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Life Health > Life Insurance

MetLife surpassing Goldman in assets, struggles to fight risk tag

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(Bloomberg) — MetLife Inc., the largest U.S. life insurer, has been getting even bigger.

The insurer expanded this year to more than $900 billion in assets, passing Goldman Sachs Group Inc. to become the fifth- largest company in the Standard & Poor’s 500 Index on that basis.

MetLife also eclipses insurers Prudential Financial Inc. and American International Group Inc. That status will make it harder for the New York-based company to avoid being designated a systemically important financial institutions by federal regulators meeting today, said Sean Dargan, an analyst at Macquarie Group Ltd.

“My gut feeling is that after having designated Pru and AIG, that there’s probably not a chance that they escape,” Dargan said of MetLife by phone. “If you look at the criteria, if you look at who else has been named, I’m working under the assumption that Met is going to be a SIFI.”

To figure out which non-bank companies could pose systemic risks, the Financial Stability Oversight Council examines how interconnected they are with other firms and how disruptive their failure would be to a marketplace. Big banks like Goldman Sachs are automatically considered SIFIs. FSOC, which has 10 voting members and is led by Treasury Secretary Jacob J. Lew, also takes into account a firm’s liquidity, existing regulatory scrutiny and leverage.

When considering whether to designate a company, the council looks at “the unique risks to U.S. financial stability that each non-bank financial company may pose,” according to a fact sheet released by Treasury.

Size alone doesn’t make a company systemic, said Joseph Engelhard, a former Treasury official who is now senior vice president at Washington-based consultant Capital Alpha Partners LLC. If a company were to fail and its competitors could perform the same function, the company probably isn’t a SIFI, Engelhard said.

Prudential, AIG

“Money can just be transferred to other firms,” he said.

About a third of MetLife’s assets are tied to separate accounts, where outside parties may bear the risk of price drops.

Prudential has $764 billion of assets and is the second- largest U.S. life insurer. AIG, which sells property-casualty coverage and life policies, was once the world’s largest insurer, then shrunk as it sold units to repay a 2008 bailout. That rescue, which helped prop up AIG’s Wall Street trading partners, helped lead to the systemic risk evaluations.

MetLife ranked 12th in the S&P 500 by assets at the end of 2006 and didn’t take a Treasury rescue in the financial crisis. It leapfrogged bailed-out companies partly through acquisitions, including the purchase of a non-U.S. life unit from AIG.

Share Slump

The council proposed the designation in September by a 9-0 vote, with one member voting present. Today’s vote follows a November hearing requested by the insurer. If FSOC sticks with its initial decision, MetLife can take its fight to court.

Prudential’s challenge to its designation was rejected by FSOC last year, and the Newark, New Jersey-based insurer opted against contesting the risk label in court. AIG and General Electric Co.’s finance unit were labeled and didn’t request hearings.

MetLife declined 4 percent this year in New York trading through yesterday, while Prudential slumped 5.9 percent.

Being designated a SIFI would subject MetLife to extra scrutiny from the Federal Reserve. Lawmakers last week voted to give the Fed more flexibility in how it sets rules after insurers said they shouldn’t be subject to standards set for banks.

MetLife has said it’s not systemically important. Amid uncertainty over the regulation it faces, the insurer had refrained from buybacks, before repurchasing about $1 billion of shares this year and then authorizing a $1 billion buyback last week.

‘Regulatory Uncertainty’

“In the event that MetLife is designated a systemically important financial institution, we look forward to working with the Fed on rules that properly reflect the insurance business model,” Chief Executive Officer Steve Kandarian said last week. “Our approach to capital management will remain cautious during this period of regulatory uncertainty.”


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