MetLife Inc. executives on Monday said profits were likely to rise in 2012, driven by improved results in its U.S. retirement-products business and its international operations.
Executives expect the improvement to give the life insurer as much as $7 billion of capital it could use on share buybacks and stock dividends if it is able to get approval from the Federal Reserve or restructure so that the Fed doesn't have veto power over its capital management.
Chief Financial Officer William Wheeler said some of the excess capital could be used on acquisitions, but when pressed by analysts, he said the company wasn't going to build a "war chest" for deals. The company's stock price, down around 25% so far this year, made share repurchases "very compelling" right now, executives said.
"I'm frustrated, as I am sure you are, by the performance of our stock," Chief Executive Steven Kandarian said at the start of the company's year-end presentation to analysts and investors. "We have shown through the financial crisis and the current low-rate environment that managing risk is one of our core competencies and we have a strong balance sheet to support our growth."
Mr. Kandarian said the company is in the middle of a strategic review of all the companies' businesses, and said executives were willing to make substantial changes to their business model if needed.
"Nothing is off the table," he said.
He added that "one of the luxuries" of the acquisition of international life insurer Alico from American International Group Inc. in 2010 is that MetLife now has an abundance of products and markets, so it can dial back some that don't meet cost-of-capital hurdles and ratchet up others. He said there could be instances of spinning off businesses or winding them down.
Executives also said the expected sales of U.S. variable annuities to decline in 2012 after the company has adjusted its annuity offerings to make them less generous.
MetLife shares rose 4.9% to $33.33 in recent trading, alongside a broader rally for financial stocks.
MetLife has been constrained in using its excess capital by the Fed, which stopped the company from launching a share-buyback program and raising its dividend for the first time in four years.
Mr. Kandarian said MetLife plans to submit a new capital proposal to the Fed in January and hoped to hear back by the end of the first quarter. But the company is also moving to sell its bank unit to remove itself from under the Fed's regulatory umbrella.
The company predicted 2012 operating earnings between $4.80 and $5.20 a share on a 5% rise in premiums, fees and other revenue. Analysts had been expecting 2012 earnings of $5.10 a share, though Credit Suisse analyst Thomas Gallagher said last week that a prediction from MetLife that ranged around $5 a share "would be viewed favorably by investors."
The company also estimated fourth-quarter operating earnings of $1.16 to $1.26 a share, while analysts surveyed by Thomson Reuters had been predicting $1.28. The fourth-quarter estimate would give MetLife operating earnings between $4.83 and $4.93 a share for all of 2011.
MetLife executives are predicting a potential improvement in operating profit despite an expectation of continued softness in the global economy. Mr. Wheeler said the company's assessment for 2012 doesn't anticipate any economic "recovery or snapback."
Company executives said the current ultra-low-interest-rate environment creates challenges for the core life insurance business. While executives said they expected single-digit growth in revenue and other fees from U.S. life insurance products, low interest rates are seen damping insurance earnings slightly, partly tied to the cost of the company's own employee pension plan and post-retirement benefits.