Oct. 31 (Bloomberg) -- MetLife Inc., the largest U.S. life insurer, said operating profit rose 47 percent in the third quarter as the firm’s Asian businesses expanded.
Operating profit climbed to $1.42 billion, or $1.32 a share, from $965 million, or 91 cents, a year earlier, the New York-based company said today in a statement. Earnings beat the average estimate of $1.28 a share from 17 analysts polled by Bloomberg. The company took a $1.6 billion impairment on its retail annuity business, driving a net loss of $954 million.
Chief Executive Officer Steven Kandarian is targeting growth beyond the U.S. and cutting back on capital-intensive offerings such as variable annuities as he seeks a return on equity of at least 12 percent by 2016. The Federal Reserve has blocked Kandarian’s plans to repurchase shares as part of its review of how the largest banks would weather a financial crisis, and he was unable to win regulatory approval as quickly as he’d planned to sell deposits and limit the oversight.
“Their longer-term ability to hit that ROE is predicated quite frankly on capital deployment and, as well, on international growing,” Randy Binner, an analyst at FBR Capital Markets, said in an interview before results were announced. “These are nascent markets when it comes to insurance products.” Return on equity was 10.3 percent last year.
MetLife is expanding in developing nations from Southeast Asia to Latin America after buying American Life Insurance Co., with operations in about 50 countries, from American International Group Inc. in 2010. MetLife said in May it’s seeking to cut costs by $600 million by 2016, mostly in the U.S.
In Asia, operating earnings rose 17 percent to $259 million as the company collected more premiums in Japan and Korea and investment income increased.
Operating profit in the Americas jumped 58 percent to $1.2 billion as MetLife recorded lower catastrophe expenses. Costs from Hurricane Sandy will be reflected in fourth-quarter results.
Variable annuity sales fell by 46 percent to $4.6 billion. The retirement products can expose insurers to risks including low interest rates, market volatility and stock declines.
MetLife has said it would reduce variable-annuity sales by about a third this year, and lowered some guarantees to cut risks. The insurer fell to the No. 3 seller of the retirement products in the first six months of this year, trailing Prudential Financial Inc. and Prudential Plc’s Jackson National, according to data from industry group Limra. MetLife was the top seller in 2011.
Book value rose to $58.35 per share as of Sept. 30 from $56.83 three months earlier. Net investment income was $5.05 billion, up from $4.96 billion a year earlier, and the investment portfolio grew to $522 billion.
The shares have gained 14 percent this year, matching the advance of the 24-company KBW Insurance Index.
MetLife reported $718 million of pretax net derivatives losses, compared with a gain of $4.2 billion in the third quarter of 2011, when net income was $3.46 billion. The figures reflect the value of interest-rate and currency hedges and fluctuations in the insurer’s credit spreads, a change that the insurer said does “not have an economic impact on the company.”
The insurer said this month it’s adding asset management for institutional investors to increase income from fees. The initiative will focus on real estate and private-placement debt, an area in which the company already invests. Principal Financial Group Inc. has said it’s working to boost fees from asset management as low yields weigh on its insurance business.
MetLife is seeking to limit U.S. oversight by selling deposits to General Electric Co. and amended the deal in September so that Federal Deposit Insurance Corp. approval was no longer required. Kandarian said the insurer would escape bank status by the end of June and later backed away from the projection. The firm faces a January deadline to submit a new capital plan to the Federal Reserve.
MetLife’s annual dividend has remained 74 cents a share since 2007. No. 2 Prudential Financial, which isn’t subject to the same oversight, increased its dividend in 2009, 2010 and 2011 and announced buybacks.
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