MetLife Inc. swung to a second-quarter profit from a net loss a year ago when it got hit with $2.6 billion in net investment losses, as the chief investment officer of the largest U.S. life insurer sees "slowly improving" commercial real estate market.
Net income was $1.5 billion, compared with a net loss of $1.4 billion. Profit reflected net investment gains of $767 million after tax, largely on derivatives. Met Life uses derivatives to hedge several risks, including changes in interest rates and fluctuations in foreign currencies.
Its U.S. retirement products business, which includes annuities, premiums fees and other revenues, jumped 34% to $766 million -- mostly on higher fees. Total sales of annuities were $4.8 billion, and it saw an 11% increase in sales of stock-market linked variable annuities from the first quarter.
The company "again delivered strong results across the board," said C. Robert Henrikson, chairman, president and chief executive officer of MetLife (NYSE: MET) during a conference call. Looking ahead, the company is enthusiastic about its future as a global company, he said.
Earlier this year, some predicted many life insurers were bracing for losses linked to their investments in commercial real estate. The industry's exposures to shopping malls, office buildings, warehouses and apartment buildings, are in direct commercial mortgage loans and in commercial mortgage-backed securities (BestWire, Jan. 4, 2010).
MetLife believes the commercial real estate market is "slowly improving," said Steve Kandarian, chief investment officer.
In MetLife's commercial mortgage portfolio, the loan-to-value improved slightly to 68%, down from 69% last quarter as valuations "have stabilized," he said. Total delinquent commercial mortgages decreased to $137 million from $162 million, driven by "the restructuring of one loan" resulting in a $5 million loss, he said.
As to the two remaining delinquent loans in the U.S. portfolio, one will be paid off in the third quarter with no loss and the other is "a high-quality property" the company plans to transfer to its real-estate equity portfolio, Kandarian said.
MetLIfe expects "limited losses on these loans" as the recoveries are expected to be above the historical average of 75%, he said.
Henrikson said MetLife has not received a subpoena involving the recent investigation by New York Attorney General Andrew Cuomo so he couldn't comment on it.
Cuomo is looking into accounts set up on behalf of recipients of life insurance policy payouts, accusing certain firms of cheating the recipients out of investment proceeds those accounts earned. He announced he issued subpoenas to MetLife, and Prudential Financial, looking into their handling of policies for federal employees, including the death benefits of members of the military (BestWire, July 29, 2010).
However, "we strongly disagree with the misleading and incorrect statements, certainly the initial statements coming from the press," he said, noting there is about $10 billion in the accounts.
Subsequent to those initial reports, those with "correct knowledge" of the situation, including, among others, the National Association of Insurance Commissioners, the American Council of Life insurers, other insurers and MetLife, provided many clarifications, Henrikson said.
These "retained-asset accounts" are similar to an interest-bearing checking account in which recipients can keep the policy assets if they choose, even writing checks from it (BestWire, July 29 2010).
Beneficiaries have full access to their funds in these accounts and earn guaranteed minimum interest rates that exceed what they could get in other money-market accounts, Henrikson said.
MetLife remains on track to close the deal to buy American Life Insurance Co., one of the biggest international subsidiaries of American International Group Inc. (NYSE: AIG) in the fourth quarter, Henrikson said. The MetLife and ALICO teams working on the deal achieved "several significant integration planning milestones," he said.
On the morning of July 30, MetLife's stock was trading at $41.51 a share, up 3.26% from the previous close.
Metropolitan Life Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
