Metlife breakup could sway AIG, Prudential to follow suit

As insurance giant MetLife moves toward breakup in order to escape taxing regulatory requirements, analysts believe other major insurers may consider the strategy

Insurance News

By Lyle Adriano

MetLife Inc. this week said that it would be “breaking up” its operations, having decided that it would be more beneficial to be “systematically important” in the eyes of regulators than to maintain its current size. Analysts say MetLife’s competitors, Prudential Financial Inc. and American International Group Inc., are set to follow suit soon.

MetLife is the second major firm in the last ten months to adjust to regulatory requirements, the first being General Electric Co. last April.

Although the government has yet to do anything to police the country’s largest firms, indirect pressure from regulators has caused the companies to eventually cave in.

Investors in AIG in particular argue that the firm also needs to conform to the stipulated regulations. Carl Icahn, one such investor, feels that the firm is “too big to succeed.”

America’s major banks are also being challenged to cut down on their sizes to remain profitable. The Federal Reserve has laid out more stringent regulations in recent years to charge banks for being too large—the Reserve has earned $641bn of capital since 2009 from such banks.

Daniel Tarullo, governor for the Federal Reserve, said that the goal of the regulations was to offer firms that could potentially upset the financial system with their size with a choice: either shed businesses considered risky by the Reserve, or maintain high capital levels.

Those firms that can fund themselves with more capital can better withstand losses, but can also look less profitable, especially if the capital they receive from their investors seems a lot bigger than their gains.

MetLife has admitted that the risk of increased capital requirements steered it towards the decision to break up its businesses, among other factors. The company had been experiencing issues with profitability amid its low interest rates.

Keep up with the latest news and events

Join our mailing list, it’s free!