MetLife Misses Estimates on Australia Reserve Costs

MetLife Inc. (MET), the biggest U.S. life insurer, posted third-quarter results that fell short of analysts’ estimates as the company recorded costs tied to reserves for Australian disability claims.

Net income of $972 million, or 84 cents a share, compares with a loss of $954 million, or 92 cents, a year earlier, when the company had an impairment related to an annuity business, MetLife said yesterday in a statement. Operating profit was $1.34 per share, compared with the $1.36 average estimate of 20 analysts surveyed by Bloomberg. This year’s result was lowered by a higher share count, tied to the conversion of equity units issued to fund the 2010 purchase of American Life Insurance Co.

Chief Executive Officer Steven Kandarian scaled back U.S. sales of some retirement products as the New York-based company expands in other nations and targets return on equity to at least 12 percent by 2016, compared with about 11 percent last year. The CEO set a goal of cutting $600 million in costs by 2016, mostly in the U.S.

“The idea is to grow in emerging markets,” Sean Dargan, an analyst at Macquarie Group Ltd., said by phone before results were announced. “They are taking a very hard line on cutting expenses in the U.S.”

Operating profit in Asia fell about 0.8 percent to $257 million. Earnings were cut by $57 million, or 5 cents a share, on costs in Australia after the company determined it needed more funds in reserves for claims on policies sold in prior periods. Reinsurance Group of America Inc. and Warren Buffett’s Berkshire Hathaway Inc. are among companies that faced higher-than-expected costs from disability business in the country.

Book Value

Results also included a benefit of 2 cents a share tied to catastrophe costs and reserves, and 3 cents from a review of actuarial assumptions. Operating earnings per share climbed by 2 cents from the third quarter of 2012

Book value, a measure of assets minus liabilities, fell to $52.54 per share on Sept. 30 from $52.85 three months earlier. Operating investment income was little changed at $5.04 billion. Variable investments, which include private equity and hedge funds, added $236 million before taxes, down from $260 million a year earlier.

MetLife slipped 2 percent to $48 in extended trading at 5:34 p.m. in New York yesterday. The insurer gained 49 percent this year, beating the 24 percent advance of the Standard & Poor’s 500 Index. Results were announced after the close of regular trading.

Chile, Vietnam

MetLife paid about $16 billion to acquire Alico from American International Group Inc. (AIG) in 2010, and about $2 billion this year for Chilean pension provider AFP Provida SA. In Vietnam, the company is pursuing a life insurance joint venture with two banks.

In the Americas, MetLife operating profit climbed 7.2 percent to $1.32 billion. The region, overseen by Bill Wheeler, is MetLife’s largest and includes results from the U.S. and Latin America.

At the division’s retail unit, operating profit was $659 million, compared with $492 million a year earlier. Variable annuity sales fell 41 percent to about $2.7 billion.

MetLife has scaled back sales of products in the U.S. that are more capital intensive, such as variable annuities, amid pressure from interest rates near record lows. The insurer has said it’s seeking to expand in offering protection, such as accident-and-health coverage, rather than financial guarantees.

To help cut costs, MetLife is moving about 2,600 jobs to North Carolina from sites in the U.S. Northeast and California. The company said in May that it had cut its adviser force by about a third to 5,000. Eric Steigerwalt, who oversees the U.S. retail operation, is pushing agents to sell more car and home coverage.

In Latin America, operating earnings fell 13 percent to $133 million.

MetLife’s results included $355 million in derivative losses. The insurer uses hedges to cushion the effects fluctuations in currencies and interest rates.

To contact the reporters on this story: Zachary Tracer in New York at ztracer1@bloomberg.net; Marci Jacobs in New York at mjacobs@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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