MetLife Inc. (MET) Chief Executive Officer Steven Kandarian said the insurer may scale back or exit businesses as it conducts a review of units to meet targets for shareholder returns amid near-record low interest rates.
“Everything is on the table,” Kandarian said today in a conference call with analysts to discuss 2012 earnings projections for the largest U.S. life insurer. “There could be businesses that we dial down. There could be businesses that we don’t engage in any longer.”
Kandarian, 59, has made deals to sell units including assets in Panama, Costa Rica and Trinidad and Tobago since MetLife’s acquisition of American Life Insurance Co. last year for about $16 billion, which increased sales outside the U.S. The insurer is expanding in countries such as India, China, Russia and Brazil, where it projects about 20 percent annual revenue growth through 2015.
Operating return on equity will be between 10.6 percent and 10.8 percent this year, and the upper end of the range for 2012 is 10.6 percent, New York-based MetLife said today in a presentation on its website. The insurer had projected a 12 percent to 14 percent return on equity by 2013 in its investor presentation last December.
“In this low-interest rate environment, in terms of opportunities on the investment side, it’s going to be harder to get to the higher end of the range in the short term,” said Kandarian. “Today, we’re not there. We know that. But we are going to look at every lever possible to get the ROE over time to the level where it needs to be.”
The insurer has begun a review of its businesses and will tell investors more about what changes it will make at a presentation in June, Kandarian said.
Insurers’ investment income has been under pressure as near-record low interest rates reduce coupon payments from bonds. The average yield on MetLife’s more than $350 billion in fixed-income holdings sank to 4.8 percent in the three months ended Sept. 30 from 5.8 percent a year earlier, according to data on the insurer’s website.
Next year’s operating earnings will be $5.1 billion to $5.6 billion, or $4.80 to $5.20 a share, MetLife said today in a statement. That compares with a forecast of $5.2 billion to $5.3 billion, or $4.83 to $4.93 a share, for this year.
The insurer advanced 4.2 percent to $33.10 at 11:58 a.m. in New York. The firm has dropped about 26 percent this year.
MetLife plans to submit a fresh capital plan to the Federal Reserve next month after the regulator rejected the company’s proposal to raise its dividend and resume share buybacks. The company said expects to hear from the Fed by the end of the first quarter.
The insurer is subject to Fed oversight because of its size and ownership of banking operations, which Kandarian has announced plans to sell. William Wheeler, who heads MetLife’s Americas division, declined to comment on the call about prospects for divesting the business. The 2012 forecast assumes no share buybacks, according to today’s presentation.
MetLife plans to reduce sales of variable annuities by about 35 percent from 2011 levels to between $17.5 billion and $18.5 billion next year, Wheeler said today on the call. The insurer said in October that it will lower the returns it promises customers as it reduces risk from the equity-linked products. When stock markets fall, variable-annuity sellers often are required to shoulder a portion of the losses for their customers.
The insurer’s sales of the retirement products in the third quarter surged 84 percent to about $8.6 billion, furthering the company’s lead as the top U.S. provider of the products.
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