NEW YORK (Reuters) – MetLife Inc is exploring the divestment of its U.S. variable annuity book as it seeks to free up resources to invest in higher-growth parts of its business, people familiar with the matter said.
The New York-based insurer is working with an investment bank on the plan, which is in its early stages, the sources said, cautioning that no deal is certain.
MetLife does not disclose the size of its variable annuity business. Its overall annuity book – including both fixed rate and variable policies – stood at $58.23 billion at the end of 2021, according to its financial statements.
Any sale would give MetLife only a fraction of whatever book value is divested in terms of proceeds. But the financial benefit of offloading the policies could still be substantial – potentially in the billions of dollars – because of the capital released, tax implications and other financial enhancements, the sources said.
The sources spoke on condition of anonymity to discuss confidential information. MetLife declined to comment.
U.S. insurers have in recent years been offloading closed books of annuity business, which require significant capital to be put aside and provide limited revenue growth as no new policies are being written.
Insurers have found willing buyers in private equity firms and their insurance arms, which can use the cash flow generated from the policies to invest in their suite of credit and other products.
MetLife’s variable annuities book is housed within MetLife Holdings, a unit which holds product lines which the insurer no longer actively sells and just manages to maturity – known in the industry as runoff business.
MetLife Chief Financial Officer John McCallion told analysts this month that a rising interest rate environment could provide a catalyst for divesting parts of its runoff business. He did not say, however, that MetLife was exploring a sale of any part of MetLife Holdings.
Most runoff dealmaking activity has so far been concentrated in life insurance and fixed rate annuities. Variable annuities have seen less interest, as there is a greater risk around generating sufficient investment return.
That is starting to change, however, as rising interest rates make it easier to turn a profit on such policies, because the yields which can be earned on investments are generally increasing.
Prudential Financial Inc said in September it had agreed to sell variable annuity policies worth $31 billion to Fortitude Re, which is backed by buyout firm Carlyle Group, for a total transaction value of $2.2 billion.
(Reporting by David French in New York; Editing by Edwina Gibbs)