MetLife is merging its offshore captive business into US-regulated entities, after regulatory powers cracked down on offshore captives.
It is a strong statement from the corporation, which is one of the largest global providers of insurance, annuities, and employee benefit programmes, with 90 million customers in over 60 countries.
The reason for the onshore move comes from an August 2012 letter, when New York cracked the whip on captives, as well as the continuing effort to reduce its risk profile in its variable annuity business.
The New York Department of Financial Services sent letters to 80 insurance companies, including MetLife, regarding their handling of captive insurance companies in an attempt to gain full disclosure about captives’ financial health.
The companies were required to respond to the missive from the state inquiry by 8 August, with state officials expressing concern that the captive arrangements may give a false impression of the insurer’s financial health, particularly in cases where the captive is funded using a letter of credit that allows the bank to hold the parent company responsible for the debt.
MetLife made its disclosure at the annual investor’s day presentation in New York, and in a filing with the Securities and Exchange Commission (SEC).
Officials said they are merging three US life insurers with their Cayman Islands-based reinsurance captive in the hopes of creating a larger, well capitalised US life company.
MetLife chief executive Steven Kandarian led the discussion, which first illustrated the recent change in the GMIB MAX V product, where MetLife changed the guaranteed minimum income benefit its largest selling rider benefit.
The roll-up rate was reduced to 4 percent, and the withdrawal rate was lowered 0.5 percent to 4 percent. It was stated in the presentation that the changes were vital to the firm's overall risk profile.
Kandarian also accepted that the New York inquiry played a part in the decision: "I should note at this point in time, the New York Department of Financial Services' (DFS) industry inquiry regarding captives was an important factor in our taking a closer look at our offshore reinsurance subsidiary."
He added that the firm also considered the US Dodd-Frank Act’s affect on collateral for derivatives when deciding to bring businesses back onshore.
