Posted on 23 Feb 2009
OLDWICK, N.J. February 20 (BestWire) — A.M. Best Co. has downgraded the issuer credit rating (ICR) to “a-” from “a” of MetLife, Inc. (MetLife) (New York, NY) [NYSE: MET]. A.M. Best also has downgraded the ICRs to “aa-” from “aa” and affirmed the financial strength rating of A+ (Superior) of MetLife’s core life/health subsidiaries. Concurrently, A.M. Best has downgraded the debt ratings of MetLife and its subsidiaries. Additionally, A.M. Best has assigned a debt rating of “a-” to the $1.03 billion issue of 7.717% senior unsecured notes, Series B, due 2019 of MetLife. The outlook for all ratings is stable. (Please see link below for a detailed listing of the companies and ratings.)
The downgrades are based upon challenges facing MetLife as it manages through the turbulent economic environment. Given the weakness in current macroeconomic conditions, A.M. Best is concerned with the company’s exposure to real estate linked assets, primarily its large commercial mortgage loan portfolio and real estate holdings. While these assets have performed well to date, A.M. Best expects deterioration to occur in the commercial real estate market. The aggregate real estate exposure also includes investments in residential and commercial mortgage-backed securities. While remaining positive, GAAP operating earnings have demonstrated a declining trend during the past several quarters, and A.M. Best expects continued challenges to grow earnings in the current weak environment. Previously, MetLife benefited from higher variable income from alternative investments; however, now it has been impacted by the weakness in equity and credit markets. In addition, the reported gross unrealized losses—in excess of $28 billion—are significant and of concern given that MetLife’s overall risk-adjusted capital position is viewed as somewhat low for its current rating level. Nevertheless, A.M. Best notes a favorable liquidity position, which includes roughly $30 billion of cash and short-term investments in MetLife’s general account portfolio excluding about $8 billion of derivative collateral and the company’s likely ability to hold these securities to maturity. Nonetheless, coverage ratios have declined and its overall financial leverage at just under 30% is at the high end for the ratings.
Positive rating factors include MetLife’s well established and brand, diverse product mix, continued growth in various business segments and its very strong position in its core markets. Through its diversified distribution channels, MetLife maintains the scale necessary to be an industry leader in its various product lines. The organization continues to pursue its strategic focus in the life and annuity markets by expanding both its domestic and international market share through organic growth, joint ventures and strategic acquisitions. The company has historically produced favorable contributions to earnings and capital through realized and unrealized gains. The stable outlook reflects A.M. Best’s belief that MetLife will continue to maintain its strong franchise value despite the stated challenges.
The debt securities were offered under an existing shelf registration in connection with the re-marketing of 4.91% junior subordinated debt securities originally issued in June 2005. The Series B securities mature in 2019. MetLife did not receive proceeds from the re-marketing but rather proceeds were used by the holders of the 4.91% junior subordinated debt securities to satisfy their obligations to purchase common stock from MetLife for an aggregate purchase price of $1.035 billion.
These unsecured senior securities were sold without guarantees from the core life/health subsidiaries. As such, the debt instruments are structurally subordinated to all operating company obligations. These notes first become callable with a make whole premium in February 2011.
The ratings for Metropolitan Property and Casualty Insurance Company (Rhode Island) and its subsidiaries are unchanged.
For a complete listing of MetLife Inc.’s FSRs, ICRs and debt ratings, please visit www.ambest.com/press/022001metlife.pdf.
The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/methodology. BN-NJ-02-20-2009 1120 ET #