MetLife Profit Slumps 43% on Weaker Investment Result, Taxes

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  • Net income falls to $1.2 billion, from $2.09 billion year ago
  • CEO Kandarian says third quarter was `difficult' for MetLife

MetLife Inc., the largest U.S. life insurer, said third-quarter profit fell 43 percent as investment results deteriorated and the company incurred tax costs tied to a U.K. subsidiary.

Net income dropped to $1.2 billion from $2.09 billion a year earlier, New York-based MetLife said Wednesday in a statement. Operating profit, which excludes some one-time items, was 62 cents a share, missing the 76-cent estimate from 18 analysts surveyed by Bloomberg. The insurer reported in September that the tax cost, which was tied to a court ruling, would cut earnings by about $792 million.

Insurers’ investment returns have been hurt for years by low yields, which limit income on the fixed-income securities that account for most of the industry’s holdings. In the third quarter, market volatility pressured results for companies such as American International Group Inc. and Travelers Cos. at other parts of their portfolio: alternative assets like hedge funds or real estate partnerships.

“Interest rates did not move as much as they thought they would,” Sean Dargan, an analyst at Macquarie Group Ltd., said in a phone interview about MetLife before results were announced. Also, “you had a quarter with some equity-market retracement and higher volatility.”

Hedge Funds

Net investment income fell 6.6 percent from a year earlier to $4.85 billion. The contribution from variable holdings, which include hedge funds bets, slumped 37 percent to $267 million.

MetLife slipped 15 cents to $50.34 at 4:32 p.m. in extended trading in New York. The company had dropped 6.7 percent this year through 4:02 p.m., compared with the 3.4 percent decline of the seven-company Standard and Poor’s 500 Life & Health Insurance Index. Results were released after the close of regular trading.

Operating earnings at the Americas division, MetLife’s largest, slipped 18 percent to $1.26 billion. The region’s retail unit reported that operating income slipped 33 percent to $523 million on investments.

At the business selling workplace coverage, profit decreased 1.2 percent to $238 million. Latin America contributed $176 million, up 44 percent, helped by a one-time tax benefit of $60 million in Chile.

William Wheeler, the former head of the Americas unit for MetLife, in September became president of Athene Holding Ltd., the insurer with ties to Apollo Global Management LLC. MetLife hasn’t named a replacement.

Systemically Important

MetLife is fighting a U.S. panel’s decision to label the insurer a systemically important financial institution, a designation that could lead to more stringent capital and liquidity requirements. Companies including Prudential Financial Inc., AIG and General Electric Co.’s finance unit are other non-bank firms that have been deemed potential threats to financial stability.

Prudential, the second-largest U.S. life insurer, said separately Wednesday that third-quarter net income more than doubled to $1.47 billion from $512 million a year earlier. Operating income was $2.40 a share, missing the average estimate of $2.42 among 18 analysts surveyed by Bloomberg.

Currencies, Rates

MetLife Chief Executive Officer Steven Kandarian has been bolstering international operations at the insurer, pushing for growth in Latin America and Asia, while retreating from capital-intensive U.S. businesses like annuities. MetLife bought a Chilean pension-fund manager in 2013 and expanded in Asia with the purchase of American Life Insurance Co. in 2010 for more than $16 billion. Those operations can face pressure from fluctuations in foreign exchange rates.

“Foreign currency, equity markets and interest rates, as well as a previously announced non-cash tax-related charge, negatively impacted MetLife’s third-quarter results,” Kandarian said in the statement, referring to the period as a “difficult” one for the company.

The Asia region, led by Christopher Townsend, had a profit of $338 million, compared with $310 million a year earlier, helped by increasing sales of accident and health coverage. In Europe, Middle East and Africa, overseen by Michel Khalaf, operating earnings fell 15 percent to $66 million.

Book value, a measure of assets minus liabilities, climbed to $61.39 per share from $60.27 at the end of the second quarter.