MetLife Reaches Stage Three in FSOC Process to Determine Whether it Will be Named a Non-Bank SIFI
July 18, 2013 by Best's News Service
NEW YORK – MetLife Inc., the largest life insurance company in the United States, said the Financial Stability Oversight Council has notified it that it had reached stage three in the process to determine whether it would be named a non-bank Systemically Important Financial Institution, or SIFI.
“Not only does exposure to MetLife not threaten the financial system, but I cannot think of a single firm that would be threatened by its exposure to MetLife,” MetLife Chairman, President and Chief Executive Officer Steven A. Kandarian, said in a statement. His statement echoed comments he made during the company’s first-quarter 2013 earnings conference call.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 defines a SIFI as a company whose failure “could pose a threat to the financial stability of the United States.”
Prudential Financial Inc. (NYSE: PRU), the second-biggest U.S. life insurer, was included on a proposed list of non-bank SIFIs earlier this month. But Prudential has requested a hearing to challenge the proposed designation, arguing that its businesses do not pose a risk to the U.S. financial system (Best’s News Service, July 10, 2013).
“We look forward to working with FSOC on the best way to fulfill its obligation to mitigate systemic risk,” Kandarian said. “If only a handful of large life insurers are named SIFIs and subjected to capital rules designed for banks, our ability to issue guarantees would be constrained.” Even during periods of financial stress, the long-term nature of the life insurance industry’s liabilities “insulates us against bank-like ‘runs’ and the need to sell off assets,” Kandarian said.
“What I do not support is a regulatory system that creates an unlevel playing field,” Kandarian said.
Earlier this month, American International Group Inc. (NYSE: AIG) was the first insurance company to be designated a non-bank SIFI, making it the first insurer to be regulated by the federal government in more than a century (Best’s News Service, July 10, 2013). AIG previously announced that it would not challenge the designation once FSOC made it official (Best’s News Service, June 4, 2013).
Only a significant company may be deemed a SIFI. To be deemed “significant,” a company must have $50 billion or more in total consolidated assets or have been designated by the FSOC as systemically important (Best’s News Service, April 9, 2013). FSOC can order companies designated as SIFIs to be placed under the Federal Reserve Board’s supervision if 85% or more of the company’s revenues or assets come from activities covered by the Bank Holding Company Act. The rule allows FSOC to recommend a company’s primary regulator apply heightened regulatory standards to a specific financial activity or practice that it deems to be risky (Best’s News Service, July 10, 2013).
In 2011, MetLife (NYSE: MET) said it would be exiting the banking business to avoid the additional scrutiny placed on large banks under Dodd-Frank. In February, federal regulators approved MetLife’s plan to deregister as a bank holding company following the sale of its bank to General Electric Capital (Best’s News Service, Feb. 15, 2013).
The insurance industry has been pushing back against efforts to label individual insurers as systemically important, both in the United States and internationally. FSOC also designated GE Capital as a non-bank SIFI but GE Capital does not have an insurance component (Best’s News Service, June 4, 2013). GE Capital has said previously it will not challenge the designation.
Attempts to get additional comment from MetLife were unsuccessful.
Metropolitan Life Insurance Co. currently has a Best Financial Strength Rating of A+ (Superior). On the afternoon of July 17, MetLife Inc.’s stock was trading at $47.88 a share, down 0.37% from the previous close.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com) BN-NJ-07-17-2013 1456 ET #