MetLife Inc's (MET.N) second-quarter profit plunged 80 percent due to derivative losses but still managed to beat analysts' estimates as operating earnings increased in the company's retail insurance business.
The largest life insurer in the United States, like its peers, is heavily exposed to persistently low interest rates. But it has long had a substantial derivatives program designed to smooth out that risk.
The company's derivative net losses during the quarter ended June 30 was $1.2 billion, compared with a profit of $1.3 billion a year earlier.
Operating earnings rose by 18 percent to $1.3 billion in the insurer's Americas unit, driven by retail and group, voluntary & worksite benefits. Retail operating earnings rose 42 percent to $581 million.
The insurer is close to being designated as a non-bank Systemically Important Financial Institution (SIFI), which would subject it to greater regulatory oversight in spite of shedding its bank-holding status.
Earlier this month, the U.S. financial risk council designated American International Group (AIG.N) and General Electric Co's (GE.N) GE Capital as systemically risky, bringing them under stricter regulations.
As a part of stricter regulations, top global insurers, which include MetLife, will also have to hold more capital from 2019, according to the rules by the International Association of Insurance Supervisors (IAIS).
MetLife's net profit fell to $471 million, or 43 cents per share, in the second quarter from $2.26 billion, or $2.12 per share, a year earlier.
On an operating basis, it earned $1.44 per share. Analysts on average had expected earnings of $1.33 per share, according to Thomson Reuters I/B/E/S.
MetLife dropped its bank holding status earlier this year after closing the sale of its deposit-taking business to General Electric Co's (GE.N) GE Capital unit.
However, the Financial Stability Oversight Council (FSOC) feels that MetLife's failure could still pose grave threats to the country's financial stability.
An SIFI is a designation that is given to financial companies, specially banks, who are deemed "too big to fail."
Chief Executive Steve Kandarian had said the price of insurance products would go up if a handful of large life insurers were designated as systemically risky.
The company's net investment income fell about a percent to $5.10 billion.
Low interest rates have led MetLife to focus on alternative businesses to boost profit. The company bought BBVA's (BBVA.MC) Chilean pension fund for about $2 billion earlier this year to expand its presence in emerging markets.
New York-based MetLife's shares, which have risen 26 percent since the company reported its last quarterly results, closed at $48.42 on the New York Stock Exchange on Wednesday.
(Reporting by Avik Das in Bangalore; Editing by Saumyadeb Chakrabarty, Maju Samuel)