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MetLife Profit Falls 74% as Derivatives Loss Widens

MetLife Inc., the biggest U.S. life insurer, said fourth-quarter profit declined 74 percent as derivative losses widened amid a surge in interest rates.

Net income fell to $82 million, or 5 cents a share, from $320 million, or 35 cents, a year earlier, the New York-based company said today in a statement distributed by Business Wire. Excluding some investment results, earnings were $1.14 a share, beating the $1.10 average estimate of 18 analysts surveyed by Bloomberg.

MetLife uses derivatives to produce income and guard against market risks, such as interest-rate declines and currency fluctuations. When yields rise, as two-year and 10-year Treasury notes did in the fourth quarter, MetLife writes down the value of some derivatives.

The derivatives result “is influenced by interest rates,” Randy Binner, an analyst at FBR Capital Markets, said before the earnings announcement. “It just highlights that the company is very well hedged” against low interest rates. Binner has an “outperform” rating on MetLife stock.

Two-year Treasury yields surged 41 percent in the three months ended Dec. 31, the third-biggest quarterly gain since at least 1981. MetLife, which had more than $200 billion of derivative contracts at the end of September, guards against interest-rate declines because the company depends on bond coupons to help serve customers and record profits.

Alico Deal

Chief Executive Officer Robert Henrikson added 20 million customers in the fourth quarter with the purchase of American Life Insurance Co. from American International Group Inc. The $16.2 billion deal, completed in November, boosted MetLife’s presence in markets from Chile to Japan. In the U.S., the company retreated from the market for long-term care insurance to focus on more-profitable businesses.

“The integration of Alico is on target,” Henrikson said in the statement.

MetLife posted a full-year 2010 profit of $2.79 billion, compared with a $2.25 billion loss in 2009.

MetLife had $1 billion in derivatives losses in the fourth quarter. In the same period of 2009, the company reported $527 million of losses on the contracts. Premiums, fees and other revenue rose 3.6 percent to $9.66 billion.

Book value per share, a measure of assets minus liabilities, fell 9.7 percent to $44.18 in the last three months of 2010 as the company issued stock to fund the Alico purchase. MetLife slipped 60 cents to $47 in extended trading at 5:09 p.m. in New York. The company gained about 35 percent in the past year on the New York Stock Exchange.

Net investment income surged 22 percent to $4.79 billion from $3.92 billion a year earlier. MetLife said variable investment income, a category that includes buyout and hedge funds, was $423 million on a “strong performance” from private equity.

Premiums, fees and other revenue in the U.S. declined 8 percent to $7.2 billion as insurance product sales fell. International revenue jumped 75 percent, to more than $2 billion, on the Alico acquisition.

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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