MetLife Earnings: Variable Investment Income Loss Drags Down Adjusted Earnings

No-moat-rated MetLife’s MET first-quarter results were affected by a loss in variable interest income, which was partially offset by favorable underwriting margins, volume growth, and higher recurring investment income. The company reported adjusted earnings of $1.2 billion or $1.52 per share in the first quarter versus $1.7 billion or $2.04 per share in the first quarter of the previous year. The company announced a quarterly dividend of $0.52 per share starting from the second quarter of 2023, which represents a 3.8% dividend yield as per the current stock price. The shares of the company were down 8% after releasing its results, which we think is an overreaction by the market. We are maintaining our $63 fair value estimate for MetLife after incorporating the first-quarter results.

Variable investment income was a loss of $44 million compared with a $1.2 billion gain in the first quarter of the previous year, primarily driven by returns on private equity and real estate equity funds. We expect the weakness in the variable investment income to persist in the upcoming quarters given the pressure on market valuations and our outlook for higher interest rates. The weakness in variable investment income was partially offset by higher recurring investment income as it was reported at $4.7 billion in the current quarter compared with $3.8 billion in the same quarter last year. The full benefits of higher interest rates will be visible in the upcoming quarters as the expiring fixed-income assets are being rolled at a significantly higher new money yield.

The U.S. businesses of the company, which include the group benefits segment and retirement and income solutions segment, reported adjusted earnings of $707 million in the first quarter compared with $663 million in the first quarter of 2022. The results in the U.S. business were driven by favorable underwriting, recurring interest margins, and volume growth, partially offset by lower variable investment income.