On a GAAP basis, MetLife reported second quarter 2016 net income of USD 64 million, or USD 0.06 per share.
Net income includes a non-cash charge resulting from the company's annual review of actuarial assumptions for the Retail variable annuities business. As previously disclosed, MetLife accelerated its 2016 annual variable annuity actuarial assumption review from the third quarter to the second quarter in light of the company's previously announced plan to separate a substantial portion of its U.S. Retail business. As a result of this review, MetLife has recorded a non-cash charge to net income of USD 2.0 billion, net of deferred acquisition costs and after tax. Approximately USD 1.5 billion of this charge is attributable to changes in policyholder behavior assumptions and the remainder is related to changes in economic and other actuarial assumptions.
Consistent with past practice, MetLife will conduct the remainder of its annual actuarial assumption review, which addresses products other than variable annuities, in the third quarter.
Net derivative losses were USD 1.4 billion, after tax. This includes USD 2.4 billion, after tax, in derivative losses as a result of the annual Retail variable annuity actuarial assumption review, partially offset by USD 725 million, after tax, in derivative gains, related to changes in interest rates and foreign currencies, and USD 330 million, after tax, in derivative gains, resulting from other variable annuity derivatives and hedging. MetLife uses derivatives as part of its broader asset-liability management strategy to hedge certain risks, such as movements in interest rates, and foreign currencies. This hedging activity often generates derivative gains or losses and creates fluctuations in net income because the risk being hedged may not have the same GAAP accounting treatment.
MetLife reported operating earnings of USD 924 million, down 48 percent from the second quarter of 2015, and 47 percent on a constant currency basis*. On a per share basis, operating earnings were USD 0.83, down 47 percent from the prior year quarter. Operating earnings in the Americas decreased 42 percent, and 41 percent on a constant currency basis. Operating earnings in Asia decreased 39 percent, and 41 percent on a constant currency basis. Operating earnings in Europe, the Middle East and Africa (EMEA) increased 28 percent, and 36 percent on a constant currency basis.
Second quarter 2016 operating earnings included the following items:
• reserve adjustments primarily resulting from modeling improvements in the reserving process, mainly in Retail, which decreased operating earnings by USD 257 million, or USD 0.23 per share, after tax
• the annual Retail variable annuity actuarial assumption review, which decreased operating earnings by USD 161 million, or USD 0.15 per share, after tax
• an adjustment to reinsurance receivables in Australia, which decreased operating earnings by USD 44 million, or USD 0.04 per share, after tax
• unfavorable catastrophe experience, which decreased operating earnings by USD 15 million, or USD 0.01 per share, after tax
• variable investment income below the company's 2016 quarterly plan range by USD 9 million, or USD 0.01 per share, after tax, and the impact of deferred acquisition costs (DAC)
The second quarter variance between operating earnings and net income reflects a favorable impact of USD 1.8 billion, after-tax, related to asymmetrical and non-economic accounting.
"Second quarter results were negatively impacted by market factors, our annual variable annuity actuarial assumption review, and reserve adjustments resulting from modeling improvements in our reserving process," said Steven A. Kandarian, chairman, president and CEO, MetLife, Inc. "At the same time, we continued to make significant progress on actions intended to create long-term shareholder value, including our Accelerating Value initiative and the planned separation of a substantial portion of the U.S. Retail business." Read the full story
MetLife Announces Second Quarter 2016 Results