Key Highlights

● Net income and adjusted Earnings rose

● Adjusted EPS was the highest quarterly figure in company history

● Revenue grew across all segments

● Reported Book Value per share fell

MetLife, Inc. (NYSE:MET) gave the financial sector a closely watched insurance data point, reporting third-quarter results in which Net Income and adjusted earnings both climbed from the prior-year period. Chief executive Michel Khalaf said the company “delivered the highest quarterly adjusted Earnings Per Share in MetLife's history,” and he linked the outcome to Revenue growth in every segment, solid underwriting, Volume growth and higher Investment returns.

Reported net income rose far more steeply than adjusted earnings, and net income per share grew at a faster rate still. Adjusted earnings per share also outpaced adjusted earnings in dollar terms, an outcome consistent with the lower common share count disclosed in the financial tables. Return on Equity on a reported basis was very high, and adjusted return on equity also stood above the company's own target range.

The release's description of a highest-ever quarter is attached to adjusted earnings per share excluding notable items, the measure that strips out the annual actuarial review and related adjustments. Khalaf's wording in the same document refers more broadly to quarterly adjusted earnings per share. Both versions of the measure rose from the prior-year quarter, with the figure that excludes notable items showing the stronger gain.

Why Net Income Ran Ahead of Adjusted Earnings

The distance between reported and adjusted profit comes largely from items that adjusted earnings leave out. MetLife's reconciliation tables show that adjusted earnings exclude net investment gains and losses, net derivative gains and losses, Market Risk benefit remeasurements and certain other items. In the third quarter, the insurer recorded after-tax net investment losses, but those were more than offset by after-tax net derivative gains, which the company attributed to higher US interest rates.

Total revenues also advanced from the prior-year quarter, as did total expenses, although revenues grew by a wider Margin in dollar terms. That combination helped explain the gap between the periods at the reported level. The prior-year quarter had produced considerably lower net income, which made the percentage comparison look especially large.

Notable items weighed modestly on adjusted earnings in the period. MetLife said they were mainly the result of its annual global actuarial assumption review and other insurance adjustments. The effect differed by business: Retirement and Income Solutions, Latin America, the Europe, Middle East and Africa unit, and Corporate and Other each absorbed a reduction, while Asia recorded a benefit. Group Benefits and MetLife Investment Management were unaffected. The same review also reduced net income, though by a modest amount relative to the quarter's total.

Variable Investment Income Beat the Company's Own Marker

Investment results formed a central part of the quarter. Adjusted net investment income rose from the prior-year period, and variable investment income climbed sharply. MetLife's Earnings Call presentation shows that variable investment income came in well above the quarterly target the company uses as a reference point, and the insurer attributed the excess to higher Private Equity returns.

That detail matters when reading the headline comparison, because this category can move considerably from quarter to quarter and is not a steady contributor to earnings. The presentation also lists full-year guidance for pre-tax variable investment income. A quarter well above the reference point therefore represents a meaningful contribution, but one the company itself separates from its underlying quarterly marker.

Even with those returns, MetLife's Underwriting and volume commentary pointed to contributions outside the investment portfolio. Khalaf's list of drivers included underwriting and volumes alongside investment returns, and the segment detail shows that those drivers varied by business.

Group Benefits and Retirement: The US Engines

Group Benefits reported higher adjusted earnings, and MetLife said favorable underwriting was the main driver. Adjusted premiums, fees and other revenues in the segment grew modestly, while year-to-date sales increased at a stronger pace.

Retirement and Income Solutions presented a more layered picture. Adjusted earnings fell from the prior-year quarter, and MetLife attributed the decline to notable items. Excluding those items, the segment's adjusted earnings rose. Its revenue line expanded sharply, helped by pension risk transfer premiums, which the financial tables show were much larger than in the prior-year quarter. Stripping those transactions out, revenue still grew substantially, and total retained Liability exposure also rose.

Pension risk transfers can make the company's top-line comparisons uneven, which is why MetLife reports adjusted premiums, fees and other revenues both with and without them. On the narrower basis, the company said growth occurred in all of its segments, and that measure also advanced for the group as a whole.

International Units Tell Different Stories

Asia delivered the largest adjusted earnings of any segment, and they rose both as reported and on a constant-currency basis. Excluding notable items, the increase was stronger still. Adjusted premiums, fees and other revenues edged higher. Sales declined on a constant-currency basis against what MetLife described as a strong prior-year quarter, though year-to-date sales were higher. General account Assets under management remained a substantial base for the region.

Latin America's reported adjusted earnings jumped, but the underlying message was more restrained. Excluding notable items, adjusted earnings were only slightly higher as reported and declined on a constant-currency basis. MetLife said lower encaje returns offset volume growth. The release singled out those encaje returns as the pressure point in the region. Adjusted premiums, fees and other revenues rose strongly, and constant-currency sales also increased.

The Europe, Middle East and Africa unit, the smallest of the insurance regions by adjusted earnings in the period, posted solid gains. Adjusted earnings rose on both reported and constant-currency bases, adjusted premiums, fees and other revenues grew, and sales advanced at a healthy constant-currency pace. Taken together, the international regions moved in different directions once notable items and currency effects were set aside, and the headline growth rates alone do not capture that variation.

PineBridge and the Asset Management Push

MetLife Investment Management reported higher adjusted earnings and a stronger increase in other revenues. Total assets under management grew from a year earlier, and the release noted that the total included the addition of PineBridge Investments. The comparison therefore reflects an Acquisition as well as any organic movement.

The deal closed at the end of last year. A market data announcement from that date said MetLife Investment Management had completed the purchase of PineBridge from Pacific Century Group, following an agreement first announced a year earlier. Excluded from the transaction were PineBridge's private equity funds group and its China joint venture. The announcement described growth in asset management as a top priority within the New Frontier strategy and said more than half of the acquired client assets were held by investors outside the US, with a substantial share in Asia.

Brian Funk, the unit's president, was named to lead the combined business, and a new senior Leadership team was drawn from both firms. The unit's adjusted earnings remain a small slice of the MetLife total, although its other revenues grew at a rapid rate in the quarter.

Capital Returned, Book Value Down

MetLife returned Capital in the quarter through both repurchases and dividends, with the earnings presentation showing that repurchases formed the larger part. Further repurchases followed in October, adding to the year-to-date total. Holding Company cash and Liquid assets at quarter end were within the company's target range, and US statutory adjusted capital rose from the end of June.

Those capital actions sit alongside a less flattering Balance Sheet measure. Book value per share fell considerably from a year earlier, as did total stockholders' equity. The financial tables show the main reason: unrealized investment losses widened substantially, partly offset by larger gains from the remeasurement of future policy benefit discount rates. MetLife's derivative gains in the same period were attributed to higher US interest rates, which gives a further indication of the market backdrop.

Adjusted book value per share, which removes those effects, rose from a year earlier. Common shares outstanding were also lower. The contrast between the book value measures echoes the broader theme of the release, in which market-related items moved reported figures in ways that adjusted measures are designed to exclude.

Targets and the New Frontier Timeline

MetLife gave no new numerical guidance with the results, but it did address its existing goals. The release said the company was on track to meet its full-year free Cash Flow ratio and direct expense ratio targets. The earnings presentation went further, indicating an expectation to beat the direct expense ratio target and to exceed both its return on equity target range and its annual earnings-per-share growth target.

The direct expense ratio excluding notable items and pension risk transfers rose slightly from a year earlier, yet it remained below the full-year target, while the broader expense ratio improved. MetLife also reported that its adjusted return on equity excluding notable items stood well above the upper end of its stated range for the period.

New Frontier is the name of the company's current strategy, within which the PineBridge announcement described asset management growth as a top priority. Khalaf said the company is “firing on all cylinders” under the plan and remains confident in its strategy. These are the company's own characterizations, and the release does not offer an independent assessment of them.

Further Detail in the Earnings Presentation

The earnings call presentation adds several measures that the headline release does not emphasize. Corporate and Other reported an adjusted loss that was little changed from the prior-year quarter, and the loss was somewhat narrower once notable items were removed. The presentation also shows a higher level of US statutory adjusted capital on the basis used by state insurance regulators, along with a Japanese Solvency measure stated for the fiscal year that ended in March.

On new business, the presentation includes a chart of the annual value of new Business for last year, accompanied by the company's estimate of its internal rate of return and payback period. That chart is a look back at a full year rather than a third-quarter statistic, and the presentation gives no comparable figure for the latest quarter. It nevertheless indicates how management describes the Economics of what it writes, separately from the short-term Volatility of investment returns.

The figures on capital return are also more specific in the presentation than in the release. Dividends and repurchases together came to roughly the total that the release states, with repurchases forming the larger part. The October activity disclosed alongside the quarterly figures shows that repurchases continued after the end of the reporting period. Adjusted common stockholders' equity was roughly flat against a year earlier, even as reported equity fell, and the lower share count helped lift adjusted book value on a per-share basis.

Context for Readers of the Results

MetLife also pointed readers to a supplemental earnings call presentation in its current report filed with the Securities and Exchange Commission, and that document provided much of the additional target and capital detail reported here.

Readers comparing MetLife's results with those of other insurers may note the several adjustments that shape the figures. Adjusted earnings remove investment and derivative movements; a further version removes notable items; revenue comparisons can be stated with or without pension risk transfers; and international results appear both as reported and on a constant-currency basis. Each of those layers changes the size of the year-over-year comparison, and in the case of Retirement and Income Solutions and Latin America, the direction or strength of the change as well.

What the documents do establish is a quarter of higher reported and adjusted profit, revenue growth across each segment, an investment income contribution well above the company's reference level, and a reported book value that moved in the opposite direction as unrealized investment losses widened.