MetLife on Thursday cited expectations that regulators could require it to boost capital buffers because of its variable annuities business as a key reason the insurer wants to split away from its Charlotte-based retail segment.
In a conference call with analysts, executives with the New York-based company said they are concerned the Federal Reserve will view variable annuities as a nontraditional insurance line – as international regulators do. That view, executives said, could require MetLife to increase capital levels to comply with its 2014 designation by a U.S. panel as a non-bank systemically important financial institution.
MetLife’s plan, announced last month, to separate much of its Charlotte-based retail business “mitigates the risk of onerous capital rules for the V.A. business,” CEO Steven Kandarian said.
The variable annuities at issue are housed in the company’s U.S. retail business, which MetLife operates from a hub in Ballantyne Corporate Park. The company said in April that it has hired more than 1,500 in Charlotte.
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MetLife announced plans to consolidate its U.S. retail operations in Charlotte in 2013. As part of that announcement, the company also said it would create about 1,300 jobs in Cary and establish a separate global technology and operations hub there.
In exchange for state incentives, MetLife was required to create at least 2,098 jobs in North Carolina by the end of 2015.
The company could receive incentive grants totaling as much as $87.2 million over a 12-year period. The amount, to be awarded through the state’s Job Development Investment Grant program, is the largest JDIG grant in North Carolina history, according to the state’s Commerce Department.
MetLife has said it intends to keep the separated company headquartered in Charlotte. Executive Vice President Eric Steigerwalt, who is based in the city, heads that business.
A variable annuity is a contract between a customer and an insurance company. Under the contract’s terms, a customer makes a lump-sum payment or series of payments in exchange for the insurer making periodic payments immediately or in the future.
Kandarian said Thursday that volatile cash flows from the variable annuity business do not fit well with MetLife’s overall goals. Separating the U.S. retail business from the remainder of MetLife would improve cash flows, he said.
“The U.S. retail business would be more viable long term as a separate entity,” Kandarin said.
“Exiting a business that has been central to the company since its founding in 1868 highlights our willingness to take bold actions to maximize shareholder value,” he said.
Executives said Thursday it remains unclear what form the separation might take or when it might occur. Possibilities include a spinoff, sale or an initial public offering of shares in an independent, publicly traded company.
MetLife executives said they also continue their court challenge of the company’s systemically important financial institution designation.
Under the 2010 Dodd-Frank financial overhaul law, a non-bank financial company can be given the label if it is determined the company would pose a threat to the nation’s financial stability if the company fell into distress.
Kandarian said he “does not believe any part of our business poses systemic risk.”
MetLife shares closed at $39.75, down more than 5 percent.