MOODY'S DOWNGRADES RATINGS OF METROPOLITAN LIFE INSURANCE COMPANY (INSURANCE FINANCIAL STRENGTH TO Aa2 AND SURPLUS NOTES TO A1) AND RATING OF ITS SUBSIDIARY METLIFE FUNDING INC. (SENIOR DEBT TO Aa2)
New York, 3/13/1996 -- Moody's Investors Service downgraded the insurance financial strength rating to Aa2 from Aa1 and the surplus note rating to A1 from Aa3 of Metropolitan Life Insurance Company (MetLife), and also lowered the senior debt rating to Aa2 from Aa1 of its subsidiary, MetLife Funding Inc. This rating action concludes a review initiated on August 16, 1995.
Moody's said that the rating actions resulted from MetLife's weakened outlook for the growth of its traditional life products in light of its high distribution costs, the shift of business toward lower-margined products, its relatively weak profitability in recent years, and the intensely competitive nature of the insurance marketplace. Moody's added that sales of MetLife's core individual life products have dropped significantly during the past three years, partially because of the effect that regulatory investigations and class-action lawsuits involving improper sales activities had on the agency salesforce. However, the rating agency also noted the progress MetLife has made by increasing productivity of its agency field force, reducing expenses, selling its interest in MetraHealth Companies, and the pending merger with New England Mutual Life Insurance Company (New England Mutual.) Moody's said that it believes that Metropolitan will remain financially strong because of its substantial market presence in the individual and group insurance and pension businesses, large captive agent distribution system, high-quality bond portfolio, and its solid capitalization.
MetLife is operating in a highly competitive insurance marketplace, Moody's said, and is struggling against an industrywide negative trend of sluggish individual life production, with flat-to-negative growth expected. The rating agency believes that MetLife's sales agency infrastructure is expensive and is not cost effective for lower-margined products like annuities and mutual funds, which have experienced growth at the expense of traditional life products. MetLife has initiated an in-depth review and plan of action to reduce its heavy overhead and improve earnings. Moody's noted that MetLife has made progress over the last year, but added that the program will require changes to MetLife's culture and organization and will be a difficult undertaking, with possible disruptions during the process.
Moody's said that the merger with New England Mutual should be a positive overall for MetLife and should generate benefits for the company. The following benefits were cited: widening MetLife's focus in the marketplace for upper-income individuals and small businesses in which New England has a strong position; accessing the strong technology systems and service capabilities of New England; strengthening MetLife's position in the asset management business; reducing expenses by eliminating duplication; and realizing economies of scale.
The rating actions are as follows:
Metropolitan Life Insurance Company -- insurance financial strength rating lowered to Aa2 from Aa1; surplus note rating lowered to A1 from Aa3.
MetLife Funding Inc. -- senior debt rating lowered to Aa2 from Aa1, and the confirmation of the Prime-1 rating of the company for commercial paper.
Metropolitan Property & Casualty Insurance Company -- insurance financial strength rating confirmed at Aa3.
New England Mutual Life Insurance Company -- insurance financial strength rating of A3 remains on review for possible upgrade; surplus note rating of Baa3 remains on review for possible upgrade.
Metropolitan Life Insurance Company, headquartered in New York, New York reported statutory assets of $142 billion and statutory capital of $9.1 billion at year-end 1995.
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