The largest U.S. life insurer plans to cut expenses by about $1 billion as low interest rates squeeze investment income.
MetLife Inc., the largest U.S. life insurer, plans to cut expenses by 11% as low interest rates squeeze investment income.
The plan is to reduce annual costs by about $1 billion by the end of 2019 and will include job cuts, Chief Executive Officer Steve Kandarian said Thursday in a conference call without specifying how many workers will be dismissed by the New York-based company. The insurer had 69,000 employees at the end of 2015, according to its most recent annual report.
Central bank policies to suppress interest rates have reduced the income MetLife makes on a bond-dominated investment portfolio valued at more than $500 billion. The company said late Wednesday that second-quarter profit tumbled 90% to $110 million on a review of the prospects of a variable-annuity business that the CEO is seeking to exit as part of a proposed separation of a U.S. retail operation.
“In light of the significant headwinds our industry is facing, MetLife must do even more to avoid simply running in place,” Mr. Kandarian said. “We know this will require us to reduce headcount, which is never an easy step for an organization to take. Our overall goal is to be more efficient, so that we can better serve our customers and provide a fair return to shareholders.”
He cited a deal, announced this week, in which Computer Sciences Corp. will administer almost 7 million policies for the insurer. The agreement includes call-center and information-technology support, and CSC said it would offer employment to more than 1,000 people who work for MetLife in the U.S. and India. Mr. Kandarian has previously moved jobs to North Carolina to help save costs.
MetLife dropped 6.8% to $40.72 at 9:33 a.m. in New York. The company has tumbled 16% this year, compared with the 5.8% gain of the S&P 500 Index.
“The rate and economic environment is not conducive in allowing a company like Met to thrive,” David Havens, a debt analyst at Imperial Capital, said in a note. “It can certainly get by and remain a solid credit.”
The decision by U.K. voters to leave the European Union hurt insurers as financial markets responded to the referendum by pushing down interest rates in nations such as the U.S., Mr. Kandarian said. The company is projecting 10-year Treasury yields will increase to 4.25% by 2027, Chief Financial Officer John Hele said on the call. That outlook is even worse than in November when the company said they won't reach a “normalized” level of 4.5% for 11 years.
