MetLife Inc., the largest U.S. life insurer, said fourth-quarter profit fell 87 percent on costs tied to lower interest rates and annuities.
Net income dropped to $127 million from $990 million a year earlier, the New York-based company said today in a statement. Operating profit, which excludes some investing results, was $1.25 per share, beating the $1.18 average estimate of 19 analysts surveyed by Bloomberg.
MetLife invests payments from clients in a portfolio of more than $500 billion to help meet future obligations. Near record-low bond yields squeeze returns from those holdings while pressuring results from retirement products in which the company provides guaranteed returns.
“A prolonged period of low interest rates is bad for insurers because it leads to lower investment earnings and profit compression,” said Neil Strauss, an insurance analyst at Moody’s Investors Service, in an interview before results were announced. “They do have hedges related to that, but they’re still seeing impact.”
The insurer took a $752 million charge after it reviewed assumptions about returns amid the low-rate environment. MetLife said in December that fewer customers than expected surrendered some retirement products. The insurer guarantees minimum returns in offerings such as annuities.
MetLife declined about 0.5 percent in the past 12 months, while the Standard & Poor’s 500 Insurance Index rallied 18 percent. Results were released after the close of regular trading in New York.
Full-year profit fell to $1.32 billion, from $6.42 billion in 2011. Book value, a measure of assets minus liabilities, fell to $57.17 per share on Dec. 31, from $58.35 three months earlier.
Sales in nations including Mexico, Chile and Brazil helped drive operating earnings in Latin America 20 percent higher to $148 million. Chief Executive Officer Steven Kandarian, 60, set a goal of generating at least 20 percent of operating earnings from emerging markets by 2016, and this month agreed to buy Chilean pension manager AFP Provida SA in a $2 billion deal to add fee income.
MetLife is “growing our presence in emerging markets with our recent agreement to acquire AFP Provida in Chile, as well as our expansion in Central Europe, Turkey and India,” Kandarian said in today’s statement.
Fourth-quarter profit in the Europe, Middle East, and Africa region jumped 26 percent to $59 million, driven by growth in Turkey, MetLife said.
In the Americas region, which includes the U.S. and Latin America, operating earnings rose 21 percent to $1.3 billion in the fourth quarter. Operating profit in Asia dropped 24 percent to $198 million, as changes in assumptions related to some Japanese products contributed to a $62 million charge.
MetLife acquired American Life Insurance Co., with operations in more than 50 countries, from American International Group Inc. in 2010 for about $16 billion.
Investment income rose 5.8 percent to $5.18 billion in the fourth quarter, as so-called variable investments, which include private-equity and hedge funds, contributed $376 million before tax, up from $135 million a year earlier.
Variable annuity sales for 2012 fell to $17.7 billion, matching MetLife’s goal to cut purchases of the retirement products by about a third. The insurer set a 2013 sales target of $10 billion to $11 billion as it seeks to reduce risk from the capital intensive products.