TEXT - Fitch affirms MetLife's ratings; outlook stable
Jan 29 - Fitch Ratings has affirmed all existing ratings assigned to MetLife, Inc. (MetLife) and its subsidiaries, including the 'AA-' Insurer Financial Strength (IFS) ratings assigned to certain domestic life insurance companies and 'A' Issuer Default Rating (IDR) assigned to MetLife. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. The affirmation of MetLife's ratings reflects Fitch's view that the company's strong balance sheet fundamentals, excellent financial flexibility, and very strong market positions in several major insurance products lines and markets in the U.S. and select international markets are consistent with rating expectations. Fitch believes that the company's large-scale, very strong brand name, and large and diverse distribution capabilities provide significant competitive advantages. Fitch's primary rating concerns include MetLife's somewhat high financial leverage, above-average exposure to the variable annuity business, and macroeconomic challenges associated with the current low interest rate environment. Fitch believes that MetLife's acquisition of American Life Insurance Company (ALICO) has significantly strengthened and diversified MetLife's international operations, and increased the share and mix of earnings generated from protection products and international markets. Fitch expects MetLife's earnings from its international businesses to increase over time due to higher relative growth rates and M&A focus. The integration of ALICO within MetLife's existing international markets appears to be progressing as expected. MetLife's strong balance sheet fundamentals reflect the company's strong risk-adjusted capitalization, favorable liquidity profile, and good asset quality. Fitch notes that the statutory capitalization of MetLife's U.S. and Japanese insurance operations is considered strong and in line with rating expectations. The company's domestic life insurance subsidiaries (excluding ALICO) reported combined statutory total adjusted capital of over $28 billion at Sept. 30, 2012 and combined statutory net income of approximately $2.7 billion in the first months of 2012. Fitch estimates the combined risk-based capital (RBC) of the domestic life insurance companies at 450% at Sept. 30, 2012. MetLife's Japanese insurance subsidiary represents the company's largest insurance business outside the U.S. Fitch expects the Japanese subsidiary to report a statutory solvency margin ratio above 800% at year-end 2012, which is above both rating expectations and levels achieved by most Japanese peers. The company's financial leverage was 28% at Sept. 30, 2012, which is above Fitch's rating expectations. Fitch expects financial leverage to decline modestly 2013 due to growth in retained earnings and debt repayment. MetLife's earnings performance and GAAP interest coverage have improved over the past year but remain somewhat below rating expectations. Fitch expects that the current low interest rate environment will limit MetLife's ability to grow earnings but recognizes that the company has in place an extensive interest rate hedging program that is expected to help mitigate the earnings impact over the intermediate term. Fitch expects GAAP return on equity (ROE) to in the 10-11% range in 2013 driven by increased earnings from International operations and modest growth in U.S. Fitch expects MetLife's GAAP interest coverage ratio to be approximately 6x-7x for full year 2012 on a normalized basis due to improved earnings performance. Positively, Fitch estimates adjusted statutory interest coverage to be approximately 3x, which is in line with rating expectations. MetLife's equity market exposure is primarily attributable to its investment in alternative investments and rapid growth in its variable annuity business. Fitch notes that the company's variable annuity hedging program is robust and did perform well during the 2008-2009 time period. However, the hedging of variable annuity risk requires the company to make policyholder behavior assumptions that may prove inaccurate. Deviations from pricing and hedging assumptions could have a material negative impact on MetLife's capital and earnings in a severe, albeit unexpected, scenario. SENSITIVITY/RATING DRIVERS Key rating triggers that could result in an upgrade of MetLife's ratings include an NAIC RBC ratio consistently above 475%, GAAP interest coverage ratio in the 8x-10x range, and the successful integration of ALICO. Key rating triggers that could result in a downgrade of MetLife's ratings include an NAIC RBC ratio below 350%, financial leverage ratio above 30%, and GAAP interest coverage ratio below 5x. Fitch affirms the following with a Stable Outlook: MetLife, Inc. --Long-term IDR at 'A'; --Short-term IDR at 'F1'; --floating-rate senior notes due August 2013 at 'A-'; --5% senior notes due November 2013 at 'A-'; --2.375% senior notes due February 2014 at 'A-'; --5.5% senior notes due June 2014 at 'A-'; --5% senior notes due 2015 at 'A-'; --6.75% senior notes due 2016 at 'A-'; --6.817% senior notes due 2018 at 'A-'; --7.717% senior notes due 2019 at 'A-'; --5.25% sterling senior notes due 2020 at 'A-'; --4.75% senior notes due 2021 at 'A-'; --5.375% senior notes due 2024 at 'A-'; --6.5% senior notes due 2032 at 'A-'; --5.875% senior notes due 2033 at 'A-'; --6.375% senior notes due 2034 at 'A-'; --5.7% senior notes due 2035 at 'A-'; --5.875% senior notes due 2041 at 'A-'; --4.125% senior notes due 2042 at 'A-'; --common equity units backed by senior notes at 'A-'; --6.4% junior subordinated debentures due December 2036 at 'BBB'; --10.75% junior subordinated debentures due August 2039 at 'BBB'; --Floating-rate preferred stock, series A at 'BBB'; --Fixed-rate preferred stock series B at 'BBB'; --Commercial paper at 'F1'. MetLife Funding, Inc. --Commercial paper at 'F1+'. MetLife Capital Trust IV --7.875% trust securities at 'BBB'. MetLife Capital Trust X --9.25% trust securities at 'BBB'. Metropolitan Life Insurance Company --IFS at 'AA-'; --IDR at 'A+'; --Surplus notes at 'A'; --Short-term IDR at 'F1+'. MetLife Investors Insurance Company MetLife Insurance Company of Connecticut General American Life Insurance Company MetLife Investors USA Insurance Company New England Life Insurance Company --IFS at 'AA-'. Metropolitan Life Global Funding I --Medium-term note program at 'AA-'. MetLife Institutional Funding II --Medium-term note program at 'AA-'. MetLife Short Term Funding LLC --Commercial paper program rated 'F1+'.
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