Fitch Rates MetLife's Debt Issuance 'A-'
KEY RATING DRIVERS
Fitch expects that the proceeds from the issuance will be used to repay \$1 billion of 5.00% senior notes that mature on June 15, 2015 and for general corporate purposes.
MetLife's ratings reflect Fitch's view that the company's strong balance sheet fundamentals, excellent financial flexibility, and very strong market positions in several major insurance product 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 above-average, albeit moderating exposure to the variable annuity business, above-average investment risk, and continued macroeconomic challenges associated with the ongoing low interest rate environment.
MetLife's strong balance sheet fundamentals reflect the company's strong risk-adjusted capitalization and favorable liquidity profile. 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 financial leverage was 25.5% at Dec. 31, 2014, which is in line with Fitch's rating expectations. Financial leverage has declined from a recent high of approximately 30% in the third quarter of 2010 (3Q'10), shortly before its acquisition of ALICO. As the issuance being rated is earmarked to repay maturing debt, Fitch considers it to be neutral to financial leverage.
MetLife's GAAP interest coverage has improved significantly over the past five years due primarily to solid growth in operating earnings. Interest expense has also been gradually trending downward since 2011, but increased modestly in 2014. The company's GAAP fixed charge coverage ratio was 7.8x in 2014, essentially unchanged from 2013.
Despite the ongoing low interest rate environment, MetLife has experienced significant improvement in operating earnings, bolstered in part by growing asset-based fees driven by attractive capital 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 4Q'10.
On Dec. 18, 2014, the Financial Stability Oversight Board (FSOC) announced that it had reached a final determination to designate MetLife a non-bank systematically important financial institution (SIFI), which could result in more stringent oversight by the Federal Reserve. On Jan. 13, 2015, MetLife filed an action in the U.S. District Court for the District of Columbia to overturn the designation. Although the specifics of the enhanced supervision to which non-bank SIFIs will be subject have not been finalized, it is likely that they will include higher capital requirements. Should MetLife's efforts to avoid SIFI designation ultimately prove unsuccessful, Fitch currently expects such a designation to be credit neutral.
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.
Fitch has assigned the following ratings:
--3.00% senior unsecured notes due 2025 'A-';
--4.05% senior unsecured notes due 2045 'A-'.