| NEW YORK
NEW YORK May 4 MetLife Inc said it has
changed its derivatives trading strategy after two consecutive
quarters where losses from wrong-way bets hurt the insurer's
MetLife has altered the "technique and structure" of certain
hedges to make the company less sensitive to interest rate
movements, Chief Executive Officer Steven Kandarian told
analysts on a call to discuss first-quarter results on Thursday.
The insurer reported after-tax net losses of $602 million in
the first quarter and $3.2 billion in the fourth quarter related
to its derivatives portfolio. Other insurers that reported
results recently, including American International Group Inc
and Prudential Financial Inc, have not had the
On the call, JPMorgan analyst Jamminder Singh Bhullar said
he was "a little surprised" by the losses, considering interest
rates did not move in a significant way against the type of
positions executives described during the first quarter.
Kandarian cited several factors in response: a rising U.S.
stock market, a decline in 10-year Treasury note prices, higher
rates for hedges, accounting standards that treat MetLife's
positions unfavorably, plus general "ineffectiveness" all hurt
the company, he said.
The "ineffectiveness" alone cost MetLife $139 million, Chief
Financial Officer John Hele said.
All major financial companies use a type of derivatives
known as swaps to offset possible losses from changes in
interest rates. However, rates have been at historic lows for a
historic amount of time, as the Federal Reserve and other
central banks tried to boost economies following the 2008
The Fed began raising rates last year and hiked its key rate
target again in March, hurting companies expecting rates to
remain low for longer. Changes in market values can cause large
swings in earnings related to derivatives because of the way
companies must treat them under accounting rules.
MetLife's painful derivatives positions are largely related
to a retail insurance business called Brighthouse Financial that
it plans to divest. The company is awaiting regulatory approvals
for the spinoff, which are unlikely to happen within the first
half of the year, Kandarian said.
(Reporting by Suzanne Barlyn; Writing by Lauren Tara LaCapra;
Editing by Meredith Mazzilli)