By Arthur D. Postal
WASHINGTON – MetLife’s first quarter operating earnings were fueled by sales of its newest variable annuity (VA) product and a strong performance in its long-term care insurance (LTCi) business.
During a conference call with analysts following the announcement of MetLife’s first quarter earnings, company officials also said they are pleased that the Federal Reserve plans to develop uniform capital standards with input from the insurance industry.
MetLife’s FlexChoice variable annuity with guaranteed lifetime withdrawal benefit was instrumental in the company’s meeting its target of increasing overall annuity sales 50 percent from 2014 to 2015. This success was despite MetLife’s significant scale-back on its annuity sales, a company official said.
FlexChoice was developed as a means of keeping MetLife in the VA market for products with guarantees, but one that was consistent with the demand by regulators that insurers “derisk” their products.
Applications for FlexChoice are coming in strong, and that the product is getting good market acceptance, according to William J. Wheeler, MetLife’s president of the Americas.
Wheeler said MetLife had forecast “a pretty meaningful increase” in its annuity business sales for 2015, “and a piece of that growth was driven by FlexChoice.
“It wasn't the whole reason for growth, but it was a big piece of it,” Wheeler said. He said applications are trending upward, “and we're seeing a lot of good sales coming out of that.”
Wheeler said FlexChoice was also important because MetLife’s decision to exit issuance of VAs with guarantees had forced MetLife captive agents to sell products issued by others, “and now [captive agents] instead say they're using FlexChoice as their key living benefit rider product.”
MetLife’s LTCi business performed “better than expected,” Wheeler said, and was one reason the company’s medical health overall loss ratio, 77 percent, “was quite good.”
Wheeler was asked whether MetLife was “looking at strategic options” to exit the LTCi business. He replied, “I would never exclude anything. I wouldn't put anything off the table but I don't think that's likely or in the cards.”
State regulators are being supportive in approving rate increases that will help keep the LTCi market viable for insurers over the long term, according to Wheeler. This is helping MetLife’s LTCi business.
MetLife’s first quarter earnings exceeded analysts’ expectations by 3 cents per share. However, the company’s revenue of $17.04 billion declined 0.5 percent compared to a year ago, and was $490 million below analysts’ expectations.
MetLife reported that its first quarter operating earnings were $1.64 billion or $1.44 per share compared with $1.56 billion, or $1.37 per share, one year ago.
As far as regulation is concerned, MetLife is satisfied with the Fed’s decision to develop a single capital standard for all of the insurance companies it supervises through a formal rule-making process, according to Steven A. Kandarian, chairman, president and CEO.
He said that if the Fed had elected to establish prudential standards for insurers by order rather than by rule, “the result could have been different orders for different companies with potentially harmful effects on competition.”
However, Kandarian said insurers still “don't know yet what that methodology will be.”
“We don't yet know how those rules may differ from state rules that we live under today,” he said, adding that MetLife officials still don’t know “how the rules they come up with may impact us differently than the state rules because they may look at certain aspects of our balance sheet differently than the state rules look at those assets and liabilities today.”
“So, there's no way for us to really have a good estimate of the amount of capital we need to hold under a regime the Fed has yet to put out even in draft form,” Kandarian said.
He added that having the Fed develop capital standards through a rule-making process will address one threat to competition by holding all federally-regulated insurance companies to the same standard.
“However, there's still a risk that these additional capital rules for federally-regulated insurers will put them at a competitive disadvantage to companies regulated exclusively at the state level,” Kandarian said. “So it will be important for regulators to ensure consistency across multiple and potentially conflicting capital regimes.”
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at firstname.lastname@example.org.
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