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A.M. Best Removes Ratings From Under Review of MetLife, Inc. and Its Subsidiaries; Assigns Negative Outlook

^{Published on 2010-11-05 11:15:47 - Market Wire}
 

OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of aaa-a of the primary life/health insurance subsidiaries of MetLife, Inc. (MetLife) (New York, NY) (NYSE: MET). Concurrently, A.M. Best has removed from under review with negative implications and affirmed the ICR of aa-a and the existing debt ratings of MetLife.

"A.M. Best Ratings and The Treatment of Debt"

In addition, A.M. Best has removed from under review with positive implications and upgraded the FSR to A+ (Superior) from A (Excellent) and the ICR to aaa-a from aaa of the newly acquired, American Life Insurance Company (ALICO) (Wilmington, DE). All ratings have been assigned a negative outlook. (Please see link below for a detailed listing of the companies and ratings.)

The rating actions follow MetLifea™s November 1, 2010 acquisition of ALICO from American International Group, Inc. (AIG). The upgrading of the ratings of ALICO reflects its stable earnings stream, favorable risk-adjusted capital position and franchise value in a number of international markets. The rating actions also reflect A.M. Besta™s view that ALICO will provide MetLife with meaningful new sources of earnings diversity as this acquisition will greatly enhance MetLifea™s global life insurance presence, specifically in the Japanese market. While A.M. Best recognizes the potential long-term growth prospects and meaningful diversification this acquisition brings to MetLife, challenges exist with respect to MetLife effectively rebranding ALICOa™s products, the heightened expenses associated with the integration, execution risks and the significant intangibles brought to MetLifea™s balance sheet by this acquisition. A.M. Best will continue to monitor the effects of this transaction on earnings, top line growth and capital adequacy going forward, noting that the acquisition of ALICO shifts MetLifea™s operating profile to be more heavily dependent on international markets.

ALICOa™s approximately $16.2 billion purchase price was prudently financed with a combination of cash, MetLife equity securities and proceeds from debt issuances. Despite the additional debt offerings, MetLifea™s leverage and coverage ratios remain within A.M. Besta™s expectations for its current rating level.

The rating affirmations of MetLife recognize its positive operating earnings and net income as well as the companya™s well established brand, diverse product mix, continued growth in various business segments and very strong competitive position in its core markets. Through third quarter 2010, MetLifea™s fixed income portfolio recorded unrealized investment gains as the market recovered from previously depressed levels. Through its diversified distribution channels, MetLife maintains the scale and distribution capabilities necessary to be an industry leader in its various product lines. MetLife has demonstrated a track record of market share gains and solid top line growth in its core business lines.

The negative outlook acknowledges MetLifea™s overall risk appetite and risk-adjusted capital position, which is viewed as somewhat low for its current rating level. A.M. Best continues to have concerns with the companya™s exposure to real estate linked assets, primarily its large commercial mortgage loan portfolio and real estate holdings. In addition, while operating earnings are fairly stable, net income has experienced some volatility due to varying degrees of realized capital losses and changes in the underlying values of the companya™s derivatives. A.M. Best believes MetLifea™s future earnings will be pressured as the low interest rate environment continues. The company faces risk related to the continued low interest rate environment, which will put additional strain on interest sensitive product margins.

Additionally, A.M. Best has removed from under review with negative implications and affirmed the FSR of A (Excellent) and ICRs of aa+a of the MetLife Auto & Home companies, led by Metropolitan Property and Casualty Insurance Company (both domiciled in Warwick, RI) and its eight fully reinsured subsidiaries. The FSR has been assigned a stable outlook, while the ICRs have been assigned a negative outlook, reflecting the negative outlook on the groupa™s ultimate parent, MetLife.

The ratings of MetLife Auto & Home recognize its strong capitalization, consistently favorable operating performance, successful multiple-channel distribution network and extensive market expertise.

Partially offsetting these positive rating factors are the groupa™s moderately elevated underwriting leverage, a dividend policy that constrains surplus growth, as well as the groupa™s exposure to weather-related events.

Positive rating factors include the groupa™s geographic diversification and the marketing advantage it derives from the established brand name recognition of MetLife. In addition, the ratings acknowledge managementa™s focused operating strategy, extensive product knowledge and multiple distribution channels. The group consistently generates capital through disciplined underwriting and a steady stream of investment income.

For a complete list of MetLife Inc. and its subsidiariesa™ FSRs, ICRs and debt ratings, please see [ www.ambest.com/press/110405metlife.pdf ].

The principal methodology used in determining these ratings is [ Besta™s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition ], which provides a comprehensive explanation of A.M. Besta™s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: aRisk Management and the Rating Process for Insurance Companiesa; aBCAR for Life and Health Insurersa; aRating Members of Insurance Groupsa; a[ A.M. Besta™s Perspective on Operating Leverage ]a; aA.M. Best Ratings and The Treatment of Debta; a[ Equity Credit for Hybrid Securities ]a; aUnderstanding BCAR for Property/Casualty Insurersa; aNatural Catastrophe Stress Testing Methodologya; aCatastrophe Analysis in A.M. Best Ratingsa; and aCatastrophe Risk Management Incorporated Within the Rating Analysis.a Methodologies can be found at [ www.ambest.com/ratings/methodology ].

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit [ www.ambest.com ].