Posted on 08 Mar 2010
MetLife Inc.'s $15 billion pact to acquire a big life-insurance business from American International Group Inc. propels the company into an elite club of global insurers, vastly expanding its geographical reach from its U.S. base and highlighting the importance of Asia in growth plans for the industry.
After weeks of delays because of tax issues, AIG and MetLife are scheduled to announce the sale Monday of American Life Insurance Co., or Alico, which is AIG's second-biggest foreign life-insurance unit.
The acquisition will transform MetLife, the No. 1 seller of life insurance in the U.S., from a largely domestic company to a global player on the same stage as European powerhouses such as Allianz SE and AXA SA, and Prudential Financial Inc., a long-time U.S. rival that has a big Japan business.
The bold and potentially risky deal would boost the portion of MetLife's overall operating income that comes from overseas to 40% from 15% currently, estimates Andrew Kligerman, a UBS Securities analyst.
For several decades, most of the insurance-industry acquisition activity was directed from overseas toward the U.S., as European and U.K. companies sought to sell retirement-income annuities and other financial products to aging American baby boomers. MetLife's pending deal signals that some of the best opportunity for growth now is outside the U.S., analysts say.
As AIG seeks to repay government bailout funds, its biggest foreign unit, Asia-focused American International Assurance Ltd., is being sold to U.K.-based Prudential PLC in a $35.5 billion deal. Alico has a big footprint across much of the rest of the globe. The heart of the business is in Japan, with significant operations in Eastern Europe, Chile, Russia and Brazil.
Analysts call the deal "transformational" for MetLife, so much so that Standard & Poor's last month put MetLife's ratings on watch with negative implications, saying the "sheer size of Alico" meant its acquisition "could have a material adverse impact on MetLife's financial metrics." In a similar move, A.M. Best Co. cited "the magnitude" of a deal.
Moody's Investors Service said it would scrutinize deal terms, noting that Alico's credit profile in several countries is more volatile than that of MetLife's U.S. business, and the far-flung nature of its operations would create "significant execution risk and commitment of management time," with positives including greater growth opportunities in many of the countries.
In recent comments to investors and analysts, MetLife's chief executive, C. Robert Henrikson, has stressed that MetLife is financially strong and has a deep management team, putting it in a good position for a sizable overseas deal. MetLife, best known for its Snoopy logo in the U.S., has a significant presence in Mexico, Chile, Brazil and South Korea, among other countries.
Like most other life insurers, MetLife was downgraded last year, as its investments suffered losses amid the market meltdown, and it had to boost reserves and capital to back up guaranteed-minimum retirement-income products.
But it didn't take government bailout money, and it came through the turmoil with a solid investment-grade rating. MetLife used the past year's capital-markets rally to raise $1.75 billion of capital to shore up its balance sheet.
Analysts aren't counting on cost savings from the pact, as overlap of operations between Alico and MetLife are minimal. In Japan, Alico primarily sells life insurance, competing against Prudential Financial's Gibraltar business and a host of other Japanese insurers, and it also sells supplemental health insurance, according to FBR Capital Markets. MetLife, on the other hand, primarily sells annuities in Japan in a joint venture.