MetLife has announced a plan to spin off a significant portion of its U.S. life insurance business due to stiffer federal regulations regarding the amount of capital the company is expected to hold – a result of MetLife’s designation as a non-bank “systemically important financial institution” (SIFI).
In a statement released Jan. 12, MetLife said it is “currently evaluating structural alternatives for such a separation, including a public offering of shares in an independent, publicly traded company, a spin-off, or a sale.”
MetLife’s life insurance unit brings in about 20% of the company’s overall earnings, 50% of the operating earnings of MetLife’s U.S. Retail segment and would have about $240 billion in total assets. If it becomes a separate entity, the unit would not have to hold as much capital, which could allow the unit to be more competitive.
Approximately 60% of current U.S. variable annuity account values, including 75% of variable annuities with living benefit guarantees, are in entities that would be a part of the new company. The new company would also contain approximately 85% of the U.S. universal life with secondary guarantee business.
“We have concluded that an independent new company would be able to compete more effectively and generate stronger returns for shareholders,” Steven A. Kandarian, MetLife chairman, president and CEO, said in a statement. “Even though we are appealing our SIFI designation in court and do not believe any part of MetLife is systemic, [the] risk of increased capital requirements contributed to our decision to pursue the separation of the business. An independent company would benefit from greater focus, more flexibility in products and operations, and a reduced capital and compliance burden.
MetLife has, of course, taken the Financial Stability Oversight Council – which saddled the company with the “too big to fail” designation – to court, which is still pending. But the move to divest the life insurance unit could be seen as a contingency plan in the event the SIFI designation is not overturned.
MetLife Executive Vice President Eric Steigerwalt was tapped to lead the new company, with the rest of the management team to be named over time.
Meanwhile, fellow non-bank SIFI AIG remains under pressure from investors to split the company into three separate entities – a P&C company, life insurer and mortgage guarantor – to rid itself of the SIFI designation. Analysts are saying MetLife’s announcement will likely ramp up the pressure on AIG to make a move of its own; something that has been resisted by management but pushed for by investors including Carl Icahn.
Just last week, AIG suddenly shuttered all but four of its AIG Financial Network offices in the U.S., which meant hundreds or even thousands of employees were laid off. AIG has not officially elaborated on which offices were closed and how many employees were affected.”On Jan. 7, we restructured our AIG Financial Network (AIGFN) business by moving certain AIGFN financial professionals to AIG Partners Group, our distribution channel for independent agencies that work with a small number of carriers,” company spokeswoman Stasa Cushman said in a statement.
“Unfortunately this involved staff reductions at AIGFN locations throughout the U.S. While difficult, we strongly believe that these adjustments are critical to AIG’s overall strategic direction and simplified business model to ensure efficient resource allocation going forward.”
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AIG is scheduled to host a “strategy update” via webcast on Jan. 26 to unveil a “proactive plan to drive shareholder value,” a company statement said. AIG will release its fourth quarter earnings results on Feb. 11.
Prudential – the other non-bank SIFI which is not fighting the designation, has faced considerably less pressure to make changes in light of the “too big to fail” designation.
