Insurers designated as systemically significant would be subject to the same capital standards as banks under a proposed framework by the Federal Reserve Board, a life insurance analyst warned today.
In a note to investors, John Nadel of Stern Agee, Inc. in New York, said the issue is so important to life insurers that the industry “should coordinate for a united front” in fighting it.
For example, he said that counterparty limits the proposal would impose could make insurers designated as Systemically Important Financial Institutions (SIFI) in key business areas, like the sale of variable annuities. He also cited limits on credit exposures that could make life insurance SIFIs non-competitive with their non-SIFI life insurer counterparts.
Nadel notes that MetLife, Prudential Financial and American International Group are the leading candidates to be designed as SIFI by the Financial System Oversight Board (see story on ACLI, MetLife comments).
These are the same three companies cited by the Wall Street Journal in a story on the issue Monday.
Agee also says that Lincoln National and Hartford Insurance Group, because they received aid under the Troubled Asset Relief Program (TARP), could also be designated as SIFI.
In his investor’s note, Nadel said that, “Over the past several months, we’ve gotten the sense from various executives in the life sector that the feeling was the arbiters in Washington were better understanding the key differences in business models between life insurers and large, multi-national banks.”
But he said, “That distinction is very clearly missing from the document just released by the Fed.”
At the same time, Nadel cautions, the Fed is asking participants to comment on various provisions within the proposed rules, including those surrounding capital requirements.