Insurers' Results Dented by Low Interest Rates, Catastrophe Claims

Insurers reported a messy second quarter plagued by low interest rates and catastrophe claims, highlighted by a $2 billion charge at MetLife Inc. tied to a savings product popular with baby boomers.

Life insurers MetLife and Prudential Financial Inc. reported diverging results on investment income, while property-and-casualty giant Allstate Corp. faced elevated levels of claims for catastrophes such as the Fort McMurray wildfires in Canada.

Shares of MetLife declined 3.9% after hours; the other stocks were inactive.

The bevy of insurance-industry reports come as insurers of all stripes are facing growing pressure from low interest rates, which declined further in the wake of the U.K. vote in June to exit the European Union. Insurers are dependent on investment income for profit, investing customers' premiums until claims come due, and low rates drive up the cost of some risk-management hedging strategies.

Ahead of the earnings reports, analysts had speculated that MetLife would post a big charge tied to income guarantees sold with savings products known as variable annuities. But the size of the $2 billion charge it booked was much larger than forecast, even as some analysts predicted MetLife would use conservative assumptions to bolster its reserves ahead of the planned divestiture of much of its U.S. retail life insurance and annuity operations.

Those businesses comprise roughly one-fifth of the company's recent operating earnings. MetLife is pursuing the divestiture for strategic and regulatory reasons, in contrast to its long-time rival Prudential, which has been designated as "systematically important" by federal regulators and says it is comfortable with its business mix. The label carries tougher capital requirements.

Prudential, for its part, posted a number of reserve adjustments that affected its results in the quarter.

While the weak performance of hedge funds hurt some insurers' first-quarter performance, some were let down in the latest quarter by weaker private-equity results. Insurers sometimes invest a small slice of their bond-heavy portfolios in riskier holdings.

MetLife's net investment income fell 6% to $4.9 billion, hurt by lower-than-expected alternative investment income. At Prudential, net investment income rose 3.8% to $3.09 billion.

Allstate, meanwhile, became the latest insurer to report elevated catastrophe losses in recent weeks with the metric rising 21% to $961 million, from $797 million a year earlier. Other companies with exposure to the Canada wildfires have included Travelers Cos., Chubb Ltd., American International Group Inc. and Axis Capital Holdings Ltd.

In all, at MetLife, the largest U.S. life insurer by assets, operating income fell 48% to $924 million, or 83 cents a share, from $1.77 billion, or $1.56 a share, a year earlier. Analysts polled by Thomson Reuters expected $1.35 a share. Revenue, meanwhile, decreased 5.7% to $15.24 billion.

At Prudential, which earns about half of its profit abroad, mostly from Japan, operating earnings declined 39% to $829 million, or $1.84 a share, compared with the $2.50 a share expected by analysts.

Allstate, meanwhile, said operating earnings decreased 10% to $235 million, or 62 cents a share, while Wall Street predicted 58 cents a share. Revenue increased 2% to $9.16 billion, as higher insurance premiums outweighed declines in net investment income and realized capital gains.

At smaller Lincoln Financial, operating income rose 0.5% to $373 million, or $1.56 a share, matching Wall Street's estimate.

Write to Leslie Scism at [e-mail] and Tess Stynes at [e-mail]

(END) Dow Jones Newswires

August 03, 2016 17:15 ET (21:15 GMT)

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