MetLife Surpasses by a Penny

MetLife Inc.’s (MET - Analyst Report) third-quarter operating earnings of 87 cents per share were only a penny ahead of the Zacks Consensus Estimate. This also compares favorably with operating earnings of 84 cents in the prior-year quarter. Operating income excludes after-tax net investment gains or losses of consolidated entities and discontinued operations. 

The upside came primarily from increased sales in a number of product areas in both the U.S. and internationally and strong variable annuity deposits. However, overall results were hurt by massive realized investment losses and lower investment income driven primarily by negative returns from real-estate funds, though the performances of securities lending, hedge funds and corporate joint ventures remained solid. 

Net loss for the quarter was $650 million, or 79 cents per share, compared to a net income of $600 million or 83 cents in the year-ago quarter. Net loss included after-tax net realized investment losses of $1.4 billion (including derivative losses of $857 million), compared to an after-tax gain of $483 million in the prior-year quarter. 

Total revenue for the reported quarter fell 23.3% to $10.2 billion from $13.4 billion in the year-ago period. Earned premiums decreased 2.7% year-over-year to $6.6 billion. Net investment income decreased 3.1% year-over-year to $3.9 billion. 

The Institutional segment’s operating earnings for the quarter decreased 21.5% year-over-year to $311.0 million. Premiums, fees & other revenues, excluding pension closeout sales, were up 3.0%, due in part to a 51.0% increase in structured settlement premiums. 

The Auto & Home segment’s operating earnings decreased 14.9% year-over-year to $86 million. Net written premiums for this segment were down 2.0% year-over-year to $754 million and continued to reflect current market conditions. 

The International segment’s operating earnings increased 29.7% year-over-year to $153 million as the adverse impact of foreign currency exchange rates was offset by lower expenses and approximately $14 million (after-tax) in one-time benefits. 

As of Sep 30, 2009, book value per share (excluding AOCI) declined to $41.65 from $45.85 as of Sep 30, 2008. However, book value (including AOCI) per share improved to $38.95 as of Sep 30, 2009, versus $35.48 as of Sep 30, 2008. 

Investment losses and lower investment income continued to hurt results. While we think MetLife should continue to benefit from a diversified business mix and its leading brand, higher losses in the investment portfolio will impact results in the coming quarters. 

The company’s capital position remains one of the sturdiest in the industry. However, we are concerned about MetLife’s significant exposure to commercial mortgage-backed securities.