MetLife faces transition in Argentina

BUENOS AIRES (Reuters) - The Latin America branch of life insurance company MetLife Inc. (MET.N) will see regional growth this year despite a tough transition in Argentina to a reformed private pension system, a regional executive said on Thursday.

Eleven private pension funds operate in Argentina, where the industry was privatized in 1994, and they were hit by a surprise congressional reform in March, which will allow people to leave private plans and go to a state pension plan.

"This is a year of adjustment and work on retaining our affiliates (in Argentina)," said Oscar Schmidt, MetLife's Latin America head, talking to the Reuters Latin America Investment Summit in Buenos Aires.

MetLife is Argentina's No. 2 private pension fund company, managing some $5.3 billion in assets for 1.7 million affiliates. The Latin America branch of MetLife also owns Mexico's leading life insurance company, life insurance companies in Brazil and Uruguay and an annuities business in Chile.

"Evidently, the business is going to get smaller," in Argentina, said Schmidt.

Under the new law, beginning on April 12 the 11 million Argentines in private pension funds have 180 days to decide whether or not to move into a government pension system where they may make lower returns on their money, but have a guaranteed minimum pension.

The new law will also cut the commissions that private pension funds charge clients.

The Pension Fund Administrators Union industry group will spend money this year on publicity campaigns to keep affiliates said Schmidt, who is also president of the group.

But he said the industry will start 2008 with fewer clients and there will be pressure on companies to achieve economies of scale. He did not say that he foresees consolidation in the sector, but acknowledged that economies of scale could be achieved by mergers.

He said a second wave of pension reforms in the region -- where many countries privatized systems 10-20 years ago and are now moving some responsibility for social security back to the government -- is a good thing for society even if painful for the industry.

"The reform is very good. It gives people a chance to choose what is best for themselves," he said.

He said for middle-class earners who have a strong outlook for continued employment, the private funds are a great option, but for people with low salaries who are in and out of formal jobs a state pension is probably the best option.

INFRASTRUCTURE INVESTMENTS

Schmidt said the MetLife pension fund in Argentina is exploring investment in infrastructure since the immature capital markets do not provide enough instruments to absorb the $29 billion pension fund industry.

Volume on Argentina's stock market is typically less than $30 million a day.

"We are actively working with the government to identify projects we can support," he said.

He said projects that MetLife is looking into include rural highways, electricity generation and distribution and natural gas distribution, but that investment would depend on how ratings agencies grade the risk in each one.

He said infrastructure investments are necessary because the funds must invest 90 percent of their holdings in Argentina and local companies are not issuing long-term debt and the liquidity on the stock exchange is so low.

He said in order for the MetLife pension fund to invest 10 percent in infrastructure it would have to close two big projects a year.

(Additional reporting by Jorge Otaola, Cesar Illiano, Damian Wroclavsky) .