Much of the discussion at yesterday’s MetLife Investor Day conference took a deep dive into the company’s variable annuity line and how it’s managing those currently troublesome products. Though stressing it was a business the company is committed to, MetLife executives detailed the various strategies it now employs and others it may consider to compress risk in its variable annuities.
“There are risks there, no question,” said Steven A. Kandarian, chairman, CEO and president of MetLife. “But they are manageable risks and we are managing them. We are taking proactive steps. There is actually upside to that business. In a more normal interest rate environment with equities continuing to perform well over time, that business has significant upside.”
Risk-lessening strategies include raising fees, reducing benefits and clamping down on overall sales. However, Eric Steigerwalt, executive vice president and head of U.S. Retail, acknowledged in response to a question from an analyst in attendance that the firm has considered whether to tender buyout offers to VA holders.
“We are researching everything,” he said. “But given what you have heard here today, we don’t need to buy back what we’ve put on the books. We think we have a pretty good risk profile here. As a result, if we can find a couple of places where it would be appropriate for the client and helpful to MetLife, we could do something like that. Right now, we have not announced anything. We don’t intend to announce anything tomorrow. But we’re thinking about every possibility.” Steigerwalt then went on to reiterate the firm’s commitment to the product line. “We’re still in this business, and we’re committed to running it properly.”
The company has targeted a lower VA sales goal of between $10 billion and $11 billion in 2013, down from a high of $28.4 billion in 2011 and $17.7 billion in 2012. For its GMIB MAX V variable annuity, the roll-up rate was lowered to 4 percent from 5 percent, and the withdrawal rate was reduced from a range of between 4.5 percent and 5 percent to 4 percent.
Both Hartford and Transamerica have already introduced voluntary buyback programs, which, if accepted, give policyholders cash if they void their lifetime benefits. Many variable annuity carriers have also raised fees and pared down rich benefits as well.
MetLife executives were also queried on the possibility of a third-party reinsuring its VA line. John C. R. Hele, chief financial officer and executive vice president, replied that “there’s only major player who has a balance sheet large enough to offer variable annuity reinsurance.” His reference was to Warren Buffet’s Berkshire Hathaway, which recently reinsured Cigna’s VA death benefit run-off business.
He said such a deal would be “pricey,” and “wouldn’t make economic sense” to do at this time. “We are in a low interest rate environment,” Hele said. “You can see huge cash-flow economic upside by interest rates moving up a bit over time. So we’d rather retain that risk rather than doing a transaction now and giving it to somebody else.”
Hele also expressed no interest in moving the firm’s fixed annuity business off the books. “We have good returns on those today in a relative sense,” he said. “It’s contributing to our business. MetLife’s been very selective. We’re not selling many fixed annuities now. With lower interest rates, we can’t get the margins. When we can get the margins, we want to be back in that business.”
Another tactic MetLife announced yesterday to further de-risk the VA business is the merging of its offshore captives into one U.S.-based entity. Regulators have expressed concern that these offshore captives are not subject to the same regulatory oversight as U.S. reinsurers.