New York, January 13, 2016 -- Moody's Investors Service today placed MetLife, Inc.'s (MetLife:
NYSE: MET) long-term credit ratings (senior debt at A3) and
the Aa3 insurance financial strength (IFS) ratings of its US operating
subsidiaries, including Metropolitan Life Insurance Company (MLIC)
on review for downgrade. The short-term rating of MetLife
was affirmed at P-2 and the short-term ratings of the US
operating subsidiaries and their affiliates were affirmed at P-1.
Moody's also affirmed the A1 IFS rating of American Life Insurance Company
(ALICO), with a stable outlook. Please refer to the complete
list of rating actions below.
The rating actions follow MetLife's 12 January announcement of its
intent to pursue the separation and potential disposition (through IPO,
spin-off, or sale) of a substantial portion of its US Retail
segment. The business to be separated into the new company,
which will continue to write new retail business, includes that
residing in MetLife Insurance Company USA, Metropolitan Tower Life
Insurance Company, and General American Life Insurance Company (totaling
about $240 billion of assets), and will contain the majority
of MetLife's more capital intensive and volatile retail product
lines such as variable annuities with guaranteed living benefits and universal
life with secondary guarantees.
The rating agency noted as of 30 September 2015, the new company
would represent about 20% of the operating earnings of MetLife
and 50% of the operating earnings of the U.S. Retail
segment.
MetLife will continue to participate in all of its other segments:
Group, Voluntary and Worksite Benefits (GVWB), Corporate Benefit
Funding (CBF), Asia, Latin America and Europe, the Middle
East and Africa (EMEA). However, the U.S. Retail
business remaining with MetLife, including life and annuity business
housed in Metropolitan Life Insurance Company, will be placed into
runoff, with no new sales of retail life and annuity products in
the US. The closed block life business and the property-casualty
business also remain with MetLife.
According to MetLife, the decision to pursue a separation is based
on its strategy to direct capital to lines of business with lower capital
requirements and more cash generation potential, as well as the
ramifications of the US Retail business being regulated as part of a Systematically
Important Financial Institution (SIFI). While Moody's views
the enhanced regulation as a credit positive, MetLife believes potential
higher capital requirements associated with the U.S. Retail
business could place it at a competitive disadvantage. Given the
anticipated size of the new company, the rating agency views it
unlikely it would be designated a SIFI.
RATINGS RATIONALE
Moody's said the review for downgrade was driven by the diminished
business profile of MetLife pro forma after the restructuring, uncertainty
about the pro forma capital structure, and the expected shareholder-friendly
orientation of the restructuring. According to Moody's Senior Vice
President, Scott Robinson, "While the planned reorganization
is far from final, we believe splitting MetLife into two separate
companies is negative for holding company creditors and policyholders.
Specifically, MetLife will have a weaker business profile and a
lower level of earnings diversification compared to its current structure."
However, the rating agency noted that the reduced level of earnings
diversification at MetLife post-transaction will be partially offset
by the company's reduced exposure to the interest rate and equity
market volatility associated with universal life with secondary guarantees
and variable annuities with living benefits, respectively.
Conversely, the new company will have a less diversified business
profile with more concentrated exposure to these risks.
Other key determinants of the credit impact of the transaction will be
the final statutory capitalization of the insurance companies, and
the resulting holding company capital structure. While Moody's
expects the capital structure will be "right-sized"
for the companies and businesses retained, Moody's believes
the transaction highlights management's focus on enhancing returns
for shareholders.
Robinson added, "While any rating action will depend on the
specifics of the ultimate transaction, , we expect any downward
movement in MetLife's long-term ratings (debt and IFS) to
be limited to one notch. The IFS ratings on the three life operating
entities expected to become part of the new company could be downgraded
up to multiple notches (depending on the specific outcome of the restructuring)
given the new company's smaller, less diversified, and
more volatile credit profile relative to the credit profile of the businesses
to be retained by MetLife."
The review for downgrade will focus on the separation of the businesses
and their resulting statutory capitalization and capital structure,
execution of the potential disposition of the new company, and the
impact of this restructuring announcement on profitability, sales
volumes, distribution channels, and policy persistency.
The timing of the review, which could last more than three months,
will depend on the visibility into these factors.
All of the short-term ratings of MetLife and its affiliates were
affirmed because the possible notches of downgrades contemplated by Moody's
for the long-term ratings would not result in the lowering of the
short-term ratings of those entities.
The current Aa3 IFS ratings of the US life businesses are based on their
very strong market positions in the US with excellent brand recognition,
significant operating scale in many diverse individual life/annuity and
group insurance businesses, diversified and controlled distribution,
as well as a substantial capital base. Some of these current company
strengths are likely to be diminished following the restructuring and
separation. These strengths are mitigated by risk exposures related
to a concentration of legacy variable annuities with guarantees (most
of which will be separated into the new company) and institutional spread
businesses and relatively large exposure to high-risk assets including
alternative investments. Additionally, earnings and cash
flow coverage has historically been below rating level expectations,
though the metrics have trended higher recently.
Moody's affirmation of the A1 IFS rating of ALICO is based on the company's
already weaker credit profile relative to MetLife's U.S.
subsidiaries and the minimal impact of the restructuring announcement
on ALICO's business profile. ALICO's A1 IFS rating
is based is the company's good position in the Japanese life insurance
market, as well as its important and often leading market positions
in over 40 other markets around the globe, its captive distribution
channels, and generally stable operating performance. Mitigating
these strengths are the current weaknesses in the Japanese insurance market
and the challenges in maintaining market position and brand in some markets
in a weak operating environment. The affirmation of ALICO with
a stable outlook indicates that even if MetLife's US subsidiaries
are downgraded to A1 IFS, ALICO's rating is likely to remain
at A1.
RATING DRIVERS
US Insurance Subsidiaries
Given the ratings have been placed on review for downgrade, an upgrade
over the near term is unlikely. The ratings could be confirmed
if the capitalization and capital structure of the resulting MetLife company
is conservative enough to mitigate its diminished business profile from
exiting the US Retail life & annuity business, and/or if the
planned separation of the new company is terminated with no negative residual
effects.
Conversely, the ratings could be downgraded if the planned separation
of the new company proceeds as outlined by the company and the capitalization
and capital structure of the resulting MetLife company is not conservative
enough to mitigate its diminished business profile from exiting the US
Retail life & annuity business. Additionally, the following
factors could lead to a downgrade of the long-term ratings of MetLife's
US insurance subsidiaries: 1) earnings and cash flow coverage below
6 and 4 times, respectively; 2) securities lending and institutional
funding agreement-backed issuances growing disproportionately relative
to the consolidated company; 3) NAIC Combined RBC ratio of principal
US life insurance subsidiaries falling below 325% (company action
level), after adjusting for captive reinsurers; 4) adjusted
financial leverage above 30%.
American Life Insurance Company
The rating agency noted that the following factors could lead to an upgrade
of ALICO's rating: 1) profitable, sustainable, material
growth in the company's premiums/deposits, distribution arrangements
and earnings; 2) ALICO's capitalization ratio consistently higher
than peer group as per Moody's adjusted regulatory capital ratio in Japan
and equivalent basis in other locales.
Conversely, the following factors could cause ALICO's ratings to
be downgraded: 1) solvency margin ratio decreasing to 550%
in Japan; 2) diminished product and distribution diversity;
3) large acquisition or significant organic growth in emerging markets
whose operations have a significantly lower credit profile
Holding Company
Given the ratings have been placed on review for downgrade, an upgrade
of MetLife's ratings over the near term is unlikely. The
ratings could be confirmed if the ratings of the US insurance subsidiaries
are confirmed. The ratings of the US subsidiaries could be confirmed
if the capitalization and capital structure of the resulting MetLife company
is conservative enough to mitigate its diminished business profile from
exiting the US Retail life & annuity business, and/or if the
planned separation of the new company is terminated with no negative residual
effects.
Conversely, the following factors could lead to a downgrade of MetLife's
ratings: 1) downgrade of MetLife's US subsidiaries or ALICO's stand-alone
credit profile; 2) adjusted financial leverage above the 30%
range; 3) earnings and cash flow coverage below 6 and 4 times,
respectively; 4) large acquisition in emerging markets whose operations
have a significantly lower credit profile.
The following ratings were placed on review for downgrade:
MetLife, Inc. - senior unsecured debt at A3;
provisional senior debt shelf at (P)A3; provisional subordinated
debt shelf at (P)Baa1; provisional preferred shelf at (P)Baa2;
junior subordinated debt at Baa2 (hyb); preferred stock non-cumulative
at Baa3 (hyb);
MetLife Capital Trust IV, X - junior 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);
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 of Connecticut Institutional Funding Ltd. - funding
agreement backed senior secured debt at Aa3 and MTN program at (P)Aa3;
MetLife of Connecticut Global Funding I - funding agreement backed
senior secured 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 MTN program at (P)Aa3;
Metropolitan Tower Life Insurance Company - insurance financial
strength at Aa3;
MetLife Insurance Company USA -- insurance financial strength at
Aa3
The following rating was affirmed with a stable outlook:
American Life Insurance Company -- insurance financial strength at
A1
The following ratings were affirmed:
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 - provisional short-term
backed rating at (P) Prime-1;
Metropolitan Institutional Funding II --short-term debt rating
at (P) Prime-1;
Metropolitan Life Insurance Company -- short-term insurance
financial strength at Prime-1;
MetLife Insurance Company USA -- short-term insurance financial
strength at Prime-1
MetLife, Inc. is headquartered in New York, New York.
For the nine months ended 30 September 2015, MetLife reported total
revenues of $52.9 billion and net income available to MetLife,
Inc. common shareholders of $4.4 billion.
The company reported consolidated assets of about $882.5
billion as of 30 September 2015.
The principal methodology used in these ratings was Global Life Insurers
published in December 2015. 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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review
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.
Scott Robinson
Senior Vice President
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 reviews MetLife Inc.'s (A3 senior) and US subs' (Aa3 IFS) ratings for downgrade following restructuring announcement
