MetLife has announced it is planning to divest a large portion of its U.S. retail business, setting a possible precedent for other insurers concerned about new regulatory requirements.
The move comes as the U.S. Federal Reserve is determining the stricter rules that “systemically important financial institutions” (SIFI) will have to follow to avoid future taxpayer bailouts. The rules include higher capital requirements and potentially other curbs on risk-taking.
MetLife said Tuesday it is considering a separation of the U.S. retail arm that could involve a public offering of shares in an independent, publicly traded company, a spin-off or a sale.
“We have concluded that an independent new company would be able to compete more effectively and generate stronger returns for shareholders,” MetLife’s CEO Steven A. Kandarian said in a news release. “Currently, U.S. retail is part of a systemically important financial Institution and risks higher capital requirements that could put it at a significant competitive disadvantage.”
Even though the company’s board is appealing the SIFI designation in court and does not believe any part of MetLife is systemic, the risk of increased capital requirements contributed to the board’s decision to pursue the separation of the business.
“An independent company would benefit from greater focus, more flexibility in products and operations, and a reduced capital and compliance burden,” Kandarian said.
Other big insurers will now be under pressure to follow Kandarian’s “bold move,” the Wall Street Journal said, predicting that AIG and Prudential “will need to assure shareholders that they’re taking as much action as possible to reduce the amount of capital they have to set aside as nonbank SIFIs so that it is available for shareholders.”
Billionaire investors Carl Icahn and John Paulson have proposed that AIG break into three separate companies as a way to become small enough to escape the SIFI label.
The retail assets that MetLife would divest would represent, as of Sept. 30, 2015, roughly 20% of its total operating earnings and 50% of the operating earnings of its U.S. retail segment. They include MetLife Insurance Co. USA, General American Life Insurance, Metropolitan Tower Life Insurance, and several subsidiaries that have reinsured risks underwritten by MetLife Insurance Co. USA.