MetLife Inc (MET.N) warned that 2013 earnings might be well below Wall Street expectations and said it did not expect to buy back any shares next year, a blow to investors who have been waiting more than a year for a capital return.
The largest life insurer in the United States also said it needed to move faster on strategic changes amid a persistently low-interest-rate environment.
While MetLife has said in the past that it was well equipped to handle years of low rates, particularly with a hedging program it has put in place, the company acknowledged on Thursday that it was in a "lower-for-longer" scenario.
Because their obligations are usually long-term, life insurers invest the premiums they collect in hopes of generating sufficient return to pay those obligations over time. In a low-rate environment, it becomes much harder for insurers to generate enough return to meet those commitments.
MetLife said operating earnings per share next year would be lower than this year, compared with Wall Street expectations for growth in the low single digits. However, it also said the forecast was "broadly consistent" with its long-term outlook of a year ago.
For this year, the insurer expects operating earnings of $5.5 billion to $5.6 billion, or $5.15 to $5.25 per share, compared with analysts' average estimate of $5.25.
In 2013, it expects $5.5 billion to $5.9 billion, or $4.95 to $5.35 per share. Analysts' average forecast is $5.47, according to Thomson Reuters I/B/E/S.
MetLife's operating earnings forecast excludes discontinued operations and net investment gains and losses.
Shares of MetLife rose 2 percent to $34.29 in morning trading. At Wednesday's close, the stock had risen about 5 percent this year.
On a year-end investor call with analysts, MetLife management said the 2013 forecast assumes no share buybacks. Chief Executive Steve Kandarian later added, "I don't have total confidence" the company will be free to buy back shares after 2013, either.
MetLife investors have waited since the autumn of 2011 for the company to buy back shares and raise its dividend, but regulators foiled the company's plans.
Because of its online bank, MetLife has a bank holding company charter and is subject to Federal Reserve oversight. The Fed blocked MetLife from a buyback in late 2011, and the company failed a Fed bank stress test earlier this year.
On Wednesday, the insurer won approval from banking regulators for a long-delayed deal to sell the deposits portion of its bank to General Electric Co's (GE.N) GE Capital unit. Once that sale closes, MetLife will seek to relinquish the bank charter, which may mean the end of Fed oversight.
RBC Capital Markets analyst Eric Berg, in a research note, said the sale "was certainly a step in the right direction."
But MetLife executives said they could not be sure when the sale would close, and how that timing would affect whether the company has to participate in another stress test, meaning it was "prudent" to assume it would not buy back shares next year.
Even with the bank sold, MetLife is also considered at risk of being declared a systemically important financial institution by a federal panel, which would put it right back under Fed supervision and could restrict its payout ability.
"And we fear that knowing this, Met will go slow on share repurchase - exactly the opposite of what investors want to hear from the company," RBC's Berg said.
(Editing by Rodney Joyce, Lisa Von Ahn and John Wallace)