10-QPeriod: Q2 FY2016

METLIFE INC Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 5, 2016For Securities:METMET-PEMET-PFMET-PA

Summary

MetLife Inc.'s second quarter 2016 results, filed on August 4, 2016, indicated a decrease in net income compared to the prior year, primarily driven by significant net derivative losses and unfavorable impacts from actuarial assumption reviews for variable annuity products. While total revenues saw a slight decrease, the company experienced a considerable drop in net income attributable to MetLife, Inc.'s common shareholders due to a substantial increase in net derivative losses, which were partially offset by favorable changes in net investment gains. Despite these headwinds, the company's operating earnings, a non-GAAP measure, showed a more resilient performance, though also impacted by actuarial assumption reviews and lower investment yields. Key business segments, particularly Retail, faced challenges with declining sales and market factors affecting investment income and fee-based revenues. The company also provided an update on its strategic initiative to separate a substantial portion of its Retail segment into a new entity, Brighthouse Financial, expected to occur in 2016.

Financial Highlights

34 data points
Beta

Revenue

$16.35B

Net Income

$321.00M

2.0% Net Margin

EPS (Diluted)

$0.25

Total Assets

$942.57B

Cash & Equivalents

$17.07B

Free Cash Flow

$4.29B

Financial Statements
Beta
Revenue$16.35B
Operating Expenses$3.25B
Net Income$321.00M
EPS (Basic)$0.25
EPS (Diluted)$0.25
Shares Outstanding (Basic)1.10B
Shares Outstanding (Diluted)1.11B

Key Highlights

  • 1Net income attributable to MetLife, Inc.'s common shareholders was $64 million for the three months ended June 30, 2016, down significantly from $1,042 million in the prior year's quarter.
  • 2Total revenues decreased to $15,244 million from $16,166 million in the comparable prior period, primarily due to lower net investment income and a substantial increase in net derivative losses.
  • 3Operating earnings available to common shareholders declined to $924 million from $1,765 million in the prior year's quarter, impacted by lower investment yields, actuarial assumption reviews, and unfavorable underwriting.
  • 4The company announced plans to separate a substantial portion of its Retail segment, along with other segments, into a new entity to be rebranded as Brighthouse Financial.
  • 5The company recorded significant unfavorable changes in net derivative gains (losses), particularly related to variable annuity products and their hedging strategies, contributing to the decline in net income.
  • 6MetLife continued to manage its investment portfolio, which remains heavily weighted towards fixed income investments, while also navigating a low interest rate environment and market volatility.

Frequently Asked Questions

The significant decrease in net income was primarily driven by a substantial increase in net derivative losses, particularly those related to variable annuity products and their hedging strategies, as well as unfavorable impacts from the annual actuarial assumption review for these products. Net investment gains were favorable but did not fully offset these derivative losses.

Operating earnings is a non-GAAP measure that excludes certain items such as net investment gains/losses and net derivative gains/losses, as well as adjustments related to divested businesses and foreign currency translation. MetLife uses operating earnings to highlight the underlying profitability drivers of its business. While operating earnings also declined year-over-year, the decrease was less severe than the reported net income decline.

MetLife announced its plan to pursue the separation of a substantial portion of its Retail segment, along with other segments, into a new entity. This separated business will be rebranded as 'Brighthouse Financial.' The company is evaluating structural alternatives for the separation, such as a public offering, spin-off, or sale, and the completion is subject to regulatory and market conditions.

The sustained low interest rate environment negatively impacted investment yields on fixed maturity securities and other investments, leading to lower net investment income. Volatile equity markets also affected the performance of separate account balances, reducing asset-based fee income and impacting amortization of deferred policy acquisition costs (DAC). These market factors contributed to a decrease in operating earnings across several segments.