MetLife Facing Big Decision on Annuities

MetLife might wait until the fall to decide which structure it will utilize to sell annuities, company executives said last week.

Under new fiduciary rules published April 6 by the Department of Labor, product manufacturers say they have options. They can assume liability as a financial institution for the sale of variable and fixed indexed annuities by signing a best interest contract exemption with clients.

Or they can leave that responsibility to the product distributor.

An insurance company-affiliated broker-dealer such as MetLife Securities would be considered the financial institution in the sale of a VA. However, the insurance companies are the institutions that will have to certify whether insurance products are in a client’s best interest.

Insurance companies may feel they have more control over a large proprietary sales force than they do over independent agents. Some insurers over the past two weeks have expressed reservations about their presumptive status as the financial institution when selling through the independent agent channel.

In the case of FIAs, the best-selling annuity category last year, a majority were sold by independent agents.

Insurance companies will have a better idea in the fall of how distributors are leaning, said Eric T. Steigerwalt, chairman, president and CEO of MetLife Insurance of Conn.

“So, maybe four months or five months from now, we'll have a better view of that, but right now given the fact that this (DOL rule) is almost 1,100 pages, we're just going to have to wait and see what a number of distributors are going to do,” Steigerwalt said during a first-quarter earnings call.

Fred Reish, a partner at Drinker, Biddle & Reath in Los Angeles, said recently that many larger distributors will want to have a plan in place by early summer to meet the fiduciary rule deadline of April 2017.

Developing that strategy now is key, Reish said, so firms can move on to other tasks. Such as fiduciary training for advisors, developing policies and supervisory procedures, and possibly developing new products.

Sale to Close in July

In other news, MetLife expects to close on the sale of 4,000 retail financial advisors to MassMutual Financial Group in July, a company executive said.

The sale of the advisors, known as the MetLife Private Client Group, will also save the company about $250 million a year after taxes, company executives said.

MetLife first announced the sale in February as part of the company’s separation of much of its U.S. retail business.

In March, however, a federal judge found in favor of the company in its dispute with the government over the latter's "too big to fail" designation. Some industry watchers began to wonder if MetLife might reverse itself and retain its U.S. retail distribution after all.

"Strategically, the imperative of cash generation is stronger than ever, especially in light of a lower-for-longer interest rate environment,” said Chairman, President and CEO Steven A. Kandarian. “And from a regulatory perspective, while we are pleased that our SIFI status has been rescinded, FSOC could attempt to re-designator MetLife at a later date.”

The company argues it does not deserve to be labeled a Systemically Important Financial Institution (SIFI) by the government’s Financial Stability Oversight Council (FSOC). The designation would require the company to adhere to capital standards the company considers more burdensome.

The government has filed an appeal and company executives said they expect the court to issue a decision on the company’s status sometime in 2017.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].