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Rating Action:

Moody's affirms MetLife's ratings, long-term ratings' outlook to negative

Global Credit Research - 05 Feb 2013

Approximately $88.5 billion of debt securities affected.

New York, February 05, 2013 -- Moody's Investors Service today affirmed MetLife, Inc.'s (MetLife: NYSE: MET) credit ratings (senior debt at A3) and the Aa3 insurance financial strength (IFS) ratings of its U.S. domestic operating subsidiaries, including Metropolitan Life Insurance Company (MLIC), but changed the outlook for the long-term ratings of MetLife and its U.S. subsidiaries to negative from stable. The outlook of the short-term ratings of MetLife and its affiliates remains stable. The A1 IFS rating and stable outlook of American Life Insurance Company (ALICO) were not affected by this rating action.

RATINGS RATIONALE

The rating agency said the change in the long-term ratings outlook for MetLife and its domestic subsidiaries (excluding ALICO) to negative from stable was driven by the pressures MetLife is facing in the current weak economic and low interest rate environment with its impact on the company's profitability and financial flexibility. "Although MetLife's footprint in the U.S makes it the largest company within the U.S. life insurance industry with very good diversified business and financial profiles, the current weak economic environment has constrained current and prospective profitability as well as earnings and coverage metrics", said Vice President and Senior Credit Officer Neil Strauss. Strauss added, "Financial flexibility had already been weak and our ratings and prior stable outlook had anticipated improvement in this area, which now appears less likely." Additional challenges include a slow industry growth outlook for individual life products and risk exposure to legacy variable annuities with guarantees and institutional spread businesses.

The rating agency said that MetLife's profitability, as measured by return on capital based on net income, has been below expectations for the rating level, averaging 4.7% for 2007-2011 and lower for 2012 year-to-date as of the end of the third quarter. Likewise, earnings coverage averaged 4.1x from 2007-2011, low for the rating level, with year-to-date 2012 trending even lower as of the end of the third quarter. The company's earnings guidance for 2013, reflecting the drag from low interest rates, raises uncertainty whether the levels of profitability and coverage will improve to attain levels consistent with the company's current rating.

Commenting on the ratings affirmation, Moody's said it was based on the group's strong brand recognition, global footprint, significant operating scale with leading market positions in its life insurance businesses, substantial capital base, and very diversified business mix.

MetLife recently announced that it had signed a definitive agreement with Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) to acquire AFP Provida S.A. (Provida), a leading Chilean pension fund administrator, via a public tender offer for approximately $2.0 billion (assuming all shares are tendered), subject to regulatory approval, and expected to close in the second half of 2013. Moody's said that Provida is a strategic fit for MetLife, which has long operated in the country and the region and maintains a strong pension franchise. However, the transaction exposes MetLife to execution, integration as well as currency risk.

Moody's noted that the following factors could lead to the long-term ratings outlook returning to stable for MetLife and its affiliates: 1) cash flow and earnings coverage sustained at above 4 and 6 times, respectively; 2) adjusted financial leverage maintained in the mid 20% range; and 3) return on capital for US operations maintained at over 8% consistently without over-dependence on variable investment income or securities lending activity.

Conversely, the following factors could lead to a downgrade of the long-term ratings of MetLife and its insurance subsidiaries: 1) cash flow and earnings coverage sustained at below 4 and 6 times, respectively; 2) return on capital for US operations remaining below 8%; 3) securities lending and institutional funding agreement-backed issuances growing disproportionately relative to the consolidated company; 4) gross investment losses at MetLife's U.S. operations of more than $1.25 billion pre-tax over the next 12 months; and 5) NAIC RBC ratio falling below 325%, after adjusting for captive reinsurers.

The following ratings were affirmed with the outlook changed to negative from stable:

MetLife, Inc. - senior unsecured debt at A3; preferred stock and junior subordinated debt at Baa2 (hyb); provisional senior debt shelf at (P)A3; provisional subordinated debt shelf at (P)Baa1; provisional preferred shelf at (P)Baa2 (hyb)

MetLife Capital Trust IV, X - backed subordinated debt at Baa2 (hyb);

MetLife Capital Trust V, VI, VII, VIII, IX -- provisional backed preferred shelf at (P)Baa1;

Metropolitan Life Insurance Company - insurance financial strength at Aa3; surplus notes at A2 (hyb);

MetLife Investors Insurance Company - insurance financial strength at Aa3;

Metropolitan Life Global Funding I -- funding agreement backed senior secured debt at Aa3 and MTN program at (P)Aa3;

General American Life Insurance Co. - insurance financial strength at Aa3; surplus notes at A2 (hyb);

New England Life Insurance Company - insurance financial strength at Aa3;

New England Mutual Life Insurance Company - surplus notes at A2 (hyb);

MetLife Insurance Company of Connecticut - insurance financial strength at Aa3;

MetLife of Connecticut Institutional Funding Ltd. -- funding agreement backed senior secured debt and MTN program at (P)Aa3;

MetLife of Connecticut Global Funding I -- funding agreement backed senior secured debt Aa3 and MTN program at (P)Aa3;

MetLife Institutional Funding I, LLC -- funding agreement backed senior secured debt at Aa3 and EMTN program at (P)Aa3;

MetLife Institutional Funding II -- funding agreement backed senior secured debt at Aa3 and MTN program at (P)Aa3;

MetLife Investors USA Insurance Company - insurance financial strength at Aa3;

Metropolitan Tower Life Insurance Company - insurance financial strength at Aa3;

The following short-term ratings were affirmed with a stable outlook:

MetLife, Inc. -- short-term debt rating for commercial paper at Prime-2;

MetLife Funding, Inc. -- short-term debt rating for commercial paper at Prime-1;

Metropolitan Life Global Funding I -- short-term MTN rating at (P)Prime-1.

MetLife Institutional Funding II -- short-term MTN rating at (P)Prime-1;

Metropolitan Life Insurance Company -- short-term insurance financial strength at Prime-1;

MetLife Insurance Company of Connecticut -- short-term insurance financial strength at Prime-1.

MetLife, Inc., headquartered in New York, reported total assets of about $846 billion and stockholders' equity of approximately $64 billion as of September 30, 2012.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. Please see Moody's website at www.moodys.com/insurance for more information.

The principal methodology used in this rating was Moody's Global Rating Methodology for Life Insurers published in May 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Neil Strauss
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms MetLife's ratings, long-term ratings' outlook to negative
No Related Data.

 

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