MetLife Inc., the largest U.S. life insurer, can counter low interest rates by cutting expenses and expanding in other nations, Chief Executive Officer Steven Kandarian said.
The insurer has also been raising prices for some retirement products, and benefits from hedges against low interest rates. Kandarian is seeking to exit banking to limit oversight from the Federal Reserve, which rejected his plan to repurchase shares. A deal to sell deposits to General Electric Co. won approval yesterday from the Office of the Comptroller of the Currency.
Share buybacks can help boost the company’s return on equity, which was 10.3 percent last year. Interest rates near record lows have pressured income from the company’s bond portfolio, and New York-based MetLife said today that 2013 operating earnings will be below analysts’ estimates.
“The low end of the 12 percent to 14 percent operating ROE target for 2016 is achievable, even if rates remain at current levels during the entire period,” Kandarian said today on a conference call with analysts. “Earnings in Japan have remained strong despite two decades of low interest rates.”
MetLife fell 2.3 percent to $32.83 at 4 p.m. in New York trading. The shares have gained 5.3 percent this year, trailing the KBW Insurance Index’s 14 percent climb.
Operating earnings from Asia will increase by about 8.9 percent next year, the fastest pace among MetLife’s divisions, according to a slide presentation.
Variable income, which includes private equity, hedge funds, and some real estate may decline next year. The company forecast a range of $800 million to $1.2 billion in 2013 as real estate returns fall short of this year’s results. The 2012 range is $1.1 billion to $1.3 billion.
Operating profit next year will be $4.95 to $5.35 a share, the company forecast today. That compares with the average estimate of $5.48 among 19 analysts surveyed by Bloomberg.
MetLife’s 2013 projection doesn’t include buybacks, because the insurer said it can’t be sure if it will win regulators’ approval, even as it winds down its bank. The insurer has said it plans to repurchase $8 billion of shares by 2016 to help achieve Kandarian’s return-on-equity goal.
Asked by Sean Dargan, an analyst at Macquarie Group Ltd., about the long-term buyback projection, Kandarian said he lacks “total confidence” because regulatory developments may be outside MetLife’s control.
‘Wait and See’
“That plan was put together a while ago,” Kandarian said. “As things unfold here in terms of regulatory oversight, we’ll have to wait and see.”
MetLife has been regulated by the Fed as a bank-holding company, stemming from its ownership of a lender. Regulators blocked Kandarian from boosting the dividend or buying back shares as part of a review of how the largest U.S. financial firms would fare in a downturn.
After getting the OCC’s approval yesterday, MetLife will work with the Federal Deposit Insurance Corp. and Fed to deregister as a bank holding company, the insurer said. MetLife may still be regulated by the Fed as a non-bank systemically important financial institution after exiting bank status, Kandarian said earlier this month.