MetLife sharpens teeth to compete for business

MetLife Inc. is chasing after business these days, but it has a lot of catching up to do before it can put the bite on competitors. Chief executive Robert Benmosche has mapped out ambitious plans to rebuild the New York insurer into one of the world's five biggest financial services companies by the end of the decade. While Mr. Benmosche's goal will likely lead to acquisitions overseas, he must first fix MetLife's U.S. franchise. Its current 10.2% return on equity significantly trails the average of 15% achieved by other publicly traded life insurers. To that end, in the past nine months Mr. Benmosche has: * Hired two key annuity sales execs from Equitable Cos. Inc. * Started a new unit -- MetLife Investors Group -- to package mutual funds, annuities and insurance separate accounts subadvised by outside managers. * Started building a new distribution company to sell products through MetLife's own agents as well as brokers, banks and financial planners. * Started to renegotiate fees with subadvisers to get a bigger share for MetLife. Two firms likely to be affected early on are T. Rowe Price Associates Inc. and Neuberger Berman Inc. But despite those moves and a stock price that has more than doubled to around $32, from its IPO price of $14.25 last April, analysts at five Wall Street firms downgraded the stock in the past month, saying the company's profit outlook doesn't justify a higher price target. Indeed, the company's third-quarter individual-life sales were flat over the previous quarter; annuity sales were 10% under the year-ago period -- excluding the effect of its acquisition of troubled St. Louis insurer General American Life Insurance Co. Though MetLife remains the country's biggest insurer based on annual premiums, it ranks a distant 10th in variable-annuity sales -- the life insurance industry's growth engine of the last five years.

Raiding rival

Mr. Benmosche's plan for boosting MetLife's returns starts with wringing out $250 million in expenses through 2002 and expanding a distribution system that still relies mainly on an army of 9,425 old-line agents who sell only in-house products. MetLife, determined to become a top player in annuities, in April raided rival insurer Equitable Cos. and hired its two senior sales bosses to build a new annuity design and distribution company. Leading the charge are James Shepherdson and Gregory Brakovich, both 48 and former co-CEOs of Equitable Distributors Inc. The unit, which they established in 1996, helped vault Equitable into the country's sixth-biggest annuity seller. Now they are hoping to repeat that success. MetLife declined to make Mr. Shepherdson and Mr. Brakovich available for an interview about their plans for helping MetLife convince wirehouses to peddle its annuities and life insurance offerings. The two did, however, offer some details of their plan during an investor conference last month. Working with MetLife Individual Business president James Benson -- another Equitable alum who joined MetLife's New England Life Insurance Co. unit in 1997 -- they are building MetLife Investors Group. This is a new unit that will package mutual funds, annuities and insurance separate accounts subadvised by established money managers. MetLife Investors will also include a new distribution company that folds together two separate MetLife-owned annuity companies -- St. Louis-based Cova Corp., which was acquired in the General American deal, and Security First Group in Los Angeles -- and small, third-party sales units at New England Financial and MetLife. The distribution company will sell products through agents at MetLife and New England Financial; GenAm's independent agents; and brokers, banks and planners. Boosting sales through such intermediaries is crucial: Brokers generated an estimated 70% of all net sales of variable annuities through the third quarter, according to Financial Research Corp. in Boston. That's up from an estimated 66% through the second quarter. "This shows how quickly the channel is growing," says FRC annuity analyst Lisa Plotnick. "Met is obviously realizing that is definitely the way to go." Both Mr. Shepherdson and Mr. Brakovich are based in Security First Group's Newport Beach, Calif., office, which will serve as MetLife Investors Group's management and marketing headquarters. A Des Moines, Iowa, operations center that serviced Cova's relationships with St. Louis-based regional brokers A.G. Edwards Inc. and Edward Jones will serve as a central processing center for the new distribution company. Mr. Shepherdson and Mr. Brakovich hired a technology group from Equitable to upgrade the center's sales and processing systems. At last month's investor conference, Mr. Shepherdson said he had hired some 50 sales executives from Equitable, Bankers Trust Corp., Fidelity Investments and other competitors. Later this month, owners of Cova and Security First annuity contracts are expected to approve a reorganization into the Met Investors Series Trust in a series of shareholder votes. Under the reorganization, MetLife is following the lead of market leaders American Skandia, Nationwide Financial Services and others who have negotiated more-lucrative management fee structures. MetLife currently has more than 200 funds in its annuity and life insurance accounts. Mr. Shepherdson and Mr. Brakovich are working to trim that list and negotiate bigger fees. The initial results of those efforts began showing up in regulatory filings last month, in which MetLife disclosed that it plans to fire T. Rowe Price Associates and Neuberger Berman as managers of two annuity subaccounts. Mr. Brakovich says MetLife Investors hopes to bring five new annuities to market in the first quarter. The distribution company has hired about 40 wholesalers and is preparing an advertising campaign. This summer, MetLife plans to introduce a series of rebranded life insurance offerings aimed at the estate planning and wealth transfer markets.