(Updates with analyst’s comment in the fifth paragraph, CEO on Fed negotiations in the 11th.)
Oct. 28 (Bloomberg) -- MetLife Inc., the largest U.S. provider of variable annuities, plans to offer lower returns on new sales of the products as the company copes with declining yields in fixed-income markets.
“We continue to seek opportunities to re-price and improve the risk profile of our product offerings,” Chief Executive Officer Steven Kandarian said today in a conference call with analysts. “As of January, the roll-up rate on our GMIB Max product will be reduced from 5.5 percent to 5 percent.”
Kandarian is adjusting terms of client offerings, reallocating holdings in the $493 billion investment portfolio and relying on hedges to guard the company against near-record low interest rates. 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.”
MetLife’s third-quarter variable annuity sales jumped 84 percent from a year earlier to $8.6 billion, the New York-based company said yesterday. Some of the increase may have been driven by customers who wanted to lock in rates before the terms changed, the insurer said on the conference call.
“The $8.6 billion variable annuity sales result was record breaking, though we are concerned that this new business would be well below targeted returns given the current low-rate environment,” Randy Binner, an analyst with FBR Capital Markets, said today in a research report. “We expect the company to actively manage sales to a more appropriate level.”
MetLife is expanding in retirement products as it retreats from banking. The company, working to sidestep tighter capital rules enforced by banking regulators, is seeking a buyer for its deposits-gathering business and considering the sale of its mortgage operation. The divestitures are “on track” and the company may wind the businesses down if it can’t find a buyer, Chief Financial Officer William Wheeler said today.
“Probably Plan B, though I think this would be an extreme scenario, is we would wind it down,” Wheeler said. “But I think a sale is much more likely.”
MetLife beat analysts’ estimates when it announced yesterday that third-quarter operating profit was $1.11 a share. Net income surged more than 10-fold to $3.58 billion, helped by gains in derivative hedges. The yield on 10-year U.S. Treasuries plummeted 39 percent in three months to 1.915 on Sept. 30.
MetLife rose $1.03, or 2.9 percent, to $36.70 at 9:32 a.m. in New York trading. It was the only firm to advance in the 24- company KBW Insurance Index.
Kandarian was ordered by the Fed to scrap his plans to resume share buybacks and raise MetLife’s dividend, the insurer said this week. MetLife, which as an insurer is regulated by the U.S. states, is “well capitalized” and will seek approval for an increase early next year, Kandarian said in a statement.
“We want to return capital to shareholders,” Kandarian said on the call. “The hope is that over time people in Washington will understand the difference between the banking business model and the insurance business model.”
Profit at MetLife’s bank unit fell by half to $51 million in the third quarter due higher expenses, the company said. Operating revenue rose 4 percent to $425 million. MetLife Bank had $17.7 billion of assets and $10.7 billion of deposits at the end of September.
--With assistance from Maryellen Tighe in New York. Editors: Dan Kraut, William Ahearn
To contact the reporters on this story: Noah Buhayar in New York at firstname.lastname@example.org; Andrew Frye in New York at email@example.com.
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