MetLife CEO: Removal of SIFI Tag by Court Order Was Never Meant to ‘Undermine Dodd-Frank’
May 6, 2016 by Dennis Gorski
NEW YORK – MetLife is not trying to “undermine” the federal Dodd-Frank reform act, said Steven Kandarian, chairman, president and chief executive officer, despite some observers’ characterizations following the insurer’s successful legal challenge of its designation as a “too-big-to-fail” institution by the Financial Stability Oversight Council.
“In seeking judicial review, we are upholding the provisions of Dodd-Frank, not undermining it,” Kandarian said during a first-quarter earnings call. “Let me be clear: MetLife supports prudent regulation of the life insurance industry,” he said. “We came through the 2008 financial crisis in such strong shape that in 2010 we were able to buy Alico from American International Group for $16 billion.”
Kandarian called the judge’s decision to rescind its non-bank FSOC designation as a systemically important financial institution, or SIFI, “carefully reasoned.” The judge removed the SIFI tag because it was “arbitrary and capricious” (Best’s News Service, Feb. 10, 2016).
He added the judge found FSOC violated its own methods and standards when assessing MetLife’s financial well-being and whether it posed a threat to the nation’s economic stability.
He pointed out FSOC appealed the ruling nine days after the judge’s decision was announced, and the timing of the appeal requires MetLife to file its response by June 6. “Then there will be a briefing sometime in the fall, followed by oral arguments sometime late in the year or perhaps early 2017,” Kandarian said. A ruling from the appeals court would come several months after that.
Kandarian also said MetLife anticipates filing an S-1 registration with the U.S. Securities and Exchange Commission this summer to begin the process of spinning off its U.S. retail division as a separate stock company. The separation is still on despite the company’s recent success removing the SIFI tag, according to the company (Best’s News Service, April 26, 2016). As a result, the company won’t resume its shareholder buyback program until it has “more clarity regarding our capital actions,” Kandarian said.
The company’s related sale of its Premier Client Group and its affiliated broker-dealer, MetLife Securities Inc., to Mass Mutual is on track to close in July (Best’s News Service, Feb. 29, 2016).
MetLife’s first-quarter net income rose 3% despite a drop in operating earnings and revenue. Net income rose to $2.19 billion from $2.12 billion a year ago. Total revenue slipped to $18.43 billion from $18.71 billion a year ago. Net income includes $868 million, after tax, in net derivative gains, reflecting changes in interest rates, equity markets and foreign currencies (Best’s News Service, May 4, 2016).
Operating earnings also dropped 19% in the quarter, to $1.32 billion, the company said. MetLife saw $86 million less in variable investment income below the company’s 2016 quarterly plan range; unfavorable catastrophe experience, which decreased operating earnings by $45 million; and a one-time tax benefit in Japan, partially offset by a tax charge in Chile, resulting in an overall increase in operating earnings of $10 million, MetLife said.
Total operating earnings in the Americas dropped 18%, to $1.1 billion, due to unfavorable market performance, lower investment margins and higher catastrophe losses in property/casualty, the company said. Operating earnings for Latin America rose up 5% on volume growth, and favorable investment and underwriting margins.
In Asia, business dropped 7%, led by Japan, where the company is scaling back its offerings in yen life and single premium accident & health Yen products. Japan is MetLife’s second-largest market, according to Kandarian.
However, sales were up in China, Hong Kong and Bangladesh, said Christopher Townsend, president of Asia operations. “The one challenge for us is Korea, down sharply this quarter,” Townsend said, where a redesign of the agent commission structure and “rewarding better customer behavior” are being felt. He said new products due to roll out in the second quarter “should get that business back on track.”
Operating units of MetLife have current Best’s Financial Strength Ratings of either A (Excellent) or A+ (Superior).
In trading May 5, shares of MetLife (NYSE: MET) were $42.95, down 1.36% from the previous close.
