MetLife Inc. (MET:US), the largest U.S. life insurer, posted the biggest drop in the 81-company Standard & Poor’s 500 Financials Index after Barclays Plc downgraded the firm, citing interest rates and lower expectations for buybacks.
MetLife fell 1.7 percent to $32.76 at 10:28 a.m. in New York. The insurer has gained 5.1 percent this year, compared with the 21 percent advance of the financials benchmark.
Interest rates near record lows will pressure earnings of life insurers, which invest in bonds and other assets to back obligations to policyholders, analysts led by Jay Gelb at Barclays wrote in a research note today. They cut MetLife (MET:US) to the equivalent of hold from buy, and lowered their outlook on the U.S. life insurance industry to neutral from positive.
“We see no end in sight to persistent low interest rates, which should result in growing pressure on life insurers’ earnings,” the analysts wrote.
MetLife shares may climb to $37, compared with a previous price target of $42, the Barclays analysts wrote. Oversight from the Federal Reserve may prevent New York-based MetLife from repurchasing shares next year, the analysts said. Prudential Financial Inc. (PRU:US) and American International Group Inc. (AIG:US) may also be “restrained” in buybacks in 2013 by U.S. oversight, according to the report.
Prudential, the No. 2 U.S. life insurer, fell 36 cents to $52.25. AIG, the insurer that counts the U.S. as its largest shareholder, lost 1.2 percent to $33.37.
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