MetLife Cut by Moody's on Elevated Investment Losses (Udpate2)

By Andrew Frye
Bloomberg News
December 17, 2009


Dec. 17 (Bloomberg) -- MetLife Inc., the largest U.S. life insurer, had its credit rating cut by Moody's Investors Service after three straight quarterly losses.

"Elevated levels of investment losses" will weigh on the New York-based insurer, Moody's said in a statement late yesterday as it cut the senior debt rating one level to A3, the fourth lowest of 10 investment grade ratings, from A2.

MetLife is bracing for losses on its $50 billion in commercial real estate loans and commercial mortgage-backed securities. The insurer, which used derivatives to help maintain profits last year as markets slumped, has posted $2.57 billion in losses this year as stocks and bonds recover.

"They're going to have investment losses" as the life insurers write down commercial mortgage investments, said Steven Schwartz, an analyst with Raymond James & Associates Inc. who has a "market perform" rating on MetLife. "Everybody's guessing about what the commercial mortgage-loan portfolio is going to look like."

MetLife fell 94 cents, or 2.6 percent, to $35.62 at 4:15 p.m. in New York Stock Exchange composite trading. Prudential Financial Inc., the second-biggest life insurer, slipped $1.80, or 3.5 percent, to $49.21. MetLife has advanced 2.2 percent since Dec. 31, trailing Prudential's 63 percent rise.

"MetLife's downgrade reflects a continued build-up of factors that have incrementally weakened the company's earnings generation and financial flexibility relative to peer companies," Ann Perry, Moody's vice president and senior credit officer, said in the statement.

'We Disagree'

Moody's also lowered the financial-strength rating of MetLife's Metropolitan Life Insurance Co. subsidiary to Aa3 from Aa2. Moody's said it now has a "stable" outlook for MetLife and its subsidiaries.

"While we're pleased that our insurance financial-strength rating now has a stable outlook, we disagree with Moody's downgrade," Christopher Breslin, a spokesman for MetLife, said in an e-mail. The company expects net after-tax realized investment losses, excluding derivatives, of less than 1 percent of its $338 billion portfolio, Breslin said.

MetLife benefits from its "strong brand," market position and ability to access capital markets, Moody's said. The insurer raised capital by selling $2.3 billion in shares in October 2008 as stock markets tumbled. This year, it has boosted funds by selling debt and hybrid securities. The company also sold bonds backed by a guarantee from the U.S. Federal Deposit Insurance Corp.

Prudential

Consumers often look at ratings when deciding which carrier to trust with retirement savings or life insurance premiums that may take decades to pay off. With the downgrade, MetLife is rated two levels above Prudential's Baa2 at Moody's. Standard & Poor's rates MetLife at A-, one level below the A given to Newark, New Jersey-based Prudential.

The downgrade "is not going to affect Met's ability to do business because it's very much in there with the other large, quality companies" in terms of ratings, said Schwartz.

Hartford Financial Services Group Inc. and Lincoln National Corp. of Philadelphia accepted U.S. aid through the Troubled Asset Relief Program after Moody's downgraded both insurers twice this year. Prudential turned down a U.S. bailout.

U.S. life insurers may post $10 billion in losses tied to commercial real estate over the next three years, Moody's said a separate research report yesterday. That estimate was increased from about $6 billion to $7 billion earlier in the year, according to Moody's.

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