(Updates shares in the fifth paragraph.)
Oct. 28 (Bloomberg) -- MetLife Inc., the insurer with a $493 billion investment portfolio, is boosting lending through privately negotiated transactions that provide more attractive returns than publicly traded securities.
“We really like what we see in private assets,” Chief Investment Officer Steven Goulart said on a conference call today, citing commercial mortgages and agricultural lending. “We continue to check, from a relative-value basis, how to compare this versus other opportunities and traditional corporate bonds and the like.”
Goulart is extending a focus on private deals that his predecessor, Steven Kandarian, highlighted in December. New York-based MetLife’s commercial mortgage portfolio rose 6.1 percent in nine months to $40.1 billion on Sept. 30 as holdings of mortgage-backed securities declined. Kandarian, promoted to chief executive officer in May, added about $10 billion in investments through its private securities group last year.
“As we look forward to next year, we’re likely to see that relationship continue,” Goulart said of MetLife’s preference for private deals.
MetLife rose $1.15, or 3.2 percent, to $36.82 at 4:01 p.m. in New York, the biggest gain in the 24-company KBW Insurance Index. MetLife’s third-quarter operating profit, announced late yesterday, beat analysts’ estimates and net income surged more than 10-fold to $3.58 billion on gains in derivative hedges.
Goulart is reallocating holdings to help Kandarian, 59, guard against near-record low interest rates. New premium income, which the company collects from policyholders, is being invested in assets that yield “just under 4 percent,” said Goulart, 53. MetLife’s $60 billion in mortgage loans had an average yield of 5.5 percent in the third quarter, compared with 5 percent on the $355 billion in fixed-maturity securities.
Yields on investment-grade corporate bonds have slipped to 3.87 percent from 4.1 percent at the end of last year, according to Bank of America Merrill Lynch index data. That compares with the 2.31 percent on benchmark 10-year Treasuries and 8.46 percent on speculative-grade bonds, the data show.
The slide in rates prompted Kandarian to lower the returns credited to new customers on retirement products called variable annuities. The Federal Reserve has said that it may keep benchmark rates near zero through mid-2013 as long as unemployment remains high and the inflation outlook stays “subdued.”
“We continue to seek opportunities to re-price and improve the risk profile of our product offerings,” Kandarian said of MetLife’s variable annuities. “As of January, the roll-up rate on our GMIB Max product will be reduced from 5.5 percent to 5 percent.”
MetLife’s holdings of commercial mortgage-backed securities fell 5.3 percent in the first nine months of the year to $19.6 billion, while residential mortgage-backed securities slid 6.3 percent to $41.9 billion. U.S. corporate securities advanced 16 percent to $106.6 billion.
--With assistance from Sapna Maheshwari in New York. Editors: Dan Kraut, Rick Green
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