Variable Investment Income Losses Weigh on MetLife’s Third-Quarter Results; We Maintain $63 FVE

No-moat-rated MetLife reported underwhelming third-quarter results with adjusted operating income of $1.21 per share, down 49% compared with $2.39 per share in the previous year. The third-quarter results were mainly impacted by negative variable investment income and higher COVID-19 claims in Japan, which was partially offset by lower COVID-19-related claims in Latin America and the U.S. The company posted variable investment income, or VII, losses of $53 million in the current quarter compared with a $1.78 billion gain in the third quarter of the previous year. The average quarterly VII over the past six quarters was around $1.2 billion against a long-term expectation of a $450 million-$500 million quarterly gain. The variable investment income that primarily includes private equity has been posting very strong results over the past six quarters, but the recent weakness in private equity valuations will impact MetLife’s VII in the upcoming quarters. We expect adjusted earnings to remain under pressure in the next two quarters given the fact that VII is reported with a lag.