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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