Favorable Underwriting Margins and Lower Variable Interest Income Mark MetLife’s Q4 Results

No-moat-rated MetLife reported lackluster fourth-quarter results with adjusted operating income (excluding notable items) of $1.55 per share, down 23% compared with $2.01 per share in the previous year. The fourth-quarter results were impacted by lower variable investment income, which was partially offset by favorable underwriting margins, especially in the U.S. group benefits business. The company posted variable investment income, or VII, of $24 million in the current quarter compared with $1.3 billion in the fourth quarter of the previous year. The average quarterly VII over the past eight quarters was around $900 million against a long-term expectation of a $450 million-$500 million quarterly gain. The variable investment income that primarily includes private equity has posted very strong results in 2021 but the weakness in private equity valuations has been impacting MetLife’s VII in the last three quarters. We note that VII is reported with a lag of one quarter therefore the VII reported in the current quarter reflects the valuation during the previous quarter. We are maintaining our $63 fair value estimate for MetLife after incorporating the fourth-quarter results.