MetLife Inc.'s fourth-quarter earnings fell sharply, as it wrestled with tough economic conditions in many parts of the world, while low interest rates continued to work against insurers.

MetLife became the latest insurer to cite faltering performance of private-equity and hedge funds as a factor in its earnings, which were below analysts' consensus expectations.

The company also reported weaker profit margins in many of its core insurance underwriting businesses.

The company, which is the largest U.S. life insurer by assets and a major presence in many international markets, also cited a stronger U.S. dollar. The continued strengthening of the dollar leads to adverse currency conversions for global companies.

The New York company reported a 13% decline in its closely watched operating profit, to $1.38 billion, or $1.23 a share. That was down from $1.58 billion, or $1.38 a share, in the year-earlier period. Operating income excludes realized capital gains and losses in the companies' big investment portfolios and some other items.

Wall Street analysts were expecting $1.36 a share.

In after-hours trading, shares declined 2.5%.

Net income fell 47% to $785 million, down from $1.49 billion. Net income includes $231 million in net derivative losses, reflecting changes in interest rates, stock markets and foreign currencies. MetLife uses derivatives as part of a broad asset-liability management strategy to hedge certain risks. This hedging activity often generates gains or losses in net income that are non-economic.

Total revenue was down 6% to $17.11 billion. Premiums, fees and other revenue were off in many units, and by a double-digit amount in at least two operations. In particular, the company's cited deteriorating results in its auto-insurance business.

Chief Executive Steven Kandarian said that 2015 had been "a challenging year overall," and noted that the company's surprising news earlier this month of a plan to divest a large chunk of its U.S. life-insurance business into a self-standing company "demonstrates our willingness to take bold steps to maximize shareholder value."

Like many insurers, MetLife keeps a sliver of its investment portfolio in holdings that are supposed to earn more than the high-quality bonds they mostly hold. Insurers earn a substantial portion of their income from the investments they make with customers' premium dollars, holding them until claims are due.

MetLife said its total net investment income was $4.8 billion, down 7%. "Variable investment income" was $109 million, compared with $325 million in the year-earlier quarter, "due to weak private equity and hedge fund performance."

MetLife's disappointing results with hedge funds follows lower third-quarter income on hedge-fund investments at American International Group Inc. Last month, AIG Chief Executive Peter Hancock said the company would make "a significant reduction" in hedge-fund investments following "a very negative experience" in 2015.

Insurers have faced a major headwind in the protracted low-interest-rate environment in the U.S. and many other parts of the world. Many insurers invest a small amount of their overall investment portfolio in alternative to bonds, including private equity and hedge funds. Typically, they invest a percentage point or two of the total portfolio, but the dollar amounts can be large at the nation's biggest insurers.

Hedge funds lost 1% in 2015, according to hedge-fund-research firm HFR Inc., underperforming the S&P 500, which fell 0.7%. Portfolio managers faltered for many reasons, including bad bets on energy and currencies and a too-heavy reliance on certain stocks.

AIG has said its reduction in hedge-fund investments is geared toward reducing volatility in the company's investment portfolio. The move is part of a wide-ranging package of initiatives by the company as it seeks to return $25 billion to its shareholders in buybacks and dividends over the next two years, in the face of a possible proxy fight by activist investor Carl Icahn.

AIG had approximately $11 billion in hedge funds at the end of the third quarter of 2015, but that's relatively unimportant in its overall $346 billion portfolio.

Write to Leslie Scism at leslie.scism@wsj.com

 

(END) Dow Jones Newswires

February 03, 2016 16:55 ET (21:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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