MetLife Looks to Divest Big Piece of U.S. Life-Insurance Unit
January 12, 2016 by Leslie Scism
Insurer says it is considering IPO, spinoff or sale as it aims to ease capital burden
MetLife Inc. is seeking to divest a large piece of its U.S. life-insurance unit as part of a plan to ease some of the capital burden it is expected to face under new federal regulation, the company said.
Under the plan, the company would spin off, sell or take public a business that has been at its core for decades: selling life insurance and other financial products to individuals and families across the U.S. MetLife is one of the best-known sellers of financial protection to American households. The unit generates about a fifth of its annual earnings.
MetLife says it is pursuing the move in response to the regulatory environment. The company said the higher capital requirements it expects to face under its designation as a nonbank “systemically important financial institution,” or “SIFI,” could put it at a “significant competitive disadvantage.”
A separated life-insurance business “would benefit from greater focus, more flexibility in products and operations and a reduced capital and compliance burden,” the company said in a statement.
The company’s remaining operations would presumably still be regulated as a SIFI by the Federal Reserve, but its additional capital burden is expected to be at a more-tolerable level in the view of company executives.
The capital rules haven’t been crafted by the Fed. The Dodd-Frank regulatory-overhaul law requires that certain financial firms hold extra capital as a way to ensure that they have ample money on hand for unexpectedly high losses.
MetLife said the separated company would have about $240 billion of total assets. While the new entity still would be one of the largest life insurers in the U.S., it would be smaller than many rivals that haven’t been designated systemically important.
MetLife would be following in the footsteps on General Electric Co., which in April 2015 made one of the biggest strategic moves in its long history by laying out plans to get out of its banking business and refocus on the conglomerate’s industrial operations.
MetLife is betting that it can boost its financial results if it isn’t saddled with the potentially onerous requirements for parts of the life-insurance business.
The company would continue to sell life insurance and other products to employers, and the company said it would remain a leader in employee benefits. MetLife also would retain life-insurance and other operations in Asia, Latin America, Europe, the Middle East and Africa. The company said it also would continue to be a major provider of pension and retirement products.
MetLife’s announcement comes as the company is challenging its status as a SIFI in federal court. The SIFI label means federal regulators believe the company could pose significant risks to the financial system should it collapse. MetLife has been adamant that its activities don’t pose any risk to the broader financial system.
