Persistently low interest rates are eating into the business of the largest U.S. life insurer, analysts say.
Shares of MetLife plunged more than 8.5 percent Thursday after reporting earnings well below expectations and a $2 billion charge related to its planned spinoff of the U.S. retail business.
"It's a tough environment for life insurers," said Brett Horn of Morningstar. "I don't know it was necessarily that great a surprise. I think a low interest [rate] environment hurts life insurers, and there's not necessarily any clear end in sight, and there's some frustration on the part of the market."
In preparation for the separation of its U.S. retail unit, MetLife reviewed its variable annuity product. The study prompted an increase in reserves, or a $2 billion charge, partly due to the increase of the percentage of policyholders who choose to withdraw funds rather than to accept MetLife's offer of a fixed income annuity.
That and other "changes in policyholder behavior assumptions" accounted for about $1.5 billion in charges, the release said. The remaining half billion was attributed to related "changes in economic and other actuarial assumptions."
"The size of the charge [was] probably to the high end of what people were expecting," said John Barnidge of Sandler O'Neill & Partners, which has a "buy" rating on the stock.
The U.S. 10-year Treasury yield was near 1.50 percent Thursday, only slightly above all-time lows hit in the last few months. Global benchmark yields have recently fallen to historic lows, including negative territory. Low rates limit returns on fixed-income products.
MetLife reported second-quarter earnings late Wednesday of 83 cents, below Reuters' expectations of $1.35 a share and down from $1.56 the same period last year. Total operating revenue fell 2.3 percent to $16.96 billion.
Insurance peers Prudential Financial and Lincoln National also fell, closing 4 percent lower or more after mostly disappointing earnings.
For the planned separation of its U.S. retail business, CEO Steven Albert Kandarian said in the earnings call Thursday morning the firm expects to file the basic SEC Form 10 after the September 27 board meeting. That is later than some investors may have thought, Barnidge said.
"At the end of the day, I think MetLife is making a really bold move in separating the retail business," Barnidge said. "I think people got a little ahead of themselves."
Thursday's share price decline marked their worst day since the Brexit sell-off on June 24.