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Life Health > Life Insurance

MetLife nears SIFI designation

By Elizabeth D. Festa and Arthur D. Postal

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The Financial Stability Oversight Council today advanced MetLife to the last stage before designation as a non-bank systemically important financial institution (SIFI) this afternoon.

MetLife said it would it would challenge such a designation.

“I do not believe that MetLife is a systemically important financial institution,” said Steve Kandarian, MetLife chairman, president and CEO, in confirming this evening that it was the company that had been advanced to the so-called Stage III for SIFI designation,.

“The Dodd-Frank Act defines a SIFI as a company whose failure ‘could pose a threat to the financial stability of the United States,’” Kandarian said. “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.” 

If designated, MetLife would be the fourth to succumb to the label. American International Group and GE Capital accepted such a designation earlier this month while Prudential Financial has confirmed that it has appealed such a designation.

The FSOC has already said it will provide Pru a confidential hearing on its appeal some time this month.

Many industry observers had anticipated that MetLife would progress to a Stage III when it shed its bank earlier this year because it meets the initial broad criteria for designation.

The FSOC, in deeming AIG a SIFI earlier this month, noted the company’s sizable life and annuity portfolio and their product features as making the company vulnerable to a possible run on the company. The FSOC did so even though life and annuity portfolios are intended to be long-term liabilities, and despite the fact there are tax implications and surrender charges for policyholders.

This thinking would also envelope MetLife, analysts believe. 

In his statement, Kandarian contended that the the life insurance industry is a source of financial stability. “Even during periods of financial stress, the long-term nature of our liabilities insulates us against bank-like ‘runs’ and the need to sell off assets,” he said.

FSOC sees a contagion among life companies as more than possible, according to its summary basis for deciding on AIG as a SIFI. It also may see other life insurers as SIFIs down the road.

“…if distress at AIG were to cause concern among policyholders at other insurers, those insurers could experience unanticipated increases in surrender activity that could strain liquidity resources, potentially impairing the financial condition of multiple insurers across the industry,” the FSOC stated in a July 8 summary.

After an FSOC review of the company’s financials, or a “deep dive,” as one insurer termed it, which has no timetable or deadline, a vote of at least two-thirds of the Council’s voting members, including an affirmative vote by the chairperson of the Council, is required to decide on a SIFI designation. 

To be clear, Kandarian added, “I support prudent regulation of the life insurance industry. After all, we are financially liable for insolvencies through the state-based guaranty funds.”

“What I do not support is a regulatory system that creates an unlevel playing field,” he added. “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,” Kandarian said.

“We would have to raise the price of the products we offer, reduce the amount of risk we take on, or stop offering certain products altogether. We look forward to working with FSOC on the best way to fulfill its obligation to mitigate systemic risk,” Kandarian concluded. 

See also:

Tarullo: Insurers really are different from banks

Prudential balks at SIFI designation

Prudential CEO: Change is good

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