CEO: MetLife’s Plan to Lower Expenses by 11% to Include Job Cuts
August 5, 2016 by Marie Suszynski
NEW YORK – With a goal of lowering expenses by 11%, MetLife Inc. said it plans to cut jobs as the company moves closer to separating its U.S. retail business, the company’s chief executive officer said.
MetLife is targeting $1 billion in pretax run-rate expense savings by the end of 2019, which will improve the company’s overall unit cost, CEO Steven A. Kandarian said during a conference call to discuss second-quarter earnings.
The company has had an ongoing goal to “ensure that, even on a separated basis, MetLife would have a lower cost structure than it has on a combined basis today,” he said.
But Kandarian said current headwinds in the industry means the insurer has to do more to “avoid simply running in place” and plans to reduce expenses by 11%.
“We know this will require us to reduce headcount, which is never an easy step for an organization to take,” he said. “Our overall goal is to be more efficient so that we can better serve our customers and provide a fair return to shareholders.”
Current headwinds in the market include foreign currency, equity markets and interest rates, he said.
The company said in early July it would cut 74 positions in Tampa, Florida, between Aug. 31 and Oct. 31 (Best’s News Service, July 8, 2016).
During the second quarter, MetLife’s net income fell 94% to $64 million on a $2 billion non-cash charge related to its variable annuity actuarial assumption review. Total revenues were down 6% to $15.24 billion (Best’s News Service, Aug. 3, 2016).
Two reserve actions account for pressure on operating earnings, Kandarian said. They include $161 million related to a variable annuity external assumption review and $257 million for modeling improvements in the reserving process, mostly for the company’s book of universal life policies with secondary guarantees.
MetLife accelerated its variable annuity policyholder behavior assumption review to the second quarter in light of its plan to separate the retail business. It also completed its variable annuity economic assumption review.
As a result, MetLife strengthened its variable annuity reserves to reflect changes in lapse and benefit utilization assumptions, which led to the $2 billion charge during the quarter, Kandarian said. The review uncovered adverse behavior changes, including lower lapses, lower elective annuitization and higher systematic withdrawals.
“Following these changes, a greater portion of our variable annuity liabilities follow a fair value-based GAAP reserve methodology,” compared to before the review, which used an insurance accounting model that followed an accrual-based GAAP reserve methodology, Kandarian said.
On its universal life policies with secondary guarantees, MetLife adjusted reserves to reflect modeling improvements and other refinements.
MetLife performed the variable annuity assumption review ahead of schedule as part of its separation plan. The company also rebranded the U.S. retail business as Brighthouse Financial in July, made key management appointments and sharpened Brighthouse’s strategy, according to Kandarian. The company will make a filing related to the separation shortly after its board of directors meeting on Sept. 27, he said.
In addition, MetLife plans to file a brief on Aug. 15 related to the government’s move in June to reinstate the systemically important financial institution designation for MetLife (Best’s News Service, June 17, 2016). That will be followed by an amicus brief filing by MetLife. The government’s deadline for its final reply brief is Sept. 9, at which time the circuit court will set the time for oral arguments. The final decision is likely to follow within a few months of oral arguments, Kandarian said.
Operating units of MetLife have a current Best’s Financial Strength Rating of A (Excellent).
On the morning of Aug. 4, shares of MetLife were $39.41, down 8.98% from the previous close.
(By Marie Suszynski, BestWeek Correspondent: Marie.Suszynski@ambest.com)
