MetLife Beats Q3 Estimates On Favorable Underwriting, Higher Investment Margins

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MetLife

MetLife (NYSE:MET) announced strong Q3 results Wednesday, with revenues declining 2% year-over-year (y-o-y) to $17.7 billion but beating market estimates of $17.2 billion. The lower-than-expected decline was attributed to a 38% rise in net investment income to about $5.5 billion. Aided by strong performances by the Retirement and Group Benefits businesses in the U.S., favorable underwriting in EMEA and a lower overall effective tax rate, the company’s operating earnings grew by a whopping 102% to over $1.4 billion or $1.28 per share, beating consensus estimates by 14 cents or 12%.

However, MetLife’s net income tumbled 52% to $571 million in the quarter on net derivative losses of $683 million reflecting changes in interest rates, equity markets and foreign currencies and a goodwill impairment charge of $223 million (after tax) related to spinoff of a U.S. retail business, Brighthouse Financial.
met-5U.S. Business Reorganization

MetLife reorganized its U.S. retail business and reported Brighthouse Financial, consisting largely of variable annuities and individual life insurance products, as a separate business unit in the third quarter. MetLife filed for a spinoff of this retail business unit on October 5 and cited low returns of the individual life product and high volatility of the variable annuity businesses as reasons for the same. In Q3 2016, Brighthouse Financial’s revenues declined 5% to $2.24 billion but operating earnings declined 80% to just $68 million largely due to the costs associated with the spinoff. met-8

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MetLife Holdings, consisting lasrgely of MetLife’s legacy retail and long-term care runoff businesses, reported a 9% increase in operating earnings to $266 million driven by higher variable investment income.

Post spinoff of Brighthouse Financial, MetLife’s U.S. retail division consists of three major businesses- Group Benefits (formerly known as Group, Voluntary & Worksite Benefits), Retirement & Income Solutions (represents major chunk of the segment formerly known as Corporate Benefit Funding) and Property & Casualty. In the third quarter, the U.S. retail division reported earnings growth of 8% to $552 million driven by higher investment margins in the Group Benefits and Retirement & Income Solutions businesses. met-12International Business Performance

MetLife’s international business revenues reported growth of 4% y-o-y to over $4.8 billion on strong performances in all markets. However, the company’s international operating earnings declined by about 10% to $531 million in the quarter.

MetLife’s operating earnings in Latin America declined over 27% on a reported basis and 23% on a constant currency basis to $133 million. Excluding all notable items, operating earnings were up 12 percent on a constant currency basis in the region due to volume growth. EMEA was the star performer with operating earnings growing 12% on a reported basis and 19% on a constant currency basis driven by favorable underwriting, lower expenses, several non-recurring items as well as volume growth.

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