MetLife Inc., the largest U.S. life insurer, said second-quarter profit tumbled 90 percent on a review of the prospects of a variable-annuity business that Chief Executive Officer Steve Kandarian is seeking to exit. The stock declined in extended trading.
Net income dropped to $110 million from $1.12 billion a year earlier, the New York-based company said Wednesday in a statement. Operating profit, which excludes some investment results, was 83 cents a share, missing the $1.35 average estimate of 13 analysts surveyed by Bloomberg.
Kandarian, whose term was extended in June, is looking to retreat from a U.S. retail business that sells individual life insurance and variable annuities, a capital-intensive operation that wasn't generating the cash flow he desired. He sold a network of about 4,000 advisers to Massachusetts Mutual Life Insurance Co. in July. The goal is to focus on international operations and U.S. offerings that are provided through the workplaces, such as disability and dental coverage.
"Results were negatively impacted by market factors, our annual variable annuity actuarial assumption review, and reserve adjustments," Kandarian said in the statement. There has been significant progress, however, on the "planned separation of a substantial portion of the U.S. retail business," he said.
Interest rates
The variable annuity review resulted in a non-cash charge of $2 billion. Lower interest rates can require the company to change its assessment of future profitability on the retirement products, as can changes in customer behavior, such as when policyholders maintain contracts longer than the insurer had expected.
MetLife dropped 4 percent to $41.96 in late trading at 5:04 p.m. in New York. The insurer had declined about 9.4 percent this year to $43.70 as of 4 p.m. Results were released after the close of regular trading.
Life insurers have been pressured by the decline in U.S. Treasury yields, especially after U.K. voters decided to leave the European Union. The companies hold the bulk of their investment portfolio in bonds.
Prudential, Lincoln
Prudential Financial Inc., the second-largest U.S. life insurer, reported that second-quarter net income slipped 34 percent to $921 million. Lincoln National Corp. posted a profit of $325 million, down from $344 million during the same period a year earlier.
MetLife's operating return on equity was 4.9 percent in the second quarter, compared with 10.2 percent in the same period in 2015. Book value, a measure of assets minus liabilities, rose to $70.18 a share from $67.10 at the end of March.
The Americas unit, MetLife's largest division, reported operating earnings that fell 42 percent to $835 million driven by the variable annuity review. The retail unit contributed $184 million, a decrease from $690 million.
