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MetLife Inc. (MET - Analyst Report) reported fourth-quarter 2012 operating earnings per share (EPS) of $1.25, modestly beating both the Zacks Consensus Estimate of $1.18 and the year-ago quarter’s EPS of $1.17. Operating earnings improved 10% year over year to $1.37 billion.

During the reported quarter, operating EPS were negatively affected by net derivative losses of $1.20, net investment losses of 18 cents and other adjustments of 85 cents. These were partially offset by an income tax benefit of $1.05 and income from discontinued operations of 3 cents. Including these, GAAP net income plummeted to $96 million or 9 cents per share against $959 million or 90 cents per share in the prior-year quarter.

The upbeat results were primarily due to higher net investment income, premiums and fees that drove the top line, return on equity (ROE) and book value per share. These were partially offset by higher-than-expected operating expenses and higher derivative losses driven by the unfavorable impact of foreign exchange rates and low interest rate.

During the reported quarter, MetLife’s total operating expenses increased 12.5% year over year to $16.39 billion, whereas total expenses escalated 15.2% year over year to $17.81 billion.

Total operating revenue for the reported quarter increased 12% year over year to $18.36 billion and also topped the Zacks Consensus Estimate of $17.22 billion. Moreover, total revenue climbed 3.6% year over year to $17.33 billion. MetLife’s premiums soared 15.7% year over year to $10.6 billion, whereas fee revenue improved 14.6% to $2.16 billion and net investment income was up 5.8% year over year to $5.18 billion. Other revenues also grew 5.5% year over year to $443 million.

Segment Details

The Americas’ operating revenue increased 14.6% year over year to $14.1 billion.

Premiums, fees and other revenue jumped 18% to $9.9 billion, while excluding pension close-out sales it improved 5%. Further, operating earnings surged 22% year over year to $1.25 billion.

The segment witnessed improvements in all businesses except the group, voluntary and worksite benefits along with favorable claims experience. Particularly, Latin America posted operating earnings growth of 20% year over year and total sales of 26%, driven by improved growth channels across the region. The upsides were partially offset by higher catastrophe losses of $70 million due to Superstorm Sandy.

Operating revenue from Asia were up 11% year over year to $3.27 billion, while premiums, fees and other revenue grew 11% to $2.5 billion, driven by sales in Australia and Korea along with improved persistency in Japan as well as high investment income. However, operating earnings decreased 23.6% year over year to $198 million due to the negative impact of the annual review of actuarial assumptions.

Operating revenue from EMEA was almost flat year over year at $807 million. Premiums, fees and other revenue in this segment slipped 3% to $678 million. However, operating earnings improved 25.5% year over year to $59 million, reflecting augmented growth in Turkey, Russia and the Gulf countries. However, growth remained sluggish in the Western Europe.

Separately, Corporate & Other operating revenue was recorded at $213 million, down 20% from the year-ago period. Additionally, this segment incurred an operating loss of $137 million, higher than the loss of $95 million in the prior-year quarter.

Full-Year 2012 Highlights

For full-year 2012, MetLife’s operating EPS stood at $5.28, exceeding both the Zacks Consensus Estimate of $5.21 and $4.38 recorded in 2011. Operating net income escalated 21.6% year over year to $5.69 billion. On a GAAP basis, including losses from derivatives, investments, goodwill impairment and other adjustments, net income plunged to $1.20 billion or $1.12 per share in 2012 from $6.16 billion or $5.76 per share in 2011.

Operating revenues of $68.35 billion climbed 5% over 2011, lagging the Zacks Consensus Estimate of $66.72 billion. However, total revenues dipped 3% to $68.15 billion. Total operating expenses inched up 3.1% year over year to $60.22 billion, while total expenses increased 9.3% year over year to $66.71 billion.

Financial Update

At the end of the reported quarter, MetLife’s net investment income increased 6% year over year to $5.2 billion, while net investment portfolio loss was $2 million, down from loss of $213 million in the year-ago quarter. In addition, post-tax derivative losses surged to $924 million ($1.3 billion pre-tax), in stark contrast to a gain of $351 million ($591 million pre-tax) in the year-ago quarter. The downside was driven by volatility in interest rate and foreign exchange.

Meanwhile, under the company’s variable annuity hedging program, pre-tax variable investment income was $376 million in the reported quarter against $135 million in the year-ago period.

As of Dec 31, 2012, MetLife’s book value per share, excluding AOCI, was almost flat year over year at $46.73. However, reported book value (including AOCI) per share grew 9% to $57.17 versus $52.43 at the end of 2011. Operating ROE stood at 11.3% at 2012-end.

At the end of 2012, MetLife had total investments of $517.1 billion, up from $511.4 billion at 2011-end. Also, cash and cash equivalents surged to $15.7 billion, total assets increased to $836.8 billion and long-term debt inched down to $19.1 billion, while total equity increased to $64.8 billion, from 2011-end.

Others

MetLife carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include XL Group Plc (XL - Analyst Report), First American Financial Corp. (FAF - Snapshot Report) and RLI Corp. (RLI - Analyst Report), all of which carry a Zacks Rank #1 (Strong Buy).

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