MetLife Tops Estimates, but Takes Down Guidance

MetLife ( MET) reported late Monday a 21% increase in second-quarter net profits, but the big insurer lowered its earnings outlook for remainder of the year.

"Given the likelihood that we will continue to experience a weak equity market for the remainder of the year, particularly in the third quarter, we are revising our earnings guidance," said MetLife Chairman and Chief Executive Robert Benmosche, in a prepared statement.

The company said it expected operating earnings for the next two quarters to range between $1.20 and $1.30 a share. Wall Street analysts surveyed by Thomson Financial/First Call were estimating MetLife would report operating earnings of $1.35 over the second half of the year.

For the second quarter, the firm reported net earnings of $387 million, or 53 cents a share. But that included a $117 million charge for bad investments. The company earned $320 million, or 41 cents a share, in the year-ago period.

MetLife's net earnings, despite taking some hits in its investment portfolio, got a boost from a 13.6% year-over-year increase in revenue from insurance premiums and fees.

Analysts were focusing on MetLife's operating earnings, which excludes those losses. By that measure, the firm earned $504 million, or 69 cents a share, a few cents better than the 64-cent estimate.

Hard Times

There wasn't much mystery about MetLife's bottom-line number, since the New York-based insurer announced two weeks ago that it expected to more or less match the estimates of analysts.

Before the earnings announcement shares of MetLife traded lower, as many financial-related stocks fell on concerns that the economy might be slipping back into recession again. The stock dropped $1.07, or 4%, to $25.63.

Shares of MetLife are trading at 10 times 2002 earnings, based on actual results and analysts' estimates compiled by First Call. By comparison, Prudential Financial ( PRU), the big New Jersey-based insurer and financial-services firm, which is set to report earnings on Tuesday, trades at a forward 2002 P/E of 13.5.

MetLife's stock is off 16% for the year. The company has scheduled a Tuesday morning conference call to discuss its results in greater detail.

Unlike property and casualty insurers, which are benefiting right now from passing on sharp price increases in insurance coverage to their customers, the economic environment for life insurers is more difficult. That's because there isn't as much pricing pressure in the life insurance market and many firms are being forced to take sizeable charges and write-offs for bad investments they have made both in stocks and bonds.

Exposure Issues

MetLife said it incurred a pretax loss of $215 million on bonds issued by WorldCom, the now-bankrupt telecom giant.

Moody's Investors Service, the credit-rating agency, has estimated that domestic and foreign life insurers may be on the hook for as much as $5 billion in bonds issued by WorldCom. MetLife's total exposure to WorldCom bonds, Moody's estimates, could exceed more than $270 million.

In light of its heavy WorldCom exposure, MetLife is one of three companies that has been tapped to lead the creditor's committee for bond holders of the ailing long-distance carrier.

Last week John Hancock Financial Services ( JHF) posted a 46% drop in second-quarter net income, in part due to investment losses it had incurred. The Boston-based life insurer, which reported net income of $98.3 million, or 33 cents a share, said it had an after-tax loss of $94.5 million due to some bad investment bets on telecommunication and energy companies.

Things are even worse for insurers overseas. Allianz, the giant German insurance company, last week announced a second-quarter net loss of $344 million and said it would miss earnings targets for the rest of the year. The firm, which also owns Germany's Dresdner Bank, cited the weak stock market for some of its woes.

But if the U.S. economy sours again, Allianz's troubles could be a harbinger of things to come here for some big life insurers. That's because a double-dip recession will mean more corporate bond defaults and ultimately more bad investments for U.S. insurers to digest.

MetLife also announced that Benmosche and Stewart Nagler, the company's chief financial officer, would be filing signed and certified copies of its most recent financial statements by the Aug. 14 deadline established by the Securities and Exchange Commission.

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