MetLife CFO: Merger of Three Life Companies, One Foreign Reinsurer to Create 'Larger, Well-Capitalized' Company
May 23, 2013 by Best's News Service
NEW YORK – MetLife Inc.’s plan to merge three life companies and one foreign reinsurer is aimed at creating a larger, well-capitalized U.S. life insurance company, according to the company’s chief financial officer. The move also addresses recent regulatory concerns about the use of captive reinsurers, according to John Hele.
The company will merge its offshore captive reinsurer into a U.S. regulated entity, Hele said. To be merged are MetLife Insurance Company of Connecticut; MetLife Investors USA Insurance Co.; MetLife Investors insurance Co. and Exeter Reassurance Co. Ltd., the variable annuity reinsurer.
MetLife (NYSE: MET) held an investor day conference on May 21 in which presenters included members of the company’s senior management. Managing variable annuity risk remains a top priority, said Hele, according to a Form 8-K filing on the event with the U.S. Securities & Exchange Commission.
The merger will address recent regulatory concerns about the use of captive reinsurers, Hele said. It also will increase transparency of the variable annuity business, as most of this business is moving to a U.S. regulated subsidiary from the offshore captive reinsurer, Hele said.
The company’s decision to move its offshore captive subsidiary back to the United States represents “a step in the right direction,” according to Benjamin M. Lawsky, superintendent of the New York State Department of Financial Services. “MetLife has acted wisely in bringing this subsidiary back to the United States where it will be subject to stronger rules and oversight,” Lawsky recently said in a statement (Best’s News Service, May 21, 2013). The department launched an investigation into the use of captive reinsurers in July 2012 (Best’s News Service. March 21, 2013).
Variable annuities “pose manageable risk” with upside in a better market environment, said Steven A. Kandarian, MetLife’s chairman, president and chief executive officer, according to the filing.
In 2011, MetLife’s sales of variable annuities in the United States totaled $28.4 billion. In 2012, sales dropped to $17.7 billion and in 2013, MetLife projects between $10 billion and $11 billion in sales.
The company is continuing to manage reduction of variable annuity sales and redesigned the product portfolio to further improve the risk-return profile, Hele said. The GMIB MAX V is the latest version of MetLife’s guaranteed minimum income benefit variable annuity, Hele said.
Benefits of the merger also include MetLife being in a better position to deal with derivative collateral requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, Hele said.
MetLife faces Federal Reserve supervision if named a non-bank systemically important financial institution, Kandarian said during the company’s first-quarter 2013 conference call. At that time, he said MetLife has not been notified by the Financial Stability Oversight Council that it has been moved to stage three of the process for designating SIFIs, “although the conventional wisdom holds we will be at some point.” (Best’s News Service, May 2, 2013).
Metropolitan Life Insurance Co. currently has a Best’s Financial Strength Rating of A+ (Superior).
At the close May 22, MetLife Inc.’s stock was trading at $42.26 a share, down 1.31% from the previous close.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com) BN-NJ-05-22-2013 1657 ET #
