MetLife profit drops 43% on weaker investment yield, tax hit

MetLife Inc suffered 43 percent drop in profit for the third quarter due to bleak investment results and tax costs associated with the UK subsidiary which impacted the financial performance of the largest life insurer in the US.

The quarterly profit had missed the analysts' forecasts. The market volatility in the third quarter put more pressure on quarterly earnings of US companies. 

New York-based MetLife recorded the net income down to $1.2 billion from $2.09 billion.

Operating profit excluding one-time item was 62 cents per share lower than the forecast of 76 cents per share. 

MetLIfe already mentioned in September that it has incurred tax cost after a court ruling and was expected to reduce earnings by $792 million.

The low yields have been impacting the investments made by MetLife for years. This is also limiting the income on fixed income securities, which have major weight in MetLife's holdings.

The high volatility in the market and federal tax dispute aspects reduced the profit from retirement-income products for MetLife. The court ruling also included other companies with similar tax dispute. 

The net profit dropped to $1.2billion or $1.06 per share from $2.06billion or $1.81per share. The tax charge of 70 cents a share eroded the insurer's net profit. The operating earnings slid 61 percent to $705million from $1.83billion. The company said in its financial report that the net income also included $315million derivative gains. Premium, fees and other revenues marginally up by three percent to $13.12billion, while operating revenues were at $17.97billion. 

The strengthening of US dollar also impacted MetLife as it resulted in adverse currency conversions. MetLIfe is present in 50 countries including Japan, Latin America, Asia, Europe and the Middle East. 

The company's actuaries that consider interest rates, mortality rates, etc, have caused several adjustments. This decreased the operating earnings by eight cents per share. MetLife's variable investment income was also disappointed the investors. The operating profit excluded some financial hedging activity as part of asset-liability management strategy that focuses on hedging activity in interest rate and foreign currencies. 

The operating income was also impacted by unfavorable underwriting in the property and casualty auto business. Many insurance firms suffered a drop in auto insurance profitability in 2015 so far. The drop in gas prices was the major reason for this.

American International Group Inc, Travelers Co. and other US companies suffered losses owing to the market volatility in the third quarter. The companies, which have alternative assets such as hedge funds and real estate partnerships, are facing more pressure on profits. 

The no change in interest rates as it was anticipated. Adding to this, market volatility during the third quarter further impacted the performance, said market analysts.