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THE CUTTING EDGE

Metropolitan Life Plans to Become a Public Firm

Insurance: Giant mutual company will distribute stock to policyholders in move driven by industry consolidation.

November 30, 1998|From Times Wire Services

NEW YORK — Metropolitan Life Insurance Co. on Sunday said it plans to convert to a publicly traded company, the latest life insurer to push aside its mutual company status as the industry further consolidates.

The nation's second-biggest life insurer, with $351 billion in assets under management, said it expects to distribute all of its stock to the more than 12 million policyholders who now own the company. The New York-based company also plans to sell additional shares to the public, perhaps by the end of 1999.

The 130-year-old company's decision, which requires approval of regulators and policyholders, follows announcements by rivals Prudential Insurance Co. of America--the No. 1 U.S. life insurer--and John Hancock Mutual Life Insurance Co., which this year said they planned to seek stock ownership. MONY Group of New York Inc. made the switch earlier this month when it raised $304 million in an initial stock offering. Equitable Cos., the seventh-largest U.S. life insurer, converted in 1992.

"A stock company will best position MetLife both to deliver value to its policyholders and to be competitive in the pursuit of new growth opportunities," Robert Benmosche, MetLife's president, chief executive and chairman, said in a prepared statement.

Benmosche also told Reuters that he would be interested in acquiring a commercial bank to strengthen MetLife's retirement and asset-management businesses.

In return, an acquired commercial bank would get the strong brand name of MetLife, an asset that would put the bank in the ranks of other household names such as Chase Manhattan and Citibank.

"We believe a bank would get instant recognition across the United States with the name MetLife Bank," Benmosche said.

The desire to grow via acquisitions in the rapidly consolidating industry has spurred the recent conversions. Mutual insurance companies, which are owned by policyholders, do not have the same type of access to capital for acquisitions as their publicly traded counterparts.

"There is a trend toward [demutualization] because it enables them to get more access to capital markets, enables them to have capital to have currency to make acquisitions and gives better incentives to their people," said Gloria Vogel, an independent industry analyst.

After selling stock to the public, insurance companies would have the flexibility to use shares, rather than cash, to buy other companies and to offer stock options to employees. The change also brings risks, as companies may be under greater pressure from shareholders to increase their profit.

Once converted, MetLife will be scrutinized by shareholders concerned with profitability. The average large mutual life insurer had a return on capital of 5.6% between 1993 and 1996, compared with 9.4% for stock insurers, according to Moody's Investors Service.

MetLife said its 1997 earnings, after payment of policyholder dividends, rose 41% to $1.2 billion. Even so, its profitability lags behind many other life insurers.

The company had a return on equity, excluding capital gains, of about 5.2% in 1997. Benmosche said that should improve to 8.5% to 9% by the end of next year. He expects the company's shares to sell at about the company's book value, currently $14 billion.

MetLife has moved to cut costs by slashing almost 2,000 jobs, or about 10% of its non-sales staff in the U.S. The company has also been selling nonessential businesses in recent years.

In August, the insurer agreed to sell its commercial finance division to GE Capital Corp. Earlier in the year, it sold a Canadian life insurance unit.

One of the downsides of the demutualization process is the cost and length of the process, which usually takes three years. Not only do the board and the policyholders have to back the decision but the New York superintendent of insurance has to grant final approval.

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