MetLife’s Interest-Rate Hit Weighs on Third-Quarter Profit

(Bloomberg) -- MetLife Inc.’s third-quarter profit took a hit from the Federal Reserve’s rate cuts, while growth in the firm’s business selling policies through employers and its Asia operations drove better core results than some analysts were expecting.

• Adjusted earnings took a $160 million hit after the largest U.S. life insurer cut its long-term interest rate view to 3.75% from 4.25% in a yearly review of actuarial assumptions, according to an earnings presentation.

Key Insights

• MetLife is lowering its estimate of how much it’ll be able to produce in income to cover future claims. Other companies with insurance portfolios have also taken a hit from lower interest rates. General Electric Co. said Wednesday it had a non-cash charge of $1 billion before taxes that was largely driven by the decline in rates.
• Asia was a bright spot with profit there jumping 31%, driven by sales in Korea, China and India. Chief Executive Michel Khalaf, who took the helm in May, has international experience after running the company’s Europe, Middle East and Africa businesses.
• MetLife returned $1.2 billion of capital to shareholders in the third quarter through stock buybacks and dividends, an even faster pace than the $2 billion it gave back in the first half of the year.

Market Reaction

• MetLife shares fell 1.5% to $45.61 at 10:27 a.m. in New York. They’ve risen 11% this year.
• “We view the results as solid,” said Larry Greenberg, an analyst at Janney Montgomery Scott. “The earnings beat was driven by strong underwriting margins in group and favorable variable investment income,” he wrote. RBC Capital Markets, Credit Suisse Group AG and Wells Fargo & Co. were among the other firms who said adjusted earnings exceeded expectations, excluding the actuarial review.

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• Adjusted earnings of $1.27 a share fell short of the $1.40 median estimate of analysts surveyed by Bloomberg. Excluding the charge tied to interest rate expectations, adjusted earnings per share of $1.44 beat expectations, according to some analyst reports.
• For more details on the results, click here.
• Read the statement here.

To contact the reporter on this story: Lananh Nguyen in New York at lnguyen35@bloomberg.net

To contact the editor responsible for this story: Michael J. Moore at mmoore55@bloomberg.net

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