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MetLife raising guarantee cost

MetLife is to significantly increase the price of its income for life and capital guarantees due to market volatility.

The firm has also cut the maximum equity exposure available from 85 per cent to 60 per cent. Both moves take effect from April 7.

The price of MetLife’s income for life guarantee for the highest equity exposure will increase by 55 per cent from 95 to 145 basis points. For the lowest equity ratio of 35 per cent, the cost of the guarantee will increase from 50 to 70 basis points. The price of the capital guarantee will rise by 136 per cent from 55 to 130 basis points for the lowest equity exposure while for the highest equity exposure, the guarantee will cost 180 basis points compared with 150 previously. All changes are for new business only.

Strategic development and marketing director Dominic Grinstead says: “Extreme market volatility has had an impact on our hedging costs, as has the decline in long-term interest rates and annuity rates.

“The cost of the guarantees that we can secure in the capital markets has gone up and we have had to take this decision. We still believe the products are very attractive in the current market as clients seek security.”

The move follows news last month that The Hartford was looking at cutting the equity limit on its guaranteed retirement income plan as a way of derisking its portfolio.

Hargreaves Lansdown pensions analyst Nigel Callaghan says: “This is simply a reflection of the fact that the cost of the derivatives that underpin these guarantees has gone up. But this is a pretty big increase and as MetLife has also decreased the maximum equity exposure, it is a double whammy for investors who will see the potential of future growth reduced. It is completely understandable and justifiable but I do not think that investors will be impressed.”

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