Metlife Earnings Review: Revenues, Margins Decline Due To Major Losses

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MetLife (NYSE:MET) announced its Q2 results on Wednesday, August 3, reporting a 2.5% annual decline in total operating revenues to just under $17 billion. [1] The revenue decline, in addition to an increase in operating expenses – particularly Policyholder benefits and claims and policyholder dividends – led to a significant decline in MetLife’s operating income for the quarter, as shown below. A non-cash charge related to MetLife’s annual variable annuity actuarial assumption review resulted in $1.5 billion of after-tax losses. As a result, the company’s resulting net income (GAAP) stood at only $64 million for the quarter, which was a 94% year-over- year decline.

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Within MetLife’s U.S. business, the retail segment continued to underperform, with revenues falling by 5% y-o-y to $5 billion, while the operating income was down 73% due to reserve adjustments coupled with unfavorable underwriting results and low investment margins. On the other hand, Group insurance revenues in the U.S. were up by 3% over the year-ago period to $1.8 billion. Despite the increase in revenues, operating income was down 4% due to higher auto claims and low investment margins.

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Comparatively, MetLife’s international business was down across all geographies including Latin America, EMEA and Asia-Pacific – presumably due to the strengthening of the U.S. dollar. MetLife’s operating income in Latin America was up by 10% on a y-o-y basis, and around 36% y-o-y on a constant currency basis. Similarly, operating income in EMEA was up by 36% on a constant currency basis as compared to a 28% reported increase. Following the U.K.’s Brexit vote, MetLife’s revenues from policy fees and investments in the global markets could suffer this year, given that the investment yields and income are likely to decline.

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Notes:
  1. MetLife Announces Second Quarter 2016 Results, MetLife Press Release, August 2016 []