SIFI (systemically important financial institution) designation is starting to have an impact on actuarial hiring. This designation requires insurance companies to have more stringent capital standards and compliance burdens that are similar to those that banks have to adhere to. This SIFI designation for three large insurance companies, MetLife, Prudential and AIG, has them reacting in three dramatically different ways but impacting the hiring marketplace in the same way: job eliminations, movement of staff internally to other locations and expense reduction focus. Unfortunately current employees are also seeing the negative effect of a SIFI designation in their long term incentive and variable comp plans through the dives these companies stock take upon federal review.
When MetLife received its SIFI designation in December 2014, it protested the designation, it challenged the designation in federal court and it decided to exit important business lines and change the company’s business model. The protest fell on deaf ears but the federal court challenge is still pending. MetLife announced in February it was selling MassMutual its 4000 career agents. This U.S. retail business has been a part of MetLife since its founding in 1868. This dramatic move by MetLife was still not enough to change their SIFI designation according to the Financial Stability Oversight Council (FSOC), the federal agency responsible for making SIFI designations. MetLife is considering the sale, spinoff or IPO of a business that includes life insurance assets as well as a U.S. provider of variable annuities. Annuities draw the attention of federal regulators for the volatility in their results and the higher capital charges they require. This smaller company with about $240 billion in assets would be similar in size to other companies that have escaped the SIFI designation. The remaining MetLife would give regulators fewer reasons for the tougher oversite that goes with the SIFI designation….they hope.
Prudential Is waiting to see how MetLife’s court case contesting their SIFI designation goes. Because the two companies are so similar they could use a MetLife victory to contest their own SIFI label when it comes up for review. Prudential has sold off some riskier assets in the past few years including its commodities group and real estate brokerage. It still has a large annuity business, the most targeted asset group by regulators, and other risky long-term liabilities through its retirement operations with companies such as Motorola and Bristol-Myers Squibb. Prudential has been returning cash to shareholders to report a higher 2015 return on equity than most U.S. peers and to try to hold off any activist shareholders like AIG is dealing with.
Activist investor, Carl Icahn,has been pressuring AIG management to shrink the company in order to shed its SIFI designation. AIG returned $12 billion in capital to investors in 2015 and plans to return at least $25 billion to shareholders over the next two years…but doesn’t seem to be enough to stop the cries for their break-up. AIG management is resisting the idea of splitting AIG into separate property/casualty, life and mortgage insurance businesses because they believe it “would detract from, not enhance, shareholder value.” Management does have a plan to “cut expenses by $1.6 billion including continuing to move operations to low cost sites and use of outsourcing.”
What does this mean for the actuarial employee of these companies? With no growth to divestiture as a plan for most of these companies, internal opportunities become very limited. Flexibility in skill set and location become critical if you want to stay with these firms. Expense reduction and stock decreases also make life difficult for current employees. Want to discuss your options with an experienced actuarial recruiter? Rory Hauser, Actuarial Practice Lead at Smith Hanley Associates, would love to assist you in your hiring needs or your job search. Contact Rory at 203.319-4305 or email@example.com.