Metlife Inc (NYSE:MET) and its peer Prudential Financial Inc (NYSE:PRU) reported higher 1Q operating profit, despite the prevailing impact of low interest rates on life-insurance industry. Chief Executive Steven Kandarian termed the strengthening of the U.S. currency as a major obstacle in a quarter of strong underlying growth. The operating profit surged 4.9% despite a decline in total revenue.
Prudential Financial first-quarter operating earnings jumped 14%. The results reflect solid performance and represent a strong start to the year. The company generates almost 50% of its profit from abroad, particularly Japan.
The indications
Metlife and Prudential results were released as three of largest insurers in Europe demonstrated that negative or low yields are having an uneven impact. Prudential disclosed its profits from total new business declined 6% from a year earlier in 1Q to $756 million, with outgoing CEO Tidjane Thiam cautious on problem of low, long-term rates.
The prevailing low interest rates in the United States and in other nations adversely affect insurers’ investment income. Insurers constantly possess dollars to invest and generate a significant part of their income from interest from bond-dependent investment portfolios. As foreign currencies have weakened against the U.S. dollar, the firms that generate income in those currencies record losses when they are converted back into dollars.
The parameter
In the United States, investors keep a close watch on operating income. Metlife Inc (NYSE:MET)’s operating profit came at $1.44 a share, up from $1.37 a share, in the same quarter, a year ago. The company exceeded the analysts’ guidance of $1.41 a share. The net income jumped to $2.13 billion from $1.3 billion, supported by net derivative gains of $534 million.
Metlife’s total operating revenue came at $17.03 billion, lower than analysts’ guidance of $17.53 billion. It was also below the operating revenue of $17.12 billion recorded in the year-earlier period.
