MetLife seeks to slip Yellen’s squeeze as AIG embraces oversight

(Bloomberg) — Steven Kandarian got MetLife Inc. out of banking to escape Federal Reserve oversight. Now, the insurer is fighting again to avoid the central bank’s reach.

Kandarian, MetLife’s chief executive officer, has called regulatory uncertainty the primary challenge to meeting profit targets as he shuns stock buybacks amid concerns that the insurer will face tighter capital rules. Rival American International Group Inc. embraced U.S. oversight. And Prudential Financial Inc., after resisting supervision, said “moving on is the right thing for us to do.”

The CEO’s objection is that New York-based MetLife could be labeled a potential risk to the financial system by a U.S. panel. Kandarian’s campaign features closed-door sessions with regulators and lawmakers, the submission of thousands of pages of supporting documents and help from consultants Oliver Wyman and Promontory Financial Group LLC.

“We truly believe we’re not systemically important,” Kandarian, 62, said in an interview. Asked whether he would file a court appeal, an option considered and then rejected by Prudential, he said that “nothing is off the table.”

Kandarian has embarked on a Washington blitz that included meetings with Fed governors including Daniel Tarullo and Janet Yellen, who is now chair, and a dinner with journalists. His April 24 discussion with deputies of the Financial Stability Oversight Council, or FSOC, followed nine other meetings that MetLife executives had with the panel’s staff, according to a person with knowledge of the matter.

Dodd-Frank

The CEO’s concern derives from both what he knows and what he doesn’t. The Fed could impose stricter capital, leverage and liquidity requirements and demand stress testing for crisis scenarios, though the central bank hasn’t yet described how it may adapt regulations for insurers deemed systemically important financial institutions. He also retains the memory of MetLife failing a Fed stress test in 2012, when it was still a bank- holding company, and the rejection of his plan to boost dividends and buy back stock.

Even after selling bank deposits and retreating from mortgage origination, MetLife could again be overseen by the Fed under the Dodd-Frank law, which was designed to prevent a repeat of the 2008 bailouts. The law created the FSOC, a group of regulators led by Treasury Secretary Jacob J. Lew, which identifies non-bank SIFIs for Fed supervision.

AIG, which received and then repaid a $182.3 billion U.S. rescue, has already been designated a SIFI, as have Prudential and General Electric Co.’s finance arm. MetLife, the biggest U.S. life insurer, didn’t take a Treasury bailout.

Bank Risks

At the same time that MetLife is arguing against being named a SIFI, it’s also lobbying to change a part of Dodd-Frank that applies bank-capital rules to systemically important insurers. U.S. Senator Susan Collins, the Maine Republican who sponsored that amendment, offered a revision in March, saying she never intended for the Fed to subject insurers to bank standards. Congress has yet to vote on the proposed change.

Kandarian has said MetLife doesn’t face the same risks as banks because his company doesn’t have as much of its funds subject to immediate withdrawals. On some life policies, insurers collect periodic premiums and make payments only when a customer dies.

While Yellen, a voting member of the FSOC, said in February that insurers should have different capital rules than banks, she also said the so-called Collins amendment restricts what the Fed can do in designing the standards. Lew and other regulators have increasingly felt pressure from lawmakers including House Financial Services Committee Chairman Jeb Hensarling about the FSOC’s criteria for evaluating insurers and the transparency of the decision-making process.

Political Issue

“The insurance industry has done an excellent job of making the whole systemic framework for insurance companies a political issue,” said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc.

Kandarian became CEO in 2011, after he helped guide the firm through the financial crisis as chief investment officer. In 2012, MetLife hired Heather Wingate, who handled government relations for Citigroup Inc. during the crisis, to oversee lobbying. Wingate was previously a liaison to the Senate for President George W. Bush.

Kandarian pressed his case in a speech in April 2013 at the U.S. Chamber of Commerce’s capital markets conference. He said insurers are already overseen by states and that he welcomes such oversight because solvent carriers have to take on liabilities when competitors fail.

Proper regulation “would recognize that applying bank- centric capital rules to a few large insurers would result in competitive distortions and harm to consumers,” he said.