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MassMutual to FSOC: Life Insurers Not All the Same

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WASHINGTON BUREAU – Insurers are different from banks, and mutual life insurers are different from stock life insurers, according to Massachusetts Mutual Life Insurance Company.

The Financial Stability Oversight Council (FSOC) should keep the differences in mind when developing a systemic risk evaluation process for nonbank financial companies, Kenneth Cohen, deputy general counsel at MassMutual, Springfield, Mass., says in a comment letter.

MassMutual submitted the letter in response to an FSOC request for comments about implementation of Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gives the FSOC the authority to recommend extra federal oversight for insurers and other nonbank financial companies that appear to be important to U.S. financial stability.

Life insurers have characteristics that reduce the likelihood that they will become a threat to the financial stability of the United States, Cohen says.

“Life insurers should be evaluated by metrics that fit the characteristics of life insurers, as opposed to metrics designed for other financial services institutions (e.g. banks),” Cohen says.

The evaluation should involve qualitative criteria and not rely on easily identifiable quantitative criteria, such as asset size, Cohen says.

Cohen says policyholder-owned mutual life insurers are very different from either publicly traded or privately held stock companies.

Because a mutual life insurer does not have stockholders, “the management of a mutual insurer can focus on the long term interests of the policyholders who purchased coverage for long term protection needs,” Cohen says. “Management does not need to respond to the short term investment interests of stockholders, which in turn can result in assumption of increased financial risk.”

A mutual life insurer’s long-term outlook generally reduces the risk of financial failure, Cohen says.

“Evidence of this effect is found in the highly capitalized positions of the major mutual life insurers (including MassMutual) and the fact that all those insurers are in the small group of most highly rated companies in the financial services industry,” Cohen says. “These less risky attributes and the strong regulation of the parent mutual company by its primary regulator should also be factored into the systemic risk evaluation system that the FSOC develops.”


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