MetLife's Operating Profit Rises 4.9%

By Leslie Scism 

        Rivals MetLife Inc. and Prudential Financial Inc. posted increases in first-quarter operating profit, even as the life-insurance industry continues to wrestle with ultralow interest rates.
        MetLife, the U.S.'s largest life insurer by assets with a large international business, said its closely watched operating profit rose 4.9%. Chief Executive Steven Kandarian cited "the continued strengthening of the U.S. dollar" as an obstacle in a quarter of "solid underlying growth" for its businesses. The increased profit came despite a slight decline in total revenue.
        Prudential Financial, second in asset size to MetLife and not related to Prudential PLC, said its first-quarter operating earnings rose 14%.
        The Newark, N.J.-based company said results "reflect solid underlying performance across our businesses and represent a strong start for the year." Prudential earns roughly half its profit abroad, mostly from Japan.
        Those two giants' results were posted as three of Europe's largest insurers Wednesday showed how low or negative yields are having an uneven effect. Prudential PLC said total new business profits fell 6% from a year earlier in the first quarter, to GBP496 million ($756 million), with outgoing Chief Executive Tidjane Thiam warning about the "headwinds" of low, long-term rates.
        But Allianz Group said in a trading update Wednesday that its revenue for the first quarter was up 11% from a year earlier, and Legal & General Group reported that its cash flow reached record levels in the first quarter.
        Low interest rates in the U.S. and many other parts of the world crimp insurers' investment income, among other ways they pressure results. Insurers constantly have premium dollars to invest and earn a substantial portion of their income from interest on their big bond-heavy investment portfolios.
        Meanwhile, as foreign currencies have fallen against the dollar, companies that make money in those currencies lose when they are translated back into dollars.
        In the U.S., insurance-industry investors closely watch operating income, which excludes realized capital gains and losses in the companies' investment portfolios as well as derivatives gains and losses that are part of strategies to hedge certain risks.
        MetLife's operating profit tallied $1.64 billion, or $1.44 a share, up from $1.56 billion, or $1.37 a share, in the year-earlier period. The company topped the consensus analysts' expectation of $1.41 a share.
        The New York company's net income surged to $2.13 billion from $1.3 billion, buoyed by $534 million in net derivative gains reflecting the weakening of foreign currencies against the dollar and lower interest rates, the company said.
        Total operating revenue was $17.03 billion, compared with analysts' expectation of $17.53 billion, and slightly below the $17.12 billion in the year-earlier period. Net investment income dipped 2% to $4.98 billion, while premiums, fees and certain other revenues edged up slightly, to $12.05 billion.
        Prudential Financial earned $2.04 billion, or $4.37 a share, compared with $1.23 billion, or $2.59 a share, year earlier. Revenue rose 8% to $11.81 billion.
        Its operating earnings rose to $1.3 billion, or $2.79 a share, from $1.14 billion, or $2.40 a share, a year earlier. Analysts polled by Thomson Reuters projected operating earnings of $2.38 a share on revenue of $11.1 billion.
        MetLife, Prudential and American International Group Inc. all have been designated as nonbank "systemically important financial institutions" by a panel of federal regulators created under the 2010 Dodd-Frank financial-system law. Nonbank SIFIs are subject to Federal Reserve oversight with yet-to-be-determined requirements for such things as capital cushions.
        MetLife's earnings' conference call Thursday morning will be its second since the insurer in January challenged in federal court its SIFI designation. In both insurers' call, analysts and investors are expected to push for insights into how the federal rules are shaping up, as they try to understand the potential impact on future stock buybacks.
        Shares of MetLife were unchanged at $51.78 in after-hours trading, while Prudential shares were up 1.1% to $84.59.
        Write to Leslie Scism at leslie.scism@wsj.com
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        (END) Dow Jones Newswires

        May 06, 2015 18:31 ET (22:31 GMT)

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