MetLife is shifting its U.S. business to focus on more profitable products during a period of low interest rates, its chairman said last week.
One of the effects is to roll out products in the torrid living benefit market that reduces the guaranteed payout promised annuitants, MetLife chairman and CEO Steve Kandarian said.
He also said that while the divestiture of its bank to GE Capital in January removes it from oversight from federal regulators as a bank holding company, the potential for federal regulation remains.
“Even after the de-banking process is complete, substantial uncertainty will likely remain on the regulatory front as we face the possibility of being named a non-bank systemically important financial institution, or SIFI,” Kandarian said.
As we've said in the past, we do not believe that our company poses systemic risk to the financial system and we will continue to make that case to policymakers,” Kandarian said.
However, he said, “If MetLife is deemed to be systemically important, it is imperative that the final [prudential] rules be tailored to the life insurance business model, which differs dramatically from that of banks.”
As a result of this uncertainty, Kandarian said MetLife 2013 budget assumes no share buybacks pending federal government regulatory action.
Kandarian stated that up to $8 billion in share buybacks through 2016 could be affected by federal regulation. He said no decision on the scope of share buybacks through 2016 will be made until MetLife finds out if it will be designated SIFI and, if so, what additional capital will be required to hold by federal regulators.
Ironically, Kandarian made his comment the same day Federal Reserve Board Chairman Ben Bernanke wrote a letter to 24 senators indicating that it will keep in mind their concerns about using “bank-centric” rules in regulating insurance companies designated SIFI.
But, Bernanke noted that the provision of the Dodd-Frank Act governing Fed regulation of non-banks requires the agency to use metrics “that are no less than the generally applicable capital requirements that apply to insured depository institutions under the prompt corrective action framework.”
Regarding the U.S. market, Kandarian said its product offerings are being revised to shift market sensitive capital-intensive products “to our protection-oriented lower risk products.”
For example, he said, on Feb. 4 MetLife introduced a new living benefit variable annuity product, GMIB Max V to replace GMIB Max IV, which is no longer being sold.
He said that the biggest change between the two products is a reduction in the roll up rate from 5 percent to 4 percent.
“We believe that the new product will improve the risk profile of our VA sales and generate a higher expected return on economic capital,” Kandarian said.
“These changes are important components of our plan to reduce U.S. variable annuity sales from $17.7 billion in 2012 to $10 billion to $11 billion in 2013,” Kandarian said.
At the same time, Kandarian said it is adding to its market-leading share of the Chilean retirement market by following through on its long-anticipated acquisition of AFP Provida, the largest pension provider in the country.
He said the acquisition of “Provida is consistent with our strategy of increasing our earnings from low capital intensity product offerings.”
Provida is the number one player in the market with a 29 percent market share. “With this acquisition MetLife's operating earnings for emerging markets are expected to grow from 14 percent today to approximately 17 percent, which brings us closer to our 2016 target of at least 20 percent,” Kandarian said.
Provida was acquired from BBVA for $2 billion in cash.