MetLife CEO: Regulators Should Target Those Activities That Caused the Financial Crisis in the First Place
May 2, 2013 by Fran Matso Lysiak
NEW YORK – As MetLife Inc. posted a first-quarter profit, its chief executive officer said there’s a better way for the federal government to regulate potentially systemic activities in the life insurance sector.
“Rather than name a handful of life insurance companies as SIFIs [systemically important financial institutions], regulators should target those activities that caused the financial crisis in the first place,” said Steven A. Kandarian, chairman, precopysident and CEO, in a conference call.
MetLife posted first-quarter net income of $956 million, compared with a net loss of $174 million the same period a year go. Increases in interest rates, changes in foreign currencies and the impact of its own credit spreads contributed to $493 million in derivative net losses, after tax, and other adjustments but these losses were much higher — at $1.3 billion in the first quarter of 2012.
MetLife (NYSE: MET) uses derivatives to hedge certain risks, such as movements in interest rates and foreign currencies.
Operating earnings grew 12% to $1.6 billion, reflecting growth in all three business regions — the Americas; Asia; and Europe, Middle East and Africa. Operating earnings included more adjustments to lapse updates on its stock market-linked variable annuities in its retail business in the Americas, which helped by $29 million.
The year “is off to a good start,” said Kandarian. Operating earnings “were aided by strong equity markets, favorable investment margins and good performance on expenses.” However, he reiterated that MetLife “faces external headwinds that we cannot control, such as low interest rates and regulatory uncertainty.”
In the Americas, first-quarter sales of variable annuities declined 29% to $3.5 billion. The sales increase in emerging markets, combined with the drop in sales of variable annuities, “reflect substantial progress on our efforts to shift our business mix away from capital-intensive, market-sensitive products,” Kandarian said.
In 2011, MetLife said it would be exiting the banking business to avoid the additional scrutiny placed on large banks under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Best’s News Service, April 4, 2012). In February, federal regulators approved MetLife’s plan to deregister as a bank holding company following the sale of its bank to General Electric Capital (Best’s News Service, Feb. 15, 2013).
MetLife faces Federal Reserve supervision if named a non-bank SIFI, Kandarian said. To date, 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.”
He noted he’s spending time in Washington participating in the debate on this issue. In a speech delivered at the U.S. Chamber of Commerce last month, “I stated that the traditional business of life insurance does not present systemic risk to the U.S. economy and that MetLife should not be named a SIFI,” Kandarian said.
The Dodd-Frank Act defined a SIFI as a company whose failure could pose a threat to the financial stability of the United States, Kandarian said. The FSOC clarified that such a threat only exists if there would be an impairment of financial market functioning that would be sufficiently severe to inflict significant damage on the broader economy, he said.
“There’s no evidence that any traditional life insurance company is sufficiently inter-connected with the rest of the financial system to meet that test,” Kandarian said. “To be clear, I am not suggesting that MetLife could never fail. What I am suggesting is that we cannot think of a single firm that would be brought down by its exposure to MetLife.”
On the morning of May 2, MetLife Inc.’s stock was trading at $39.51 a share, up 2.89% from the previous close.
Metropolitan Life Insurance Co. currently has a Best’s Financial Strength Rating of A+ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com) BN-NJ-05-02-2013 1213 ET #
