MetLife Finds Waiting Is a Hard Part as Reorganization Looms

Updated on
  • Insurer benefits in quarter from improvement in group benefits
  • Private equity, hedge funds help boost investment income

For MetLife Inc. Chief Executive Officer Steve Kandarian, the future can’t come soon enough.

He’s still waiting for regulatory approval to spin off a U.S. business called Brighthouse Financial and hasn’t heard from a federal appeals court about the outcome of his company’s regulatory battle with the U.S. government.

For now, Kandarian can point to growth in group benefits, a highlight of first-quarter results reported Wednesday, while working to assure shareholders that it’s worth the wait for a transformed insurer. Another bright spot was the increase in sales in international markets, such as Asia and Latin America.

“The work of transforming a company is hard, and the payoff does not happen overnight,” Kandarian said April 27 in an annual letter to shareholders. “We have made tremendous progress on our enterprise strategy, but we still have much to do.”

MetLife has dropped 3.3 percent since Dec. 31, the third-worst performance in the 21-company S&P 500 Insurance Index. Analysts have raised concerns that MetLife may be unable to meet its target of separating Brighthouse in the first half as Delaware’s insurance commissioner takes longer than the company expected for its review. The separation could occur in July, assuming MetLife obtains the necessary regulatory approvals, Sean Dargan, an analyst at Wells Fargo & Co., said April 18 in a note to clients.

Kandarian last year won a court case overturning a regulatory panel’s designation of his company as a systemically important financial institution, a tag that can bring tighter capital standards. He’s seeking to defeat the government’s appeal while MetLife points out that President Donald Trump might dial back regulation either way.

Cutting Costs

The CEO has also been working to reduce costs and simplify the company. Headcount at the New York-based insurer fell by 16 percent last year to 58,000.

The U.S. businesses that MetLife is keeping reported that operating profit gained 24 percent to $503 million from the same period a year earlier. The segment that sells insurance through employers contributed $194 million, up from $142 million. The retirement and income solutions business generated $280 million, an increase of 16 percent. Earnings from MetLife’s property-casualty operation rose 32 percent to $29 million.

MetLife will rely more on its international businesses after it spins off Brighthouse. Profit from its Asia operation slipped 3.3 percent to $295 million, hurt by tax costs in Japan. The Latin American unit reported that profit fell to $143 million from $151 million on higher claims costs. And earnings from businesses in Europe, the Middle East and Africa climbed 19 percent to $75 million.

Still, sales in Asia climbed 35 percent, driven by growth in Japan and China. And MetLife reported that sales in Latin America jumped 3 percent, and rose 4 percent in Europe, the Middle East and Africa.

Brighthouse Financial

The Brighthouse Financial business, led by Eric Steigerwalt, posted profit of $244 million, compared with $327 million a year earlier. Brighthouse is aiming to achieve an operating return on equity of 9 percent, according to a regulatory filing in April.

That goal, along with its targets for cash flow to shareholders and growth in operating earnings per share, are “not inspiring,” Barclays Plc analysts led by Jay Gelb said April 18 in a note to clients. He said Brighthouse would be comparable to Lincoln National Corp., which trades slightly above book value, or Voya Financial Inc., which trades at about 56 percent of the measure of assets minus liabilities. Part of the reason that Kandarian wants to exit Brighthouse is its reliance on variable annuities, retirement products that require companies to hold large sums of capital to guard against market fluctuations.

Read more: MetLife Seeks to Delay Too-Big-to-Fail Case

Net income at the parent company slumped 63 percent to $820 million in the first quarter, driven by losses on derivative contracts used to hedge interest rate and equity risks. Operating profit of $1.41 a share beat the estimate of $1.28 from 16 analysts surveyed by Bloomberg.

“MetLife had strong first-quarter operating earnings, driven by volume growth, continued expense discipline and higher fees from improved equity markets,” Kandarian said in the statement.

Kandarian also formed a unit called MetLife Holdings, which houses blocks of business that the company is winding down. That segment contributed $385 million to earnings, up from $267 million a year earlier as investment results improved.

MetLife’s net investment income rose 14 percent to $5.2 billion on stronger results from private equity and hedge funds.

The CEO posted operating return on equity of 11.3 percent in the quarter, compared with 9.3 percent in the first three months of 2016. Book value, a measure of assets minus liabilities, climbed to $60.91 a share, compared with $59.56 at the end of December.

Prudential Financial Inc., the second-largest U.S. life insurer, reported that net income climbed 2.5 percent to $1.37 billion during the first quarter amid better sales in international markets.

(Updates with sales, net income, CEO quote, Prudential starting in 10th paragraph.)
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