Known globally as one of the largest insurance providers, Metlife (NYSE:MET) is now considering splitting its life and annuity businesses. The reasons quoted were a number of pressures that it now faces in the wake of stricter regulations in the market.
The Dodd- Frank act gave birth to the Financial Stability Oversight Council in 2010, a body that studies and makes sure there is stability in banks and other like organizations. There are a number of regulations and changes that followed it, aimed at making sure a 2008 level incident does not repeat itself. Under the FSOC, MetLife was named a Systemically Important Non-bank Financial Institution. The rating has also been given to large corporations like AIG, GECC, Prudential Financial, these companies are so big that if there is a downward spiral of any or all of them, it could negatively impact the American economy on the whole. A designation like this puts MetLife under a new set of rules which while cushioning its bases and protecting it from collapse in dire circumstances, will invariably limit the earning potential as well.
A new corporation?
MetLife is now considering a number of options including setting up a new corporation with an IPO that will be better suited to compete with smaller insurers and will escape the SiFi rating and will not fall under the current regulations. As of now MetLife is The largest provider of insurance in the United States. The company is worth well over $880 billion that includes $240 billion in retail assets. If a new company is created, these retail assets will be moved to it.
A spokesperson was quoted as saying that a new company would be easier to focus, have better flexibility in terms of products and services, and more importantly, they would enjoy less burden from the regulatory boards and their compliance measures. It is noteworthy that this decision to create a new company comes after a number of hearings to eliminate the SiFi ratings did not bear the expected results in the Federal District Courts in Washington. The arguments made by MetLife against the rating stems out of the company's belief that they are not a 'systemic' institution.
Last year, GE were in talks to sell off their commercial leasing business to Wells Fargo. GE had become one of the largest lender's in the land and had been categorized SiFi before they began dismantling their financial services.