MetLife Inc. (MET) reported third quarter operating earnings of $878 million or 99 cents per share, well ahead of $718 million or 87 cents per share in the year-ago quarter. However, results missed the Zacks Consensus Estimate of $1.03 per share. Reported net income was $286 million or 32 cents per share compared with a net loss of $650 million or 79 cents per share in the prior-year quarter.
The upside was primarily due to a strong growth in the U.S. business segment, strong underwriting results as well as higher variable annuity deposits and net investment income. This was partially offset by higher expenses and lower-than-expected premiums. During the reported quarter, MetLife’s total expenses increased 5.6% year over year to $12.05 billion.
Total operating revenue for the reported quarter increased 5% year over year to $12.98 billion and were also above the Zacks Consensus Estimate of $12.61 billion. MetLife’s earned premiums for the quarter declined 0.6% year over year to $6.56 billion. Net investment income increased 11.9% year over year to $4.39 billion, led by robust performance by the private equity funds.
Segment Details
Total operating earnings from theU.S. business increased by 21% year over year to $764 million. The strong augmentation was attributable to favorable underwriting, strong annuity sales, higher net investment income and lower expenses. The U.S. business premiums, fees and other revenues were at $7.2 billion, down from $7.1 billion in the second quarter of 2010.
An increase of 11% was witnessed in Retirement Products, which was offset by weakness in Insurance Products and decline in pension closeout sales in the Corporate Benefit Funding.
Operating earnings of the Auto & Home segment under MetLife’s U.S. business decreased 5.8% year over year to $81 million based on higher than expected catastrophe losses that led to higher combined ratio. Besides, the International segment’s operating earnings increased 25% year over year to $191 million. Growth was witnessed across Latin America, Asia Pacific and EMEI (Europe, Middle East and India).
MetLife Bank‘s operating earnings were $101 million, up 26% from year-ago quarter, primarily due to higher mortgage servicing revenue. Corporate & Other operating loss was recorded at $178 million, higher from a loss of $148 million in the prior-year quarter on the back of higher net investment income that were offset by one-time tax related expense.
MetLife’s net investment income increased 10% year over year to $4.3 billion, while net investment portfolio moderated at a loss of $72 million, down from a year-ago loss of $481 million.
As of September 30, 2010, MetLife’s book value per share excluding AOCI increased substantially to $44.48 compared to $42.09 as of September 30, 2009. Reported book value (including AOCI) per share climbed vigorously to $48.93 as of September 30, 2010, versus $39.36 as of September 30, 2009.
Dividend Update
On October 26, the board of MetLife announced an annual dividend for 2010 of 74 cents per common share payable on December 14, 2010 to shareholders of record as of November 9, 2010.
Our Take
We believe that MetLife’s solid earnings growth also helps it return wealth to shareholders from time to time. Besides, the pending ALICO acquisition is expected to close by the end of 2010 and will be immediately accretive to earnings, although related debt cost could mount pressure on the bottom line for some time.
While we think MetLife should continue to benefit from its diversified business mix as well as its leading brand, losses in the investment portfolio are likely to impact the results in the upcoming quarters.
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