MetLife reported earnings on Wednesday, August 1st with operating earnings of $1.33 beating analysts’ mean estimate by 9 cents and our own estimates by 8 cents per share. Variable annuity sales were greatly reduced down 34% for the quarter and 6% year over year as MetLife works to balance its growth and risk. Operating profit in the firm’s Asia region was up 61% year over year as life insurance sales in Japan rose in comparison to the tsunami burdened Q2 of last year. Shares closed up 4.2% on Thursday and as of this writing are up 10.5% outpacing the SP500 by 8.8% over the same period.
Management still projects an ROE of 12% to 14% by 2016 despite the low interest rate environment. In the event that 10-year Treasuries remain at 1.4% they feel they will still be able to hit the low end of that range. MetLife has thus far been very successful with its hedging program with a 1.4 billion derivatives gain tied to low interest rates this quarter and has multiple products that it can adjust interest rates on to adapt to market conditions.
On the regulatory front MetLife’s application to complete the sale of MetLife bank to GE Capital is under review by the FDIC and management did not speculate on a timeframe for any action. The possibility of MetLife being classified as a nonbank SIFI still looms over the stock but it is unclear what the impact may be as the rules are not yet clear.
Our outlook is positive as MetLife continues to focus on sound pricing and underwriting with appropriate levels of risk management.