MetLife Inc., the largest U.S. insurer by assets, said Tuesday it planned to split a large part of its U.S. retail division into a publicly traded company, an announcement that pushed its stock up almost 10 percent during after-hours trading. MetLife’s U.S. retail division handles life insurance and other financial products across the United States, and generates about a fifth of the company's earnings.
MetLife is considering various options for shrinking its retail operations, including an initial public offering, a spinoff or a sale, the company said in a statement. The New York-based insurer said it was partly driven to shrink its operations after a U.S. regulatory panel in 2014 classified the company as a systemically important financial institution (SIFI). The label indicates that regulators believe the company could pose serious threat to the economy if it collapses.
“Higher capital requirements that could put it [MetLife] at a significant competitive disadvantage,” Chairman and CEO Steven Kandarian said in the statement. “Even though we are appealing our SIFI designation in court and do not believe any part of MetLife is systemic, this risk of increased capital requirements contributed to our decision to pursue the separation of the business.”
The insurer is one of the four non-banks to be designated “systemically important financial institutions” in the wake of the 2008 financial crisis. The tag can lead to stricter supervision of a company's balance sheet as well as higher capital requirements.
MetLife said in the statement that MetLife Insurance Company USA, General American Life Insurance Company, Metropolitan Tower Life Insurance Company and "several subsidiaries that have reinsured risks underwritten by" MetLife Insurance Company USA, would be part of the new entity.
MetLife’s U.S. retail division has approximately $240 billion in total assets, based on September data, the company said, adding that the new business would be led by MetLife Executive Vice President Eric Steigerwalt.
MetLife’s announcement follows a similar one by General Electric’s financial unit in October last year, seeking to split its manufacturing unit from its financial ones after being classified as a non-bank SIFI by a U.S. panel. Activist investor Carl Icahn is currently urging American International Group, another insurer termed systemically important, to break itself up for many of the same reasons.