MetLife to repatriate Bermuda reinsurance unit
MetLife, the largest life insurer in the US, is to repatriate a Bermuda offshore reinsurance unit.
The move to bring Exeter Reassurance back to America would make its business more transparent and it pleases US regulators.
MetLife said it plans to merge Exeter Reassurance, with other state-regulated units.
MetLife CEO Steve Kandarian said the offshore reinsurance programme began in 2001 and “makes less sense” now.
“The New York Department of Financial Services’ industry inquiry regarding captives was an important factor in our taking a closer look at our offshore reinsurance subsidiary,” Kandarian, said at an investor presentation.
“We’re going to take steps to bring these businesses back on shore and to a more highly capitalised, US-based and US-regulated entity.”
The merger “proactively addresses recent regulatory concerns about the use of captive reinsurers”, MetLife said, and it could also help the company be in a “better position to deal with Dodd-Frank derivative collateral requirements”.
New York State’s Department of Financial Services, led by Benjamin Lawsky, began an investigation into captive insurers in July, requesting information about the arrangements from about 80 life insurers in the state, including MetLife. The entities can threaten financial stability and reduce the amount of reserves insurers hold to pay future claims, Lawsky said in a speech last month
Captives are units set up by a firm to cover risk elsewhere in the company. They may be located in offshore locations such as Bermuda and the Cayman Islands, or in the US.
“For a number of years, MetLife has been using a Bermuda subsidiary, Exeter Reassurance, to reinsure several billion dollars’ worth of variable annuity contracts, in which customers pay in advance to receive guaranteed payments in retirement, according to an article in the New York Times on Tuesday.
The article goes on to say MetLife and other insurers have been trying to cope with the Federal Reserve’s long-running policy of keeping interest rates very low to help revive economic growth.
“Many life insurers are having trouble because they normally buy bonds to make good on annuities they sold in the past, and they cannot get the yields they need in the current low-rate environment,” the NYT said. “They can reduce the obligations on their balance sheets, however, by shifting them to reinsurers.”
Mr Lawsky said questionable reinsurance deals throughout the industry were increasing the likelihood that policyholders would not receive their payments at some point. He also expressed concern that they were causing systemic risk within the broader economy, the way the booming growth of mortgage-backed securities had done in the years before 2008.”
Mr Lawsky issued a statement on Tuesday praising MetLife’s decision, saying the company had “acted wisely in bringing this subsidiary back to the United States, where it will be subject to stronger rules and oversight”.
When MetLife’s transaction is complete, it will have returned Exeter to the United States and merged it with three state-regulated MetLife units: the MetLife Insurance Company of Connecticut; the MetLife Investors USA Insurance Company, now based in Delaware; and the MetLife Investors Insurance Company, based in Missouri. A spokesman said it was not yet clear where the merged company would be based.