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MetLife Passes Stress Test

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WASHINGTON — MetLife Inc. is weathering the current financial storm quite well, according to the U.S. Treasury Department.

MetLife, New York, is the only company known primarily for being an insurance company that was included in the department’s “stress test” program.

Officials scrutinized the finances of MetLife and 18 other giant financial institutions that are classified as bank holding companies.

MetLife appears to have enough capital to survive under the most adverse scenarios considered, Treasury officials write in a report on the stress test results.

MetLife Chairman C. Robert Henrikson says the company is “very pleased” with the results of the stress test.

“The results reinforce what we have been saying,” Henrikson says. “MetLife is financially strong and well-positioned for both the current environment and a potential further economic downturn. MetLife has a strong excess capital position, ample liquidity and leading market positions in our core group and individual insurance businesses, where our revenues continue to be healthy,”

Treasury officials say MetLife had about $28 billion in Tier 1 common capital as of Dec. 31, 2008. That amounts to 8.5% of MetLife’s $326 billion in risk-weighted assets.

Officials predict 2009 losses under the most adverse scenarios could be about $9.6 billion, with $8.3 billion of the impact resulting from a drop in the value of securities and $800,000 in losses resulting from problems with commercial real estate loans.

MetLife would have enough capital to handle those losses, officials conclude.

The stress test was designed for banks, and one twist here is that MetLife’s banking unit is just one small part of the company, according to Jeff Schuman, a securities analyst at Keefe, Bruyette and Woods, Hartford.

“We think MetLife is financially strong for an insurance company,” and Keefe, Bruyette’s own evaluation of potential credit losses indicates that “MetLife has several billion dollars of excess capital,” Schuman said. “Therefore we’re comfortable [that] they are well-capitalized for this environment.”

But “we don’t believe that the federal stress test is an appropriate test for a life insurance company,” Schuman said. “We don’t attach a lot of broad significance to this.”

The stress test process measured the exposure of MetLife’s banking unit to just one form of risk — macroeconomic deterioration risk.

“Life insurers have that form of risk, but they have other forms of risk captured by other regulatory and rating agency formulas, such as underwriting risk, variable annuity market risk and interest rate risk.,” Schuman said. “Those are important risks that are captured by the more traditional insurance measures.”

The stress test results are available here.