Insurers' Results Dented by Low Interest Rates, Catastrophe Claims
August 03 2016 - 4:30PM
Dow Jones News
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 and Prudential Financial Inc. reported
diverging results on investment income, while property-and-casualty
giant Allstate Corp. faced elevated levels of claims for
catastrophes such as the Fort McMurray wildfires in Canada.
Shares of MetLife declined 3.9% after hours; the other stocks
were inactive.
The bevy of insurance-industry reports come as insurers of all
stripes are facing growing pressure from low interest rates, which
declined further in the wake of the U.K. vote in June to exit the
European Union. Insurers are dependent 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 long-time
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 in the quarter.
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. At Prudential,
net investment income rose 3.8% to $3.09 billion.
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
companies with exposure to the Canada wildfires have included
Travelers Cos., Chubb Ltd., American International Group Inc. and
Axis Capital Holdings Ltd.
In all, 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.
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.
Allstate, meanwhile, 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.
At smaller Lincoln Financial, operating income rose 0.5% to $373
million, or $1.56 a share, matching Wall Street's estimate.
Write to Leslie Scism at leslie.scism@wsj.com and Tess Stynes at
tess.stynes@wsj.com
(END) Dow Jones Newswires
August 03, 2016 17:15 ET (21:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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