The Wall Street Journal Online: MetLife Seen Proceeding With Breakup Plans

MetLife Inc.’s victory in its legal showdown with the U.S. is a major setback in efforts to tighten regulation of the insurance industry. But it is not expected to slow plans under way to break up the nation’s largest life insurer.

MetLife plans to plow ahead with the divestment of a large piece of its U.S. life insurance unit announced in January, Chief Executive Officer Steven Kandarian said. The decision to split apart was “strategic along with regulatory,” he said, and those strategic rationales—as well as many regulatory issues—remain.

Wednesday’s ruling could have major implications for two of MetLife’s biggest rivals: Prudential Financial Inc. and American International Group Inc. Both have also been labeled as systemically important by federal regulators and are expected to consider challenges to that designation after MetLife’s legal triumph, said people familiar with the matter.

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After the financial crisis, the federal government gave the systemically important designation to a number of banks and other financial institutions that it said could pose a threat to the stability of the U.S. if they failed. The only other nonbank to receive that title beyond the insurers was General Electric Co.

Firms with the label are subject to stricter oversight from the Federal Reserve, though the rules governing nonbank companies such as MetLife have yet to be written.

MetLife fought the distinction for more than a year and outlined the sale plans in January, partly in a bid to ease some of the capital burden it was expected to face. After selling many of the assets that had earned it the label, GE has said it aimed to file papers to remove its systemic designation by the end of the first quarter, which is Thursday.

Even before Wednesday’s ruling, Prudential executives had discussed ways to escape from tougher federal oversight if MetLife wins its legal challenge with the U.S., weighing whether they can challenge the designation from the Financial Stability Oversight Council after deciding not to earlier. The Journal reported last June that executives have discussed using any court victory by MetLife as ammunition at an annual review of its federal label.

The U.S. last evaluated Prudential’s systemically important status in December, when council staff members recommended the designation stay in place. The council members later elected to keep that designation in place.

The company is considering whether to challenge that designation again in light of the MetLife decision and could make a decision in the coming weeks, said a person familiar with the situation.

A spokesman for Prudential declined to comment on the company’s specific plans but said, “We continuously review developments that impact our company, and we are evaluating what is in the best interests of the company and our shareholders.”

For AIG, a challenge could be a more difficult proposition, as the company and its bailout amid the financial crisis were part of the inspiration for the Dodd-Frank financial regulation that created the systemically important designation. But if AIG were to shake the label, it would give ammunition to the company’s case that it doesn’t need to break up—something activist investors have pushed for in recent months.

AIG directors are expected to take another look at challenging its designation, people close to the matter said Wednesday. An AIG spokesman had no comment. Directors of the insurer next convene before and after its annual meeting in May.

There are plenty of open questions that the insurers, the government and their lawyers will need to find answers to before they decide how to proceed.

For one, the decision from U.S. District Judge Rosemary Collyer is still under seal. The details of the judge’s ruling, when it is released, will provide some direction for those who aren’t yet privy to its contents, such as Prudential and AIG.

The government could also appeal the decision, a prospect that MetLife is preparing for, said a person familiar with the situation. Plus, U.S. regulators could redo the process that resulted in MetLife being tagged as a systemically important institution.

All those possibilities mean the cloud of stricter oversight from the Federal Reserve would hang over MetLife for many months, or possibly years, even after Wednesday’s victory.

That is one reason MetLife is likely to move ahead with its plan to divest part of the life-insurance unit. In announcing that it was pursuing that option, the company said in January that it hoped the move would ease some of the capital burden it expected to face as a systemically important institution. But it also said the move makes sense for other reasons, a point executives have made repeatedly in the months that followed.

A stand-alone U.S. life insurer “will be more nimble and competitive, benefiting from greater focus, more flexibility in products and operations, and a reduced capital and compliance burden,” Mr. Kandarian said on a conference call with investors and analysts in February.

MetLife shares rose 5.4% Wednesday, with most of the gain coming after the court decision was released. Shares of AIG and Prudential also climbed after the news, with AIG ending the day up 2.1% and Prudential rising 2%.

—Emily Glazer and Ted Mann contributed to this article.