MetLife (MET) Will Separate from Brighthouse Financial via Share Distribution
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MetLife (NYSE: MET) announced that Brighthouse Financial, Inc. (“Brighthouse Financial”) filed a Registration Statement on Form 10 with the U.S. Securities and Exchange Commission (the “SEC”). The Form 10 outlines a planned separation (the “Separation”) of a substantial portion of MetLife’s U.S. Retail business. The filing of the Form 10 is an important step in MetLife’s plan to separate into two independent publicly traded companies. The filing provides information on the strategy and historical financial data of Brighthouse Financial and will be updated with additional information in subsequent amendments as the SEC reviews it. References to the “Company,” “MetLife,” “we,” “our” and “us” refer to MetLife, Inc.
The Form 10 describes a potential transaction which is a pro-rata distribution of at least 80.1% of the shares of Brighthouse Financial’s common stock to MetLife’s shareholders. As described in the Form 10, following such a transaction, we expect, subject to market conditions, to divest our remaining interest in Brighthouse Financial as soon as practicable, but in no event later than five years after the distribution, while seeking to maximize overall value to our shareholders.
While MetLife and Brighthouse Financial are currently preparing for a spin-off transaction, the ultimate form and timing of the Separation will be influenced by a number of factors, including regulatory considerations and economic conditions. MetLife continues to evaluate and pursue structural alternatives for the planned Separation, including different forms of spin-off, a public offering of shares in an independent, publicly traded company, or a sale.
MetLife believes that the proposed Separation would allow each of Brighthouse Financial and MetLife to pursue distinct strategies appropriate to their respective markets. Our business reasons for pursuing the Separation include our expectation that the Separation will:
|•||Allow each entity to operate with greater focus, including their respective approaches to capital, risk, cash flow, expenses, marketing and distribution.|
|•||Facilitate investors’ ability to independently value Brighthouse Financial and MetLife based on their respective operational and financial characteristics.|
|•||Increase the predictability of distributable cash flows for MetLife over time as part of MetLife’s Accelerating Value Initiative and allow Brighthouse Financial to make the necessary decisions and investments to serve the U.S. retail marketplace.|
|•||Enable Brighthouse Financial to take advantage of a retail-dedicated business model to increase responsiveness to the needs of Brighthouse Financial’s customers and distribution partners.|
|•||Enable MetLife to address certain regulatory issues, including our potential redesignation as a non-bank systemically important financial institution, as well as the new Department of Labor rules regarding fiduciary standards for sales of insurance and annuity products into retirement accounts.|
We believe that, when complete, the Separation will afford key advantages to MetLife. The variable annuity business in the U.S. market is highly complex and requires substantial management attention. Following the Separation, we expect that our lower exposure to variable annuities will reduce balance sheet and income statement volatility for MetLife.
We believe that many of MetLife’s financial and business characteristics following the Separation will shift favorably and may be reflected in several important metrics:
|•||Our operating return on equity may improve after the costs of the Separation are eliminated.|
|•||Our cost of capital may be reduced.|
|•||Our exposure to market risk should diminish materially.|
|•||The mix of our domestic business will move towards shorter-tail liabilities.|
|•||Our business will remain diversified while becoming more international.|
Separation-Related Financial Information
MetLife is disclosing the following information related to its financial condition in connection with the Separation.
|•||At June 30, 2016, MetLife, Inc. and other MetLife holding companies had $4.9 billion in liquid assets.|
|•||Excluding the impact of the Separation, we anticipate the ratio of free cash flow to operating earnings, adjusting for notable items, for the year ended December 31, 2016 will be at or above the high end of a range of 55% to 65%.|
|•||During the third quarter of 2016, the Company received approximately $300 million in cash proceeds associated with the sale of the MetLife Premier Client Group.|
|•||We expect to incur approximately $1.5 billion of Separation-related items in the second half of 2016 that will reduce free cash flow. These items will consist of forgone dividends and forgone incremental debt, as well as expenses to be incurred to facilitate the Separation.|
|•||Assuming interest rates follow the observable forward yield curves as of August 30, 2016, we expect the average ratio of free cash flow to operating earnings over the two-year period of 2017 and 2018, excluding the impact of the Separation, to be 65% to 75%.|
|•||Subject to contingencies, investor interest, ratings actions, and the macroeconomic environment, among others, we expect MetLife to receive dividends prior to the Separation in the range of $3.3 to $3.8 billion from Brighthouse Financial and a MetLife-affiliated reinsurance subsidiary, all as a result of the Separation. We expect Brighthouse Financial to incur debt in order to pay a portion of these dividends.|
|•||In addition to the dividends, MetLife could also receive proceeds over time from the disposition of its retained shares of Brighthouse Financial common stock.|
|•||We expect that liability management transactions, including repayment of certain debt maturities, will require cash commitments of between $1.0 and $2.0 billion over the two-year period of 2017 and 2018.|
|•||Following the Separation, we plan to maintain liquid assets at the holding companies that remain with MetLife in a range of $3.0 to $4.0 billion to act as a liquidity buffer.|
As a result of the planned Separation, in the third quarter of 2016, MetLife will reorganize its businesses into six segments: U.S.; Asia; Latin America; Europe, the Middle East and Africa (“EMEA”); MetLife Holdings; and Brighthouse Financial. In addition, the Company will continue to report certain of its results of operations in Corporate & Other.
Based on the planned Separation, the Company will reorganize its businesses as follows:
|•||The businesses MetLife plans to separate and include in Brighthouse Financial will be reflected in a new segment, Brighthouse Financial.|
|•||The businesses formerly in the Retail segment, but that MetLife does not plan to include in the Brighthouse Financial segment, will be reflected in a new segment, MetLife Holdings. This segment will also include the long-term care business, formerly reported as part of the Group, Voluntary & Worksite Benefit (“GVWB”) segment, and the reinsurance treaty relating to the former Japan joint venture, previously reported in Corporate & Other.|
|•||The Property & Casualty business, the Retirement & Income Solutions business (formerly known as Corporate Benefit Funding), and the Group Benefits business (consisting of the remaining components of the GVWB business, including the individual disability insurance business previously reported in the former Retail segment), will be reflected in a new segment, U.S.|
|•||The U.S. Direct business, previously reported as part of the Latin America segment, will be disaggregated and reported in the new U.S. segment and in Corporate & Other.|
|•||The Asia and EMEA segments will remain unchanged.|
These changes will be applied retrospectively and will not have an impact on total consolidated operating earnings or net income in prior periods. We anticipate disclosing resegmented results for certain prior periods in a Current Report on Form 8-K prior to MetLife’s disclosure of its results for the quarter ended September 30, 2016.
The following is a description of the Company’s segments, as well as Corporate & Other, under this reorganization:
Our businesses in the U.S. segment offer a broad range of protection products and services aimed at serving the financial needs of our customers throughout their lives. These products are sold to corporations and their respective employees, other institutions and their respective members, as well as individuals. The U.S. segment is organized into three businesses: Group Benefits, Retirement & Income Solutions and Property & Casualty.
The Group Benefits business offers insurance products and services which include life, dental, group short- and long-term disability, individual disability, accidental death and dismemberment, critical illness, vision and accident & health coverages, as well as prepaid legal plans. This business also sells administrative services-only arrangements to some employers.
Retirement & Income Solutions
The Retirement & Income Solutions business offers a broad range of annuity and investment products, including guaranteed interest contracts and other stable value products, income annuities and separate account contracts for the investment management of defined benefit and defined contribution plan assets. This business also includes structured settlements and certain products to fund postretirement benefits and company-, bank- or trust-owned life insurance used to finance nonqualified benefit programs for executives.
Property & Casualty
The Property & Casualty business offers personal and commercial lines property and casualty insurance, including private passenger automobile, homeowners’ and personal excess liability insurance. In addition, Property & Casualty offers small business owners property, liability and business interruption insurance.
The Asia segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include whole life, term life, variable life, universal life, accident & health insurance, fixed and variable annuities, credit insurance and endowment products.
The Latin America segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident & health insurance, group medical, dental, credit insurance, endowment and retirement & savings products.
The EMEA segment offers a broad range of products to both individuals and corporations, as well as other institutions and their respective employees, which include life insurance, accident & health insurance, credit insurance, annuities, endowment and retirement & savings products.
The MetLife Holdings segment consists of operations relating to products and businesses no longer actively marketed by the Company. These products and businesses include variable life, universal life, term life, whole life, variable annuities, fixed annuities and index-linked annuities. The MetLife Holdings segment also includes our discontinued long-term care businesses and the assumed reinsurance of certain variable annuity products from our former operating joint venture in Japan.
The Brighthouse Financial segment offers a broad range of products and services which include variable annuities, fixed annuities, index-linked annuities, income annuities, term life, whole life, universal life and variable life, as well as certain run-off businesses. These products and services, which exclude the run-off businesses, are actively marketed through various third party retail distribution channels.
Corporate & Other
Corporate & Other contains the excess capital, as well as certain charges and activities, not allocated to the segments, including external integration costs, internal resource costs for associates committed to acquisitions, enterprise-wide strategic initiative restructuring charges and various start-up businesses (including expatriate benefits insurance and the investment management business through which the Company offers fee-based investment management services to institutional clients, as well as the direct to consumer portion of the U.S. Direct business). Additionally, Corporate & Other includes interest expense related to the majority of the Company’s outstanding debt and expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes the elimination of intersegment amounts, which generally relate to affiliated reinsurance and intersegment loans, which bear interest rates commensurate with related borrowings.
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