WASHINGTON — The U.S. government is likely to file its brief seeking reversal of a lower court ruling that throws out the designation of MetLife as a systemically important institution (SIFI) by June 6, and a final decision by the U.S. Court of Appeals for the D.C. Circuit is likely by mid-2017, MetLife chairman, president and CEO Steven Kandarian said today.
In response to MetLife’s so-far successful challenge to its delegation as a SIFI, John R. Strangfeld, Prudential Financial chairman, president & CEO, seemed to indicate that his company would await final Appeals Court action before deciding whether to challenge its designation as a SIFI.
Strangefeld said that the D.C. Circuit decision March 30 regarding MetLife “is a significant development” with respect to group supervision and capital standards [for insurers].
“We will determine an appropriate path for Prudential, as this issue develops, considering other aspects of the group’s regulation,” Strangefeld said. He added that, with respect to designation, Prudential has “multiple options,” including its ability to challenge its SIFI status through the annual redesignation process.
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Kandarian and Strangefeld’s comments were made during the quarterly earnings conference call with analysts, which touched on a number of topics.
For example, Kandarian said that despite the victory over the government on designation, MetLife will pursue its decision to spin off its retail operations. He said MetLife will disclose what form the spinoff will take in a registration statement to be filed with the Securities and Exchange Commission this summer.
Both MetLife and Prudential officials also noted that the two companies are still digesting the potential impact of the Department of Labor’s new fiduciary standard rule on their companies going forward.
MetLife, Prudential and Lincoln Financial all joined American International Group, which reported earlier in the week, in disclosing weak results compared to a year ago, with all citing poor investment results and low interests as primary reasons for the decline.
MetLife said operating income declined to $1.33 billion, or $1.20 a share, from $1.64 billion, or $1.44 a share, a year earlier, a 19 percent decline. Analysts expected $1.38 a share. Revenue, meanwhile, slipped 2.5 percent to $16.61 billion. MetLife is the largest U.S. life insurer by assets.
Prudential said operating earnings declined to $997 million, or $2.18 a share, as compared to the $2.37 a share expected by analysts. Revenue at Prudential fell 4.4% to $11.29 billion.
Lincoln Financial reported that operating income fell to $314 million, or $1.25 a share declined 11 percent. Analysts had called for $1.49 a share.
Both in its earnings statement and in comments to analysts today, MetLife cited poor results from investments in hedge funds as a primary cause. Investment income declined by 5.5 percent to $4.71 billion, MetLife said.
Steven Goulart, MetLife chief investment officer and executive vice president, said today that as a result of those results, MetLife hopes to redeem $1.2 billion of the $1.8 billion it has invested in hedge funds. The insurer’s total investment portfolio foots to more than $520B.
“It’s had up-and-down years and really it’s just too inconsistent, we think, in actual performance,” he said. “What we’ll be left with is a small portfolio of really our most consistently performing managers in hedge funds.”
Goulart called the first quarter “challenging” for variable investment income.