Insurers' Results Hit by Low Rates, Catastrophes -- WSJ
04 August 2016 - 5:02PM
Dow Jones News
By Leslie Scism and Tess Stynes
Insurers reported a messy second quarter plagued by low interest
rates and catastrophe claims, highlighted by a $2 billion charge at
MetLife Inc. tied to a savings product popular with baby
boomers.
Life insurers MetLife, Prudential Financial Inc. and Lincoln
Financial Group booked lower premiums and fees, while
property-and-casualty insurer Allstate Corp. faced elevated levels
of claims for severe weather, including a record hail storm in
Texas.
Lincoln Financial was the only insurer of the group to eke out
an increase in operating earnings; the other three companies posted
double-digit declines.
In after-hours action, shares of MetLife declined 4%, while
Prudential dropped 1.9% The other two stocks were inactive.
Insurers of all stripes face growing pressure from low interest
rates, which declined further after the U.K. vote in June to exit
from the European Union. Insurers depend on investment income for
profit, investing customers' premiums until claims come due, and
low rates drive up the cost of some risk-management hedging
strategies.
Ahead of the earnings reports, analysts had speculated that
MetLife would post a big charge tied to income guarantees sold with
savings products known as variable annuities. But the size of the
$2 billion charge it booked was much larger than forecast, even as
some analysts predicted MetLife would use conservative assumptions
to bolster its reserves ahead of the planned divestiture of much of
its U.S. retail life-insurance and annuity operations.
Those businesses comprise roughly one-fifth of the company's
recent operating earnings. MetLife is pursuing the divestiture for
strategic and regulatory reasons, in contrast to its longtime rival
Prudential, which has been designated as "systematically important"
by federal regulators and says it is comfortable with its business
mix. The label carries tougher capital requirements.
Prudential, for its part, posted a number of reserve adjustments
that affected its results.
While the weak performance of hedge funds hurt some insurers'
first-quarter performance, some were let down in the latest quarter
by weaker private-equity results. Insurers sometimes invest a small
slice of their bond-heavy portfolios in riskier holdings.
MetLife's net investment income fell 6% to $4.9 billion, hurt by
lower-than-expected alternative investment income. Allstate blamed
lower interest income from its fixed-income portfolio for its 3.4%
decline in investment income. Prudential and Lincoln Financial
notched moderate growth of 3.8% and 1%, respectively.
Allstate, meanwhile, became the latest insurer to report
elevated catastrophe losses in recent weeks, with the metric rising
21% to $961 million from $797 million a year earlier. Other
insurers with exposure to the Canada wildfires have included
Travelers Cos., Chubb Ltd., American International Group Inc. and
Axis Capital Holdings Ltd.
At MetLife, the largest U.S. life insurer by assets, operating
income fell 48% to $924 million, or 83 cents a share, from $1.77
billion, or $1.56 a share, a year earlier. Analysts polled by
Thomson Reuters expected $1.35 a share. Revenue, meanwhile,
decreased 5.7% to $15.24 billion, hurt by lower premiums and
fees.
At Prudential, which earns about half of its profit abroad,
mostly from Japan, operating earnings declined 39% to $829 million,
or $1.84 a share, compared with the $2.50 a share expected by
analysts.
Revenue at Prudential, with its annuities, retirement-income and
asset-management businesses, fell 5.5% to $11.81 billion. Premiums
fell 9.4% and policy charges and fee income dropped 6.9%.
At Lincoln Financial, operating income rose 0.5% to $373
million, or $1.56 a share, matching Wall Street's estimate.
Insurance premiums dropped 6.9% to $728 million.
Allstate said operating earnings decreased 10% to $235 million,
or 62 cents a share, while Wall Street predicted 58 cents a share.
Revenue increased 2% to $9.16 billion, as higher insurance premiums
outweighed declines in net investment income and realized capital
gains.
Write to Leslie Scism at leslie.scism@wsj.com and Tess Stynes at
tess.stynes@wsj.com
(END) Dow Jones Newswires
August 04, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
MetLife (NYSE:MET)
Historical Stock Chart
From Apr 2024 to May 2024
MetLife (NYSE:MET)
Historical Stock Chart
From May 2023 to May 2024