MetLife expects to meet targets even with low rates

Thu Aug 2, 2012 10:37am EDT

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

The MetLife building is seen in New York, March 8, 2010.

Credit: Reuters/Shannon Stapleton

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(Reuters) - MetLife Inc (MET.N) still expects to hit its long-term targets for return on equity, even if 10-year U.S. Treasury yields remain at their historically low levels, the chief executive officer of the largest U.S. life insurer said on Thursday.

The company also said it still had no sense of when federal regulators might consider its pending deal to sell its online deposit-taking operations to GE Capital, a transaction crucial to its plans to return capital to shareholders.

MetLife shares rose nearly 5 percent in early trading.

On a conference call with analysts, CEO Steve Kandarian said that while interest rates are much lower now than they were when the company gave rate sensitivity projections last fall, there was no additional impact to earnings-per-share expectations for this year or next.

Last fall, the company gave a presentation where it modeled the effects of 10-year yields around 2 percent for five years. Although they are some 60 basis points lower now, Kandarian said MetLife could handle it this year and next.

If rates remain at that level, the 2014 impact would be about 5 cents per share, he added. Even so, he said the company could achieve the low end of its 2016 return on equity targets.

That low-rate scenario could force MetLife to strengthen its reserves modestly to meet regulatory requirements, interim Chief Financial Officer Eric Steigerwalt said, and goodwill in the company's retirement products business could be under pressure.

On Wednesday, MetLife said it had a $1.4 billion gain in the second quarter because of the decline in interest rates and derivatives it holds to hedge its rate risk. <ID: nL2E8J1IBV>

Interest rates are the primary concern of life insurers right now, given their long-term obligations. As older investments mature, they have to reinvest those proceeds at historically low rates.

The risk is that if rates remain low, returns may not be sufficient to cover future obligations. Conversely, if rates rise quickly, that would be problematic, given the writedowns that would be likely on low-rate investments on the books.

Kandarian also addressed MetLife's pending sale of its bank deposit-taking operations to General Electric Co (GE.N) unit GE Capital, saying the application was pending before regulators and that the company still did not know when they would act on the deal.

MetLife is currently a bank holding company, which means it falls under U.S. Federal Reserve oversight. The Fed has twice in the last year blocked the company from raising dividends or buying back shares amid concerns over its capital ratios.

MetLife has said it hopes to shed the bank holding company charter so it can get out of Fed oversight and return capital to shareholders this year. At the same time, the company has acknowledged it may be tagged as systemically important, which would keep it under the Fed's purview regardless.

MetLife shares rose 4.8 percent to $31.89 in early New York Stock Exchange trading. Through Wednesday's close, the stock was down 2.4 percent for the year, underperforming a 6.7 percent gain for the S&P insurance index .GSPINSC.

At a price-to-expected-earnings ratio of about 5.9, the company lags the sector average of around 7.3.

(Reporting by Ben Berkowitz; Editing by Gerald E. McCormick and Lisa Von Ahn)

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