Hedging Losses Hammer MetLife; Lincoln, Principal Also Down

MetLife reported fourth-quarter net income of $785 million, a 47 percent decline over the year-ago period, due to investment losses on hedge funds and private equity.

A strong dollar dampened earnings generated abroad as well, the company said.

Fourth-quarter operating earnings per share came to $1.23, a decline of 11 percent from the year-ago quarter, the company said.

The average estimate of 11 analysts surveyed by Zacks Investment Research was for earnings of $1.36 per share.

“In addition to a challenging quarter for VII (variable investment income), broad-based strength in the U.S. dollar remained an earnings headwind,” said Steven A. Kandarian, chairman, president and CEO of MetLife, in a conference call with analysts Thursday.

The company posted revenue of $17.11 billion in the period. Four analysts surveyed by Zacks expected revenue of $17.45 billion.

For the year, MetLife reported net income of $5.15 billion, or $4.57 per share, on operating revenue of $69.47 billion.

Derivative net losses were primarily driven by higher interest rates, said John Hele, MetLife chief financial officer and executive vice president.

Claims costs also rose due to higher frequency and severity in the company’s auto business, and due to higher catastrophes claims from homeowners, Hele said.

MetLife Offers Few Details of Retail Separation

In a question-and-answer session with analysts, Kandarian offered little information on the company’s plan to separate its U.S. retail operations.

The separation, which the company announced Jan. 12, will affect thousands of agents and financial advisors who distribute MetLife’s products, but the timing of the move in unknown.

The separation of the retail business could take the form of a “spin off,” an initial public offering, or a sale to another company.

“I can only tell you that we've been working hard on our strategy for over a year now,” Kandarian said.

“We made this announcement about the plan to pursue a separation, and we are working very rapidly on answering all the questions that we need to answer to determine the form of such a separation and we've moving as quickly as one can.”

Industry watchers have speculated that spinning off the company’s retail distribution would get MetLife out from under the designation as a Strategically Important Financial Institution (SIFI) designation.

While spinning off MetLife’s retail distribution would remove some regulatory burdens faced by the company, executives say the company is not a SIFI, with or without its U.S. retail distribution channel. That is one reason why MetLife is challenging the designation in court.

Splitting off the U.S. retail segment from the rest of the company is in the long-term interest of the company’s shareholders, Kandarian said.

Lincoln Financial Group Comes Up Short

Lincoln Financial Group reported fourth-quarter 2015 net income to $283 million, a 19 percent drop compared to the year-ago period. The company said it no longer benefited from funds flowing in from previously reinsured life insurance contracts.

The Radnor, Pa.-based company reported profit of $1.14 per share. Earnings, adjusted for investment costs, came to $1.54 per share.

The results fell short of expectations. The average estimate of 10 analysts surveyed by Zacks was for earnings of $1.55 per share. Revenues were $3.1 billion, down from $3.6 billion in the year-ago quarter.

The company’s life insurance segment reported fourth-quarter 2015 operating income of $119 million compared to $193 million in the year-ago period when the company benefited from $53 million related to several life reinsurance treaties, the company said.

Lower earnings from alternative investments also accounted for lower operating income flowing into the life segment this quarter, the company said.

Individual life insurance sales rose 11 percent in the fourth quarter compared with the year-ago period due to strong sales from MoneyGuard, a popular advisor-sold product that recorded record annual sales in 2015.

Indexed universal life sales, variable universal life and term life each reported sales increases in the quarter compared to the year-ago period, the company said.

“Fourth-quarter results once again demonstrated the resilience of Lincoln’s franchise, as we had a solid finish in what proved to be a volatile year for capital markets,” said President and CEO Dennis Glass in a conference call with analysts Thursday. “Our EPS (earnings per share), excluding notable items, increased 5 percent in the fourth quarter.”

Operating income from the annuities segment rose 3 percent to $243 million, reflecting more income from fees on assets under management and lower expenses, the company reported.

Principal Financial Group Inc. Also Falters

Des Moines, Iowa-based Principal Financial Group Inc. on Monday reported fourth-quarter net income of $253.6 million, or 86 cents per share. U.S. equity markets, low interest rates and a strengthening U.S. dollar tested the company’s business model, Principal said.

Operating earnings, adjusted for nonrecurring costs, came to $1.02 per share diluted, the company said. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $1.05 per share.

Fourth-quarter operating revenue was $2.89 billion in the period, the company said.

For the year, the company reported profit of $1.21 billion, or $4.06 per share, and revenue of $12.12 billion, an increase of 14 percent over 2014, the company said.

“I'd characterize 2015 as a good year,” said Daniel Joseph Houston, president and CEO, in a conference call with analysts Tuesday. “We delivered after-tax operating earnings of nearly $1.3 billion despite challenging conditions, such as the strengthening of the U.S. dollar and underperformance of the U.S. equity markets.”

Principal Financial, a global retirement solutions provider, has major business interests in Latin America, China, Southeast Asia and India.