MetLife Swings to Profit as Revenue Climbs, Derivatives Gain

MetLife Inc. CEO Robert Henrikson is adding customers in the U.S. as profits return and bailed-out rivals like American International Group Inc. scale back their offerings. Photographer: Ramin Talaie/Bloomberg

 

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July 29 (Bloomberg) -- Bloomberg's David Evans talks about New York Attorney General Andrew Cuomo's fraud probe into the life insurance industry. Cuomo's office subpoenaed Prudential Financial Inc. and MetLife Inc. for information about profits on death benefits retained from the families of deceased policyholders including military personnel. Cuomo’s investigation was prompted by a Bloomberg Markets magazine report and follows a review by the New York State Insurance Department. Evans speaks with Margaret Brennan and Scarlet Fu on Bloomberg Television's "InBusiness". (Source: Bloomberg)

MetLife Inc., the biggest U.S. life insurer, swung to a second-quarter profit as revenue rose and the company booked an investment gain on derivatives. The stock advanced 2.8 percent in extended New York trading.

Second-quarter net income was $1.56 billion, or $1.84 a share, compared with a loss of $1.4 billion, or $1.74, in the year-earlier period, the New York-based company said today in a statement. Operating profit, which excludes some investment results, was $1.23 a share, compared with the average $1 estimate of 16 analysts surveyed by Bloomberg.

Chief Executive Officer Robert Henrikson is adding customers in the U.S. as profits return and bailed-out rivals such as American International Group Inc. scale back their offerings. MetLife’s business outside the U.S. is poised to increase when the firm completes its $15.5 billion acquisition of an AIG unit with sales in Japan, Russia and Poland.

“They’re growing their revenues because it’s still part of the flight to quality,” Steven Schwartz, an analyst with Raymond James & Associates Inc., said in an interview before results were released. “They’re the biggest dog in the pound.”

MetLife advanced $1.11 to $41.31 at 4:23 p.m. in extended trading after ending the session on the New York Stock Exchange up 2.3 percent. The company gained about 25 percent in the 12 months through the end of regular trading today.

Investment Gain

MetLife posted a $767 million after-tax net investment gain, compared with a $2.6 billion loss in the same period a year ago. Premiums, fees and other revenue rose 3.7 percent to $8.68 billion, the insurer said.

Book value per share, a measure of assets minus liabilities, climbed 10 percent from March 31 to $45.51 on June 30 as unrealized gains jumped to $7.3 billion from $1.5 billion at the end of the first quarter. Unrealized gains, reflecting market fluctuations that aren’t counted toward earnings, are monitored by investors and rating firms as a gauge of financial strength.

MetLife posted a 10 percent increase in the sale of equity- linked retirement products last year as New York-based AIG and Hartford Financial Services Group Inc. retreated. Variable annuity sales at MetLife rose to $15.4 billion in 2009, while AIG fell 42 percent to $4.8 billion and Hartford, based in the Connecticut city of the same name, plummeted 66 percent to $2.7 billion, according to data from trade group Limra International.

Investments

Net investment income gained 9.6 percent to $4.09 billion. MetLife said it got a “strong performance” from private equity holdings, which contributed to $296 million in so-called variable investment income, a category of holdings that include hedge funds.

Premiums, fees and other revenues in the U.S. rose about 2 percent to $7.2 billion on a gain in retirement products. International revenue rose about 21 percent to $1.2 billion on improvements in Mexico, India and South Korea.

Operating revenue at MetLife Bank fell about 16 percent to $337 million on lower mortgage refinancing, the company said.

American Life Insurance Co., the AIG unit that Henrikson agreed in March to acquire, will make about $2.4 billion in profits in 2010, MetLife has projected. MetLife’s pretax income from international businesses was $624 million last year, according to data compiled by Bloomberg.

MetLife has said it plans to sell $2 billion in common stock and $3.1 billion of senior debt to fund the deal. MetLife recorded revenue of $5.5 billion outside the U.S. in 2009, compared with $42.1 billion in its home market.

Derivatives

Derivatives results, which count toward the investment gain, swung to a profit from a $1.8 billion loss in the second quarter of 2009, when the insurer recorded a $1 billion charge tied to a narrowing of its credit spreads.

In the second quarter this year, MetLife’s credit spreads widened. According to accounting rules, insurers reduce the value of liabilities when their credit deteriorate, said Jay Hanson, partner and national director of accounting at McGladrey & Pullen LLP.

Credit-default swaps on MetLife soared to 335 basis points as of June 30 from 193 basis points on March 31, the biggest percentage change since the third quarter of 2008.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.