By Leslie Scism, Tess Stynes and Lauren Pollock
Persistently low interest rates, along with market turbulence
and inclement weather, continued to sting insurers in the first
quarter, as four of the biggest companies in the sector on
Wednesday reported sharply lower profits.
Life insurers MetLife Inc., Prudential Financial Inc. and
Lincoln Financial Group reported lackluster investment income,
while property and casualty giants Allstate Corp. and Chubb Corp.
logged sharp increases in catastrophe losses for the quarter.
Among the major insurers that reported Wednesday, Chubb was the
only to report an increase in operating income, a key measure in
the insurance industry that excludes capital gains and losses in
the companies' big investment portfolios.
With the exception of Allstate and Chubb, the operating earning
at the other three insurers missed Wall Street estimates.
Prudential shares declined 3.2% after hours, followed by MetLife,
which dropped 3%. The other stocks were little changed.
MetLife said weak hedge-fund performance dented its investment
income. Prudential, in comparison, logged a slight increase in
investment income but said its business took a hit on fluctuations
in variable items that included non-coupon investment returns.
Lincoln Financial blamed lower investment income for declines in
fee income and a slide in earnings at its retirement plan services
segment.
Insurers earn a substantial portion of their income from the
investments they make with customers' premium dollars, holding them
until claims are due. As such, they have faced a major headwind in
the protracted low-interest-rate environment in the U.S. and many
other parts of the world. Both MetLife and Prudential keep a sliver
of their investment portfolio in private equity and hedge funds,
which are supposed to earn more than the high-quality bonds they
predominantly hold.
MetLife said its net investment income declined 5.5% to $4.71
billion in the quarter, while investment income at Allstate slid
14%. Peer American International Group Inc. also reported Monday
that its results took at hit due to poor performance in hedge funds
and other investments.
At Prudential, the investment income edged up 0.4% to $3.02
billion.
MetLife and Prudential are two of the nation's biggest sellers
of retirement-savings products known as annuities. Under some
versions known as variable annuities, insurers earn fees based on
amounts invested by customers in stock and bond funds, while their
profits on other types are tied to the insurers' own investments in
bond markets. MetLife cited unfavorable market performance and
lower investment margins for disappointing performance in its
retail unit, but said annuity sales were up 14%.
MetLife, meanwhile, said in January that it would divest a large
chunk of its operations, including its variable-annuity business,
as part of a plan to slim down and reduce some of the capital
burden it would face under new federal regulations as "systemically
important." In March, a federal judge ruled for MetLife in the New
York company's challenge of the designation, and that ruling is now
being appealed by the government.
Prudential said it took a charge in its individual annuities
segment to reflect market performance, while logging gross sales
for individual annuities of $2 billion.
Within the property and casualty market, Allstate had already
warned that its results would take a big hit on catastrophe losses
incurred in the period. The insurer primarily blamed hailstorms in
the southern U.S., one of which was the largest to ever hurt the
company. Its catastrophe losses grew to $827 million in the quarter
from $294 million a year earlier.
Chubb, meanwhile, reported a surge in catastrophe losses to $258
million from $51 million a year earlier. For its part, MetLife,
which has a car and home insurance business, also cited an
"unfavorable catastrophe experience" in its report.
Those comments echo sentiments expressed in recent weeks by
Travelers Cos., car insurer Progressive Corp. and Kemper Corp., all
of which highlighted a spike in claims from punishing hailstorms in
March.
In all, at MetLife, the largest U.S. life insurer by assets,
operating income declined to $1.33 billion, or $1.20 a share, from
$1.64 billion, or $1.44 a share, a year earlier. Analysts polled by
Thomson Reuters expected $1.38 a share. Revenue, meanwhile, slipped
2.5% to $16.61 billion.
At Prudential -- which earns about half of its profit abroad,
mostly from Japan -- operating earnings declined to $997 million,
or $2.18 a share, versus the $2.37 a share expected by analysts.
Revenue at Prudential, with its annuities, retirement-income and
asset-management businesses, fell 4.4% to $11.29 billion.
Lincoln Financial posted an 11% slide in operating income to
$314 million, or $1.25 a share. Analysts had called for $1.49 a
share.
Allstate, meanwhile, said operating earnings dropped 48% to $322
million, or 84 cents a share, while Wall Street predicted 68 cents
a share. Revenue slipped 0.9% to $8.87 billion, though insurance
premiums increased.
And Chubb, formed earlier this year when ACE Ltd. acquired Chubb
in a nearly $30 billion deal and took its name, reported operating
earnings of $1.02 billion, or $2.26 a share, beating the $2.16 a
share expected by analysts. Net premiums grew to $5.48 billion.
Write to Leslie Scism at leslie.scism@wsj.com, Tess Stynes at
tess.stynes@wsj.com and Lauren Pollock at
lauren.pollock@wsj.com
(END) Dow Jones Newswires
May 04, 2016 17:33 ET (21:33 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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