Workers expect their defined contribution plans to play a greater role in their retirement income than annuities.
By Robert Dixon
MetLife blamed a fourth quarter profit decline of 87 percent on costs related to lower interest rates and annuities.
Separately, the largest U.S. life insurer announced that the U.S. Federal Reserve and the Federal Deposit Insurance Corp. have approved Metlife’s move to drop its status as a bank holding company. The giant insurer's shedding of its bank holding company status follows the Jan. 11 completion of the sale of its online banking operation to a unit of General Electric, according to a NASDAQ statement.
Net income fell to $127 million from $990 million a year earlier, the company said in a statement. Operating profit, which excludes some investing results, was $1.25 per share.
MetLife invests premiums from policy holders in a portfolio of more than $500 billion, according to a Bloomberg report. Near-record low bond yields squeeze returns from those holdings while pressuring results from retirement products in which the company provides guaranteed returns.
Low interest rates hit the investment earnings that insurance companies depend on for profits while also putting pressure on certain investment products, such as annuities, that offer guaranteed returns. Hedges were simply not enough to cover the losses in 2012, an analyst told Bloomberg.
MetLife took a $752 million charge after it reviewed assumptions about returns amid the low-rate environment. The company said in December that fewer customers than expected surrendered some retirement products.
Full-year profit for 2012 fell to $1.2 billion, compared to $6.4 billion in 2011, MetLife reported.
One bright spot in MetLlife’s results were sales in Latin America, where operating earnings rose 20 percent to $148 million in 2012, meeting the company’s targets.
MetLife is “growing our presence in emerging markets with our recent agreement to acquire AFP Provida in Chile, as well as our expansion in Central Europe, Turkey and India,” chief executive officer Steve Kandarian said in a statement.
MetLife set a goal of generating at least 20 percent of operating earnings from emerging markets by 2016. Earlier this month, the firm agreed to buy Chilean pension manager AFP Provida SA in a $2 billion deal to add fee income.
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