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MetLife profit climbs 68% to $1.52 billion on growth in U.S.

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(Bloomberg) – MetLife Inc., the largest U.S. life insurer, said profit climbed 68 percent in the fourth quarter as results improve in the company’s home country.

Net income rose to $1.52 billion from $908 million a year earlier, the New York-based insurer said Wednesday in a statement. Operating profit, which excludes some investing results, was $1.38 a share, beating the $1.34 average estimate of 14 analysts surveyed by Bloomberg.

Chief Executive Officer Steve Kandarian, 62, has focused on cutting costs in the U.S. and limiting risks from market-linked retirement products while also expanding overseas. MetLife is targeting return on equity of 12 percent to 14 percent by 2016.

“They’ve been transitioning away from capital-intensive annuity-type business to asset-management type businesses,” Tom Jalics, an investment analyst at Key Private Bank who helps oversee $25 billion including MetLife shares, said by phone before results were announced. “They’ve got a diverse business model.”

MetLife has declined 6.8 percent this year to $50.41 at 4:15 p.m., while Newark, New Jersey-based rival Prudential Financial Inc. has dropped 12 percent. Results were released after the close of regular trading in New York.

Book value, a measure of assets minus liabilities, rose to $61.85 a share on Dec. 31 from $61.44 three months earlier. MetLife said its operating return on equity was 11.3 percent in the fourth quarter.

Prudential, the second-largest U.S. life insurer, said Feb. 4 that its quarterly loss widened to $1.46 billion on costs tied to restructuring, currency fluctuations and reserves.

Bond Yields

Declining bond yields are weighing on life insurers, which invest in fixed-income assets to back future obligations to policyholders. The yield on the 10-year Treasury has declined this year to about 2 percent.

Net investment income fell 6.8 percent to $5.45 billion. Variable investments, which include private equity and hedge funds, added $325 million before taxes, compared with $460 million a year earlier.

In a December presentation, MetLife said it assumed the 10- year Treasury would end this year yielding 3.24 percent. At the time, the insurer said that if the rate instead held at 2 percent, earnings this year would be cut by about $80 million this year and $180 million in 2016.

Kandarian has also been contending with the prospect of increased regulation. MetLife was designated systemically important by a panel of U.S. regulators, subjecting the company to increased oversight from the Federal Reserve. The firm filed a court appeal last month against the designation.

Americas Region

Operating earnings climbed 4.2 percent to $1.48 billion in the Americas region, which is led by Bill Wheeler. The retail segment contributed $683 million, up from $658 million a year earlier. Corporate benefit funding added $374 million, a 4.8 percent increase.

MetLife has benefited by taking on pension obligations from other companies. Kandarian’s firm has focused on mid-sized retirement accounts, such as the deal to assume a $440 million pension from TRW Automotive Holdings Corp., announced in December.

In Latin America, operating earnings rose 8.1 percent to $187 million. MetLife gets most of its profits in the region from Mexico and Chile and also operates in Brazil.

MetLife earned $335 million in Asia, a 3.4 percent increase from a year earlier. The company is working to expand the business outside Japan, where it generates about 85 percent to 90 percent of profits from the region. About 10 percent of earnings come from Korea, MetLife has said.

Chile, Vietnam

MetLife has used deals to bolster international growth, paying about $16 billion to acquire American Life Insurance Co. from American International Group Inc. in 2010. Kandarian more recently acquired Chilean pension provider AFP Provida SA, and he’s also struck deals to expand in Vietnam and Malaysia.

At the same time, MetLife has scaled back from businesses where it can’t generate profits in line with its goals. The insurer sold a U.K. annuity operation to Rothesay Life Ltd. last year.

Derivatives added $120 million to earnings, fueled by a decline in interest rates and the strengthening of the dollar relative to foreign currencies, MetLife said. A year earlier, derivative net losses were $358 million. The insurer uses the contracts to cushion fluctuations in stocks, bonds and currencies.

MetLife’s full-year operating profit climbed 4.8 percent to $6.56 billion in 2014.