MetLife’s Q3 Net Income Declines On Brighthouse Separation Charges

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MetLife (NYSE: MET) reported relatively soft Q3 earnings on November 2, as its net income declined by about $650 million in the quarter primarily due to separation-related charges of Brighthouse Financial. However, the Brighthouse separation is complete, and we expect MetLife’s earnings to increase from next quarter. MetLife’s total revenues increased by just 2% this quarter driven by an increase in total premiums, but offset by a decline in investment income and derivative losses. The company’s operating earnings also declined by 14% in the quarter due to low interest rates and hedging losses. The strong performance in MetLife’s Latin American and MetLife Holdings businesses was offset by its U.S., Asia and EMEA businesses. However, we expect these regions to bounce back in the coming quarters as the Yen remains relatively strong, and interest rates are likely to rise further. Additionally, MetLife’s P&C businesses are also expected to improve as the impact of hurricanes will decline starting in the fourth quarter.

U.S. Business Results

MetLife reorganized its U.S. retail business in the third quarter of last year, and Brighthouse Financial is now a separate division consisting largely of variable annuities and individual life insurance products. MetLife filed for a spinoff of the business unit on October 5, 2016, citing low returns of the individual life product and high volatility of the variable annuity businesses.

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Following the separation 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 a major chunk of the segment formerly known as Corporate Benefit Funding), and Property & Casualty. In the third quarter, the U.S. retail division earnings declined by 1% to $546 million, due to a decline in interest margins, less favorable underwriting in the retirement solutions and the losses in P&C business due to hurricanes Harvey, Irma and Maria among others.

International Business Performance

MetLife’s operating earnings in Latin America increased 23% over the prior year quarter to $154 million, driven by volume growth, lower taxes, and higher investment margins. MetLife’s Latin America business has been growing at a strong rate in the last few quarters, and we expect this trend to continue in the near term.

On the other hand, MetLife’s EMEA and Asia operations earnings declined by nearly 4% and 3%, respectively, in the quarter due to less favorable underwriting and the higher tax rate in Japan. The change in Japan’s effective tax rate is likely to put pressure on MetLife’s future earnings as well. However, the interest rate hike in the United Kingdom is likely to boost MetLife’s EMEA earnings in the coming quarters.

See our full analysis of MetLife

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