CHICAGO--(BUSINESS WIRE)--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 the 'A' Issuer Default Rating (IDR) assigned to MetLife. The Rating Outlook for MetLife and its subsidiaries is Stable.
KEY RATING DRIVERS
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, remain 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.
The ratings also consider MetLife's above-average investment risk and continued macroeconomic challenges associated with the ongoing low interest rate environment. Fitch views MetLife's designation by the Financial Stability Oversight Council (FSOC) as a non-bank systematically important financial institution (SIFI) to be credit neutral.
MetLife's strong balance sheet fundamentals reflect the company's solid risk-adjusted capitalization and favorable liquidity profile. Fitch considers the statutory capitalization of MetLife's U.S. and Japanese insurance operations to be strong and in line with rating expectations. The company's domestic life insurance subsidiaries (excluding American Life Insurance Company and Delaware American Life Insurance Company) reported combined statutory total adjusted capital of approximately $25 billion at year-end 2014, which Fitch estimates resulted in consolidated risk-based capital of 384%. Although the company does not provide intra-year RBC estimates, the company's domestic life insurance subsidiaries reported combined statutory net operating gain of approximately $1.4 billion in first nine months of 2015 and an increase of approximately $1 billion in total adjusted capital.
MetLife's Japanese insurance subsidiary represents the company's largest insurance business outside the U.S. The Japanese subsidiary reported a statutory solvency margin ratio significantly above 800% at year-end 2014, which is above both rating expectations and levels achieved by most Japanese peers.
The company's financial leverage was approximately 26% at Sept. 30, 2015, which is within Fitch's expectations for the company's current ratings. Financial leverage has declined from approximately 30% in the third quarter of 2010 (3Q10), shortly before its acquisition of ALICO, and is essentially consistent with year-end 2014 levels. MetLife issued $1.25 billion of senior notes in November 2015, and Fitch expects proceeds from the issuance to be used for general corporate purposes, including funding debt maturities in 2016. As a result of 2016 maturities, Fitch considers the new issuance to be neutral to financial leverage.
Fitch considers MetLife's GAAP interest coverage to be strong, reflecting solid operating performance and fairly stable interest expense. Fitch expects MetLife's GAAP fixed charge coverage ratio to be between 7.5x and 8.0x for full-year 2015.
Despite the ongoing low interest rate environment, MetLife has continued to generate solid operating earnings in recent years, bolstered in part by growing asset-based fees driven by favorable equity market performance; relatively stable interest margins, which have benefited from active management of crediting rates and interest rate hedges; as well as international acquisition activity, particularly its acquisition of ALICO in 4Q10. Excluding the company's $792 million charge in 3Q15 related to the tax treatment of a wholly owned U.K.-based investment subsidiary, Fitch expects GAAP ROE to remain in the area of 12% for full year 2015 and decline modestly to between 11% and 12% in 2016 as continued growth in fee income and solid earnings from International operations are at least partially offset by continued pressure from low interest rates.
MetLife's equity market exposure is primarily attributable to its investment in alternative investments and the large size of its variable annuity business. The company's variable annuity hedging program is robust and performed well during the financial crisis. 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.
Key rating drivers that could lead to an upgrade of MetLife's ratings include NAIC risk-based capital ratio above 450%, financial leverage below 25%, and GAAP fixed charge coverage ratio above 9x.
Key rating drivers that could lead to a downgrade of MetLife's ratings include NAIC risk-based capital ratio below 350%, financial leverage above 30%, and GAAP fixed charge coverage ratio below 5x.
FULL LIST OF RATING ACTIONS
Fitch affirms the following ratings with a Stable Outlook:
--Long-term IDR at 'A';
--Short-term IDR at 'F1';
--6.75% senior notes due 2016 at 'A-';
--1.756% senior notes due 2017 at 'A-';
--1.903% senior Notes due 2017 '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-';
--3.048% senior notes due 2022 at 'A-';
--4.368% senior notes due 2023 'A-';
--5.375% senior notes due 2024 at 'A-';
--3.6% senior notes due 2024 at 'A-';
--3.0% senior notes due 2025 at 'A-';
--3.6% senior notes due 2025 at 'A-';
--6.5% senior notes due 2032 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-';
--4.875% senior notes due 2043 at 'A-';
--4.05% senior notes due 2045 at 'A-';
--4.6% senior notes due 2046 at 'A-';
--6.4% junior subordinated debentures due December 2036 at 'BBB';
--10.75% junior subordinated debentures due August 2039 at 'BBB';
--4.721% senior notes due 2044 at 'A-';
--Floating-rate non-cumulative preferred stock, series A at 'BBB';
--5.25% fixed-to-floating rate non-cumulative preferred stock, series C 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 Insurance Company USA
General American Life Insurance Company
New England Life Insurance Company
--IFS at 'AA-'.
Metropolitan Life Global Funding I
--Medium-term note program at 'AA-'.
MetLife Short Term Funding LLC
--Commercial paper program at 'F1+'.
Additional information is available on www.fitchratings.com
Insurance Rating Methodology (pub. 16 Sep 2015)
Dodd-Frank Rating Information Disclosure Form