MetLife Inc., the largest life insurer in the United States, warned that 2013 earnings might be well below what Wall Street expects and said it needed to accelerate its strategic plans amid a persistently low interest-rate environment.
While MetLife has said in past that it was well equipped to handle years of low rates, particularly with a hedging program it put in place, the company acknowledged on Thursday that it was in a “lower-for-longer” scenario.
Because their obligations are usually long-term, life insurers invest the premiums they collect in hopes of generating sufficient return to pay those obligations over time. In a low-rate environment, it becomes much harder for insurers to generate enough return to meet those commitments.
MetLife said operating earnings per share next year would be lower than this year, defying expectations of low single-digit growth. However, it also said the forecast was “broadly consistent” with its long-term outlook of a year ago.
The company made the comments ahead of its investor day on Thursday.
In December 2011, at the company’s last investor day, chief executive officer Steve Kandarian said he thought MetLife could increase earnings every year, even in a persistently low-rate environment. The new forecast assumes earnings could be steady, even as per-share results decline.
MetLife expects to earn between $5.5-billion (U.S.) and $5.9-billion, or $4.95 to $5.35 per share, in 2013. Analysts on average had forecast $5.47 per share, according to Thomson Reuters I/B/E/S.
Its operating earnings forecast excludes discontinued operations and net investment gains and losses.
For this year, the insurer expects operating earnings between $5.5-billion and $5.6-billion, or $5.15 to $5.25 per share, compared with the analysts’ average estimate of $5.25 per share.
On Wednesday, MetLife won approval from the U.S. Office of the Comptroller of the Currency for the sale of its deposit-taking business to a unit of General Electric Co’s GE Capital.
The long-delayed approval brings MetLife one step closer to shedding its banking business and its bank holding charter, which it wants to do so it can increase its dividend and buy back stock.