- Insurers, pension funds ‘slowly going bankrupt,’ Gross says
- Kandarian says difficult to see who benefits from Brexit vote
MetLife Inc. slumped in New York trading as the Brexit vote in the U.K. pushed down bond yields, threatening investment income from the company’s portfolio.
MetLife, the largest U.S. life insurer, dropped 11 percent to $39.44 at 4:01 p.m., extending its loss for the year to 18 percent. Lincoln National Corp. declined 13 percent and the S&P 500 Life & Health Insurance Index fell 8.4 percent, the most since 2011.
Life insurers hold trillions of dollars in assets to back obligations to policyholders and invest mostly in bonds. Central banks have kept interest rates low in recent years to stoke economic growth, and Treasury yields fell further Friday after Britain’s vote to leave the European Union drove a rush for the safest assets.
Insurers, banks and pension funds are “slowly going bankrupt,” Bill Gross, manager of the $1.4 billion Janus Global Unconstrained Bond Fund, said in a Bloomberg Television interview Friday. The institutions have some liabilities that count on annual investment returns of 4 percent to 7 percent, and many long-term bonds are yielding 2 percent or less, he said.
MetLife Chief Executive Officer Steve Kandarian has raised prices for some offerings and sought to shift the company’s product mix to limit risks tied to financial markets. That approach will help shareholders in the long run, regardless of short-term fluctuations in interest rates, he told investors in a letter in April. More recently, he expressed frustration with the Brexit vote.
“The decision to exit creates uncertainty for the global economy,” he said in a statement after the results were announced. “From a strictly economic perspective, it’s difficult to see who benefits from this outcome.”
MetLife has also been expanding in emerging markets to diversify the business. The New York-based company also purchased American Life Insurance Co. in 2010 to build operations in Asia and Europe.
“The more global companies are likely more exposed because they have both spread-based business hurt by low interest rates and currency exposures,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said in a note.