BREAKING: MetLife will appeal proposed SIFI designation

Washington, Oct. 3 — MetLife will be appealing the preliminary designation of nonbank systemically important financial institution status.

The U.S’s largest life insurer delivered notice today to the Financial Stability Oversight Council (FSOC) requesting a written and oral evidentiary hearing to contest the Council’s proposed determination.
The Council must then schedule the hearing within 30 days after MetLife’s request.
If MetLife is designated by the Council as a non-bank SIFI, it will be subject to supervision by the Board of Governors of the Federal Reserve System and be subject to enhanced prudential standards under the Dodd-Frank Act, which may include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other related subjects as appropriate.
FSOC has to make a final determination on MetLife’s status as a non-bank SIFI within 60 days after the MetLife hearing.

Metropolitan Life Insurance Building, New York building NYC  c1900 courtesy LOC

Metropolitan Life Insurance Building, New York building NYC c1900 courtesy LOC

MetLife CEO Steve Kandarian said last month in a statement after the FSOC handed MetLife a preliminary designation that, “MetLife strongly disagrees with the Financial Stability Oversight Council’s preliminary designation of MetLife as a SIFI.
“MetLife is not systemically important under the Dodd-Frank Act criteria. In fact, MetLife has served as a source of financial strength and stability during times of economic distress, including the 2008 financial crisis,” Kandarian stated then in language consistent with the message of the company over the past two years. It has been fiercely opposed to the idea it may be systemically risky–that its failure could imperil the US financial system.
However, it has also proposed modified prudential capital requirements for insurers designated as SIFIs in presentations to regulators, perhaps just in case.
“Imposing bank-centric capital rules on life insurance companies will make it more difficult for Americans to buy products that help protect their financial futures. At a time when government social safety nets are under increasing pressure and corporate pensions are disappearing, the goal of public policy should be to preserve and encourage competitively priced financial protection for consumers,” Kandarian stated.
Fed oversight will include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other related subjects, MetLife stated in an 8-K disclosure to the SEC this afternoon. The news came at the end of the 30 day window for appeal notice after the Sept. 4 proposed designation vote by the FSOC.
The Fed, for its part, is still learning how to regulate Prudential at the Boston Fed and AIG at the New York Fed.
Both insurance SIFIs have already filed resolution plans, as required, and the Fed Board just this week unveiled a q<a href=”If the Company is designated by the Council as a non-bank SIFI, it will be subject to supervision by the Federal Reserve System and be subject to enhanced prudential standards under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which may include requirements regarding risk-based capital and leverage, liquidity, stress-testing, overall risk management, resolution plans and early remediation, and may also include additional standards regarding capital, public disclosure, short-term debt limits, and other subjects.
The Fed unveiled this week a quantitative impact study on insurance capital data designed to help tailor capital requirement standards for the insurers in its supervisory stable.
MetLife said it would not comment beyond its 8-K. It is not known whether MetLife would appeal to the court system. Prudential Financial appealed to FSOC, but the Council’s decision was upheld in a 7-2 vote. It decided not to challenge the designation in the court system where a high bar for proof exists.
A interesting part of MetLife’s potential designation will be the rationale used by FSOC if it designates MetLife. For example, for Prudential, last year, the FSOC majority started with the premise of an impaired insurer, with a run on the bank scenario, that many in the insurance industry–and the independent insurance expert, Roy Woodall, thought was implausible, according to his dissent.
Last year, FSOC determined after Prudentials’ failed appeal of its SIFI mantle that the insurer’s material financial distress could pose a threat to financial stability focusing on two of the channels: exposure and asset liquidation.
“The Council has based its conclusion solely on what is referred to as the First Determination Standard; namely: ‘material financial distress at the nonbank financial company could pose a threat to the financial stability of the United States,’” Woodall stated in his dissent last fall.
Under Dodd Frank regulations, FSOC can, but does not require, that it begin with the company in distress and make determinations from there.
Passing that up brings the so-called Second Determination Standard, dealing with the activities of an institution, into play.
Until there are public statements, it is still unclear to the public what the FSOC rationale for MetLife as a proposed SIFI actually is or will be.

There are 10 voting members of the FSOC, one of whom, Roy Woodall, is an appointed insurance expert. Others represent various federal agencies dealing with banking, securities, mortgage financing and derivatives.
There are also nonvoting members who weigh in.National Association of Insurance Commissioners President and North Dakota Insurance Adam Hamm is now the NAIC’s representative to the FSOC, taking Missouri Insurance Director John Huff’s place. Huff dissented to the Prudential designation as a non-voting member of FSOC. His dissent is still part of the record. Hamm will be in place to vote on the MetLife designation.
MetLife, through its subsidiaries and affiliates, is one of the largest life insurance companies in the world Serving approximately 100 million customers, MetLife has operations in nearly 50 countries and holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East.