MetLife Says Regulation Gone Haywire Fueled U.K. Pension Retreat

Jun 10, 2014 1:25 pm ET

June 10 (Bloomberg) -- MetLife Inc., the largest U.S. life insurer, said its retreat from a pension business in the U.K. was prompted by capital requirements that make no sense.

“The regulatory environment went a little haywire, to be polite about it,” William Wheeler, who oversees pension-risk transfers as MetLife’s president of the Americas, said in an investor presentation today.

MetLife recorded a first-quarter investment loss of $343 million tied to the sale of a U.K. pension business to Rothesay Life Ltd., the insurer with investors including Goldman Sachs Group Inc., Blackstone Group LP and Singapore’s sovereign wealth fund. Wheeler said transfers remain an attractive business in the U.S. as more employers turn to insurers to assume risks from retirement obligations.

“The pension regulator in the U.K. just decided they needed to add more and more and more capital, literally almost tripling the capital requirement from when we first initiated that business,” Wheeler said. “We don’t think, that when we do our economic capital calculation, that makes any sense. But that doesn’t matter, and so therefore we exited.”

Insurers such as MetLife and Prudential Financial Inc. are used to managing large pools of assets and have experience dealing with risks tied to life expectancies, pushing their expansion in the pension business. MetLife’s corporate benefit funding unit in the U.S. generated $1.3 billion in operating earnings last year, an increase of 7.6 percent from 2012, the New York-based company said in a slideshow today.

‘Fact-Based’

MetLife has been scaling back in some capital intensive businesses, including variable annuities in the U.S., as the company seeks to limit risk tied to fluctuations in stock markets and interest rates. The insurer is also preparing for possible regulation from the U.S. Federal Reserve as a government panel determines whether the company qualifies as a systemically important institution.

Wheeler said that he doesn’t expect the same restrictions on the pension-transfer business in the U.S.

“We don’t know what the Federal Reserve is going to do, but I think their decisions about capital levels will ultimately be fact-based,” he said.

The Prudential Regulation Authority, part of the Bank of England, regulates the U.K.’s insurance industry and sets requirements based on the Individual Capital Adequacy Standards, known as ICAS. The regulator is working toward adopting a European-wide set of standards, known as Solvency II, by 2016, which could require insurers to hold even more capital than they do today.

Sarah Bailey, a spokeswoman for the PRA in London, declined to discuss specifics about MetLife.

“Commercial decisions are for the firms to comment on,” Bailey said. “It’s for them to decide on what they do with their business.”