August 1, 2012 / 8:29 PM / 6 years ago

MetLife, Prudential profits rise on derivative gains

(Reuters) - Profit at MetLife Inc (MET.N), the largest U.S. life insurer, doubled in the second quarter after a huge gain on derivatives tied to falling interest rates, and operating results at the company beat Wall Street expectations on double-digit growth in the Americas.

The MetLife building is seen in New York, March 8, 2010. REUTERS/Shannon Stapleton

The company, like its peers, is heavily exposed to the persistently low interest rate environment. But it has long had a substantial derivatives program designed to counter that risk.

As rates fell in the quarter, the company booked a $1.4 billion gain on its derivatives positions and other items.

MetLife reported a profit of $2.26 billion, or $2.12 per share, compared with a year-earlier net profit of $1.07 billion or $1 per share.

On an operating basis it earned $1.33 per share. Analysts polled by Thomson Reuters I/B/E/S on average expected $1.24 per share.

The company said operating earnings at its Americas segment grew 11 percent on strength in retail life insurance and annuity sales as well as in its group and voluntary benefits unit.

Operating earnings also rose by double digits in the insurer’s Asia and EMEA units, which have been growing in importance for MetLife since its 2010 acquisition of the international insurer Alico.

Despite the weak rate environment, the company also reported a 4 percent rise in net investment income. Analysts and actuaries have warned that insurers could suffer as they reinvest money at historically low returns.

MetLife shares rose 1.9 percent in after-hours trading.


MetLife peer Prudential Financial (PRU.N), the No. 2 U.S. life insurer, also reported a higher profit on Wednesday after its own extraordinary gains, in its case tied to currency.

Prudential reported a net profit of $2.2 billion, or $4.64 per share, compared with a year-earlier profit of $779 million, or $1.58 per share.

The company recorded $1.9 billion in pre-tax gains from changes in currency rates and derivatives, largely tied to the strengthening of the Japanese yen in the period.

On an operating basis, Prudential earned $1.34 per share. That was short of the $1.55 estimated on average by Wall Street analysts.

It was the third time in the last four quarters that the company missed Street expectations, and shares fell 2 percent in after-hours trading.

Prudential took $246 million in pre-tax charges in the quarter for a wide variety of items, the largest of which was a strengthening of reserves in its individual annuity business.

Reporting By Ben Berkowitz; Editing by Steve Orlofsky

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