percent then it means the organisation paying out more for claims as
compared to the premiums it has been earning (Alhassan, Addisson, & Asamoah, 2015). It is
underwriting expense and operating expense structure of insurer. The combined ratio is a
simple way to evaluate profitability of the insurance company. This ratio is the summation of
expense ratio and loss ratio, which evaluate insurers and its financial health. Insurance
organisations can make money by collection in premium revenue (Alhassan, Addisson, &
Asamoah, 2015). The combined ratio is nearly 46.64 percent in 2017 and it is nearly 50.18
percent in 2018. This metrics is the percentage reported, as ratio that is less than 100 signifies
an insurer can take more money from the premiums, which is overhead or being claimed

(Med life private limited, 2017). It signifies that if a person pays more in claims expenses and
losses, which is collecting through premiums remained a bad news for the company`s long-
term growth. It is important for the manager in order to run the operations through the
business insurance expense (Batchimeg, 2017).
On the other hand, it is not always visible that a combined ratio above 100 is always
unprofitable. It is the best indicator of how well successful med life is under the underwriting
activity. Lower is the ratio better is the health of the insurance company, which is most likely
where shareholders can get benefit in long run (Med life private limited, 2018).
Investment Yield-
This ratio calculates average return on the organisation`s being invested in assets before
earning capital gain and losses. When calculating investment yield inclusive of capital gain.
The ideal for the yield should be at least 15-22 percent every year. Investment yield for the
Medlife earned during 2017 was equal to 8 percent and further it was 7 percent in 2018. The
company has to improve its ratio efficiency because 7-8 percent yield is not at all appropriate.
A high investment yield is most appropriate in measuring the returns of the company.
Yielding high is a good yield through investments. The calculation signifies that income
generated from investments, rent and other incomes is 17,363 in 2017 and 16166 in 2018 in
regards to the average of total investments (Med life private limited, 2018).
Return on net worth-
This ratio is also known as policyholder surplus as it is the difference between company`s
liabilities and assets. Hence, it determines insurance organisation’s net worth. This ratio is
significant to measure the profitability of the organisation expressed in proportion. It is
calculated through dividing the net income of the organisation by the net worth. It evaluates
where the company is organised in generating return for shareholders. This actually checks

how effectively the organisation invests the fund and increase productivity. This ratio is
calculated through the perspective of investors so that they can benefit themselves. Return on
net worth equals to 14 percent in 2017 and 19 percent return in 2018. To study the measures,
it is crucial to look after several periods with an aim to access where the organisation are less
or more efficient while generating profits on the equity. Profit after tax is 4010 in 2017 and
5123 in 2018, which is quite low in comparison to the net worth. This decrease in the net
worth can symbolising the buyback of equity shares, which clearly say that the operational
profits of the company has not improved yet. Share buyback can partially increase the return
on equity based on the conclusion of the higher profits and increased efficiency. The return
on net worth of the company is so poor, which has to be improved.
Liquidity ratio includes the dividing the Liquidity assets to the technical reserves. These are
the reserves created to take care of the expected claims, which may arise. Insurer may not be
anticipate maintaining liquid assets equal to the technical assets, which help insurer when
taking care of anticipated claims. These ratios will help to maintain good liquidity to catch up
the policyholder obligations (Med life private limited, 2018). Insurer`s liquidity will depend
on the degree through which one can satisfy the financial liabilities by having appropriate
cash and other investments, which are sound, liquid, and diversified by having generated cash
flows. A high degree level of liquidity enables the insurer to accomplish the unexpected cash
needs without sale of investments (Shen, Hu, & Tzeng, 2017). A particular percentage being
considered good depending on the types of policies, which the insurance company is
providing. Quick liquidity ratio, which is greater than 30 percent (Niresh, & Silva, 2018).
Technical amount are amounts kept with the insurance organisations to keep aside from the
profitability to cover the claims. The company maintains 7.64 percent in 2017 and further it
maintains 7.23 percent in 2018. For appropriate ratio, it is important to know that a high
proportion of liquid assets help the insurers to take care of the expected claims. Liquid assets

of 202700 is more than the technical reserves in 2017 and further, liquid assets is also more
than the technical reserves in 2018 (Bayrakdaroglu, Mirgen, & Kuyu, 2017).
Recommendation
In order to enhance the market situations, with better circumstances, it is important to
improve financial data, performance, stabilising the regulatory business environment helping
the insurers. A growth rate of 10-20 percent shows the company is operating at moderate rate.
This rate also includes inflation and other economic implications (Alomari, & Azzam, 2017).
As far as the Med life statistics is considered, the premium growth in 2017 for med life is
17.84 percent and for 2018, it is 12.43 percent. Due to economic changes in the economy, it
is seen that there is not practical measure for the business units in regards to examine the
insurance premium growth during the industrial risks, and ability to examine the segment
opportunities that hamper the decision-making. The evaluation of the ratio analysis indicates
that the company (Med life) maintains poor financial efficiency in terms of the investment
returns. The analysis reveals good premium underwriting losses are accomplished by infusing
more capital in the portfolio of the organisation (Niresh, & Silva, 2018).
As a recommendation, the company has to enhance its Return on net worth, which signifies
that a company must maintain 20-25 percent of return on net worth. A negative RONW
indicates that the company`s capital structure has more debt and unsafe investment choice. A
lower RONW is not at all good at investing so that investors must prefer high RONW ratio. A
minimum RONW is 15 percent indicates better valuation and the profitable stock and ratio
below 10 percent considers poor rates for the organisation.
There is a high need to improve and enhance the liquidity position of the company where the
company must maintain 30 percent liquidity ratio but it has been maintaining near to 8
percent, which is extremely poor. The company has to focus on claim collection as a liquid

cash to be kept with the company, which is extremely low. An insurer never expect to
maintain liquid assets equating it to the technical reserves or even more (Chang, & Chen,
2018).
Conclusion
From the above discussion, it can be seen that the evaluation of insurance industry is
extremely different. For assessment, ratio analysis is used, which gives a holistic approach
elaborating the financial performance of the Medlife. Ratio analysis has remained an
effective tool to derive profitable effectiveness and the liquidity positioning of the
organisation. A set of ratios include earning, and liquidity ratio, which helps to indicate
growth in organisation. It indicates the level of risks attained by the insurer. The company`s
ratio predicts that it has not been maintaining its liquidity in an appropriate manner.
Recommendation includes the way through which it can improve the liquidity position.
Furthermore, the financial statement analysis states that the company has good profitability
ratio in terms of its earnings, premium incurring, investment yielding, combined ratio, loss
ratio, and return on net worth. The higher risk retention ratio relate it to the higher taking
opting from the self-incurring risk takers. Overall, investors can think of investing in it, as its
earnings ratios are effective and going hand in hand with the industry. Therefore, the
company`s liquidity is still at the core of thinking whether to invest in the company or not.

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