Rating Action on MetLife Europe

As per media sources, Standard & Poor's Ratings Services (“S&P”) confirmed its long-term financial strength rating and counterparty credit ratings of 'A+' on MetLife Europe Ltd. (“MEL”), a subsidiary of American Life Insurance Co. (“ALICO”), which is an operating subsidiary of MetLife Inc. (MET - Analyst Report). The outlook remains stable.

These rating affirmations came on the back of MEL’s strong credit portfolio, solid positioning in the U.K. variable annuity markets, strong capitalization and better investment profile. S&P is also looking forward to solid results being delivered by the MEL as a subsidiary of MetLife. However, lack of multiple business lines and the prevalent sluggish environment of the industry continue to be headwind in the path of the company’s growth.

MEL will play a substantial role in MetLife’s international growth, especially in the markets in U.K as both the company and ALICO are listed to be marketed by it. The rating agency expects MEL's sales of variable annuities to exceed GBP 800 million while intense competition and regulatory issues will weigh on the sales of pension and protection products.

Alongside, MEL constitutes a very small part of MetLife and represents less than 5% of ALICO’s generally accepted accounting principles (GAAP) capital and is far below the consolidated capital of the parent company.

According to the expectations of the agency, if MEL continuously receives MetLife’s support as it is doing presently, it can better its capital position and maintain a stable risk profile, leading to volume growth. It also expects the company to perform well beyond 2013.

Even though the rating agency is less likely to increase its current ratings, it expects the company to register solid operating results with an increase in total sales. However, the ratings might be downgraded if MetLife decides to divest MEL, if there is a sharp decline in its profitability or growth prospects, or if MetLife discontinues its capital support to MEL.

MetLife currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We also maintain a long-term Neutral recommendation on its stock.

American International Group Inc. (AIG - Analyst Report), one of the closest competitors of MetLife scores equally well with the rating agencies. Last month, Fitch Ratings reiterated Issuer Default Rating (IDR) of 'BBB' on the company with a positive outlook and the Insurer Financial Strength ratings of ‘A’ on its operating units with a stable outlook.