MetLife Swings to Profit on Derivatives, Misses Estimates
Metlife CEO Robert Henrikson
Ramin Talaie/Bloomberg
Robert Henrikson, chief executive officer of Metlife Inc.
Robert Henrikson, chief executive officer of Metlife Inc. Photographer: Ramin Talaie/Bloomberg
MetLife Inc., the biggest U.S. life insurer, swung to a profit in the third quarter as the company’s derivative losses narrowed. The stock declined in late trading as results fell short of analysts’ estimates.
Net income in the three months ended Sept. 30 was $316 million, or 32 cents a share, compared with a loss of $620 million, or 79 cents, in the same period a year earlier, the New York-based company said today in a statement. Excluding some investment results, MetLife profit was 99 cents a share, missing the $1.03 estimate of 16 analysts compiled by Bloomberg.
MetLife uses the derivatives to produce income and guard against moves in interest rates, currencies and equities. The insurer had more than $200 billion in the contracts at the end of June and $857 million in derivative losses in last year’s third-quarter. The loss on the contracts narrowed to $190 million in the three months ended Sept. 30.
MetLife “requires a lot of derivatives to hedge the guarantees” the insurer makes to clients including holders of equity-linked retirement products, said Randy Binner, an analyst with FBR Capital Markets. “The companies with the most derivatives are going to be the larger, more complicated companies that also happen to be those that sell a lot of variable annuities.”
Stock Decline
MetLife fell 96 cents, or 2.4 percent, to $39.50 at 4:25 p.m. in late New York trading. The company has gained about 14 percent this year on the New York Stock Exchange, compared with the 17 percent advance of the 24-company KBW Insurance Index.
Premiums, fees and other revenue in the U.S. were $7.1 billion, “down slightly” from the third quarter last year, MetLife said. International revenue advanced about 16 percent to $1.3 billion on growth in Chile, Korea and Hong Kong.
Chief Executive Officer Robert Henrikson poised to increase business outside the U.S. when the firm completes its $15.5 billion acquisition of an AIG unit with sales in Japan, Russia and Poland.
Book value per share, a measure of assets minus liabilities, climbed 7.5 percent from June 30 to $48.93 on Sept. 30 as unrealized gains surged to $14.8 billion from $7.3 billion at the end of the second 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.
Private Equity
Net investment income, including payments on bonds, gained 12 percent to $4.39 billion. Returns from private equity holdings boosted the company’s so-called variable investment income, which was $186 million after tax, or $56 million above the company’s plan.
MetLife raised $3.62 billion in a share sale in August to help pay for AIG’s American Life Insurance Co., which Henrikson agreed in March to acquire. Henrikson also sold $3 billion of senior notes. Raising the capital lowered operating earnings by 8 cents a share, MetLife said today.
“All of us at MetLife are eager to welcome our new colleagues from Alico,” Henrikson said in the statement. “We will be well positioned to deliver significant value for our customers and our shareholders.”
MetLife, which reported $24.2 billion of interest-rate floors among its derivative holdings at the end of June, has posted gains when bond yields fall. Yields on two-year Treasuries plummeted in the third quarter to 0.42 percent on Sept. 30 from 0.6 at the end of June.
MetLife’s credit spreads narrowed in the three months ended Sept. 30. According to accounting rules, insurers increase the value of liabilities when their credit improves. Credit-default swaps on MetLife dropped to 222 basis points as of Sept. 30 from 335 basis points on June 30. In last year’s third quarter, the company’s swaps dropped to 231 from 529.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.
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