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MetLife (MET) Unit Assumes U.K. Pension Scheme's Longevity Risks

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MetLife, Inc.’s MET unit Metropolitan Tower Life Insurance Company recently announced the conclusion of a longevity reinsurance transaction with the aid of an independent U.K. regulated insurer, Zurich Assurance Ltd.

Shares of MetLife lost 1.3% on Jan 21, replicating declines in broader markets.

The latest deal, which was concluded in the fourth quarter of 2021, will pave the way for MetLife’s unit to offer reinsurance for longevity risk (worth roughly $3.5 billion of pension liabilities) belonging to an undisclosed U.K. pension scheme.

MetLife has proven expertise in managing longevity risk and boasts of a strong presence in the reinsurance space. Increased longevity risk continues to exert pressure on pension funds or insurance companies due to higher life expectancy trends noticed among policyholders, an aging population and an increase in the number of people attaining retirement age. To address these challenges, MET has been actively entering into reinsurance agreements, which aim at risk-sharing, reducing risk exposure, and limiting losses suffered. The deals offer additional capacity to MetLife, thereby helping drive growth in the days ahead.

Completion of the latest deal marks the first pension scheme longevity swap transaction undertaken by the MET unit in the U.K. The transaction reflects MetLife’s sincere efforts to strengthen its U.K. longevity reinsurance business and the same can be substantiated by the developments mentioned henceforth. In January 2021, the same unit completed four U.K. longevity reinsurance deals with Legal & General Assurance Society Limited. MET forayed into the U.K. longevity reinsurance market in 2020 for the first time via a deal with Pension Insurance Corporation for reinsuring longevity risks worth around £280 million of pension liabilities.

The latest reinsurance deal comes at an apt time, considering the gradual global economy recovery and solid demand of pension schemes toward longevity de-risking solutions. The U.K. pension risk transfer market holds ample growth prospects as the COVID-19 induced financial volatilities highlighted the dire need for a secured financial future, and upgraded pension schemes came to the forefront. Amid such a scenario, pension schemes were inclined toward de-risking their liabilities in the insurance market, which provides MetLife the perfect ground to capitalize on through its well-established history of managing longevity risks.

Per management of Willis Towers Watson (published on ARTEMIS), roughly £20 billion of longevity swaps were witnessed in the U.K. last year. The same source expects 2022 to be a busy year with respect to longevity swaps and bulk annuity arrangements, with notable growth likely to be witnessed on the longevity swap side.

Through these reinsurance deals, MetLife receives a fee income in exchange for taking over longevity risk from pension plans insured by third parties. This, in turn, contributes to the bottom-line growth of MET.

Shares of MetLife gained 29.6% in a year compared with the industry’s growth of 0.7%. MET currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Stocks to Consider

Some better-ranked stocks in the insurance space include Fidelity National Financial, Inc. FNF, The Hartford Financial Services Group, Inc. HIG and Arch Capital Group Ltd. ACGL. While Fidelity National sports a Zacks Rank #1, Hartford Financial and Arch Capital carry a Zacks Rank #2 (Buy) at present.

Fidelity National’s earnings surpassed estimates in each of the last four quarters, the average surprise being 38.18%. The Zacks Consensus Estimate for FNF’s 2022 earnings has moved north by 4.6% in the past 60 days. Fidelity National has a Value Score of A.

The bottom line of Hartford Financial outpaced earnings estimates in three of the last four quarters and missed once, the average surprise being 34.94%. The Zacks Consensus Estimate for HIG’s 2022 earnings suggests an improvement of 23.9% from the year-ago reported figure, while the same for revenues suggests growth of 5.2%. The consensus mark has moved north by 0.4% in the past 30 days. Hartford Financial boasts of a VGM Score of A.

Arch Capital’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 32.71%. The Zacks Consensus Estimate for RLI’s 2022 earnings indicates a rise of 31.5% year over year, while the same for revenues suggests an improvement of 10.8%. The consensus mark has moved north by 1.2% in the past 30 days. Arch Capital boasts of an impressive VGM Score of A.

Shares of Fidelity National, Hartford Financial and Arch Capital have gained 26.3%, 36.7% and 35.4%, respectively, in a year.


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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report

MetLife, Inc. (MET) : Free Stock Analysis Report

Fidelity National Financial, Inc. (FNF) : Free Stock Analysis Report

Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report

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