Elizabeth Warren, Special Asst. to the Treasury Secretary on the Consumer Financial Protection Bureau (AP)

WASHINGTON—Only MetLife and Prudential Life are likely to be subject to increased scrutiny by federal regulators through new criteria unveiled Tuesday, a securities analyst said in an investment note.

Jeff Schuman of Keefe, Bruyette & Woods, also said the proposed regulation is “good news” for most large life insurers.

At the same time, Schuman was only talking about stock life insurers.

Securities analysts only cover stock insurers, not large mutual insurers such as Northwestern Mutual, Guardian Life, Mass Mutual and New York Life Insurance Company.

Large mutuals also could be subject to additional scrutiny because they have assets of more than $50 billion, the basic criteria that will determine whether an insurer will be subject to greater scrutiny as a potential “systemically important financial institution” (SIFI).

Schuman said that just because MetLife and Pru meet the threshold criteria does not mean they will ultimately be subject to regulation by the Federal Reserve Board as SIFI under the Dodd-Frank Act.

Schuman made his comments in the wake of the decision of the Financial Stability Oversight Council to re-propose a regulation that will be used in determining whether a non-bank is SIFI.

The FSOC reissued the proposal after coming under intense pressure from insurers and their supporters in Congress to disclose more specifically the qualitative and quantitative standards that will be used in determining whether an institution is systemically significant.

Under Dodd-Frank, if an insurer were to be designated as SIFI, it would be regulated by the Federal Reserve Board, which will establish the “prudential standards” the non-bank SIFIs must adhere to. SIFIs would have to register with the Fed within six months of official designation and would be subject to additional capital standards as well as other requirements.

Life insurers generally do not create high systemic risk in at least several of the categories cited under the proposed regulation, including substitutability, leverage, liquidity risk and maturity mismatch, and existing regulatory scrutiny, Schuman said.

“As a result, we think it’s far from certain that MetLife and Prudential will ultimately be designated as SIFIs,” Schuman said.

He explained that it should also be pointed out that it is unclear what consequences will attach to a SIFI designation for a non-bank financial.

“In the case of insurers, we would think that the FSOC might show significant deference for the existing insurance regulatory capital framework,” Schuman said.

The proposed regulation, which will have a 60-day comment period, establishes five thresholds for preliminary screening of non-bank financial institutions with assets of at least $50 billion.

Companies meeting at least one of the thresholds will be subject to further analysis in a multi-stage process to determine whether they might ultimately be deemed systemically important financial institutions, or SIFI.

The uniform quantitative thresholds the FSOC intends to apply in the first stage of evaluation to identify NFCs requiring further review are if a company has at least $50 billion in total consolidated assets and meets or exceeds any one of the following:

  • $30 billion in gross notional credit-default swaps outstanding;
  • $3.5 billion in derivative liabilities;
  • $20 billion of outstanding loans borrowed and bonds issued;
  • 15-to-1 leverage as measured by total consolidated assets to total equity;
  • 10% ratio of short-term debt to total consolidated assets.

MetLife falls above the total debt, derivative liabilities and CDS thresholds, while Prudential falls above the mark on total debt and derivative liabilities.

The FSOC said it believes these thresholds will provide “meaningful initial assessments” regarding the likelihood that a NFC could pose a threat to U.S. financial stability; and that thresholds “add significant transparency to the designation process.”