American insurer MetLife mulls splitting its retail business: Cites regulatory pressures
MetLife Inc, the largest life insurer in the United States, will hive off a substantial part of its retail business. Citing “regulatory environment” as the reason for the action, MetLife is mulling many options at splitting the retail business including initial public offering, spinoff or sale.
Metlife offers life insurance and other financial products across the US and draws one fifth of its earnings from those portfolios. The shares of the company rose 8 percent to US$45.06 (AU$64.88) after the announcement, reports Reuters.
Legal tangle
The main regulatory pressure faced by the insurer has been the federal regulators’ SIFI tag on the company. The label of systemically important financial institution (SIFI) came on the back of the scrutiny that followed the global financial crisis and it has become a court case now. Under the label of SIFI, regulators are terming the company to be too big and under a category of risk that needs more capital to avoid any collapse. But the offended insurer took the matter to court and asked a US District Court to remove the designation. The ruling is yet to come.
Rationale of hive off
In a statement, MetLife's Chief Executive Steven Kandarian said the lagging retail section “risks higher capital requirements that could put it at a significant competitive disadvantage.”
“Even though we are appealing our SIFI designation in court and do not believe any part of MetLife is systemic, this risk of increased capital requirements contributed to our decision,” he added.
According to the CEO, an independent company would be better to offer benefits in terms of greater focus, flexibility in products and operations, and a reduced capital and compliance burden.
MetLife indicated that if it opts for an initial public offering (IPO) for a separate company, then a registration statement will be filed in the next six months. Most probably, the new company will be led by executive vice president Eric Steigerwalt.
The US retail business of MetLife's was already going slow with the unit reporting a lower operating income of US$523 million (AU$755million) in the third quarter, which was down by 33 percent from the year before, 2014.
Pressure on rivals
Meanwhile, MetLife’s move is putting pressure on many of its rivals as well to go slim. Eventually, it may catalyse a shake-up of the insurance industry, especially forcing American International Group Inc (AIG) and Prudential Financial Inc to take steps to withstand the increasing regulatory pressures, reports The Wall Street Journal.
“The heat just went up on AIG and Prudential,” said David Havens, credit analyst with Imperial Capital.
