MetLife Inc. (MET) has filed a lawsuit seeking to overturn a U.S. finding that forces the insurer to be subject tougher oversight under the Dodd-Frank Act. This case is the first challenge of its kind by a non-bank financial firm. MetLife, which was given the systematically important financial institutions (SIFI) designation by the U.S. Financial Stability Oversight Council (FSOC), is opposing the label, which earmarks it as “too big to fail.”
In a statement, MetLife said that the label is “premature,” and that it doesn’t consider itself an SIFI. Companies given the SIFI label are subject to tougher oversight by the Federal Reserve, including stricter leverage, capital, and liquidity requirements. Other non-banks that have been designated SIFIs include:
• American International Group (AIG)
• General Electric Co.’s finance unit
• Prudential Financial Inc. (PRU)
FSOC’s voting members include the heads of the Federal Deposit Insurance Corp., the U.S. Securities and Exchange Commission, and the Fed. Nine out of its ten voting members ruled that MetLife was an SIFI, noting the firm’s investments, size, and connections with other financial firms. As of the end of September 2014, the insurer had over $900 billion of assets and is the largest life insurance company in the U.S by that count.
Among the reasons for the designation is the worry that should customers look to cash in products during a time of financial trouble MetLife might have to get rid of bondholdings in its investment portfolio at excessively low prices. This could hurt capital markets, other companies, and investors. To win its lawsuit, the insurance company will have to demonstrate that regulators did not have reasonable cause to give it the SIFI label.
MetLife CEO and Chairman Steven Kandarian said that if the insurer were to fail it would not take any other companies with it. He is worried that more oversight over MetLife could lead to an unwarranted fat capital cushion that could raise product rates, placing it at a disadvantage compared to other insurers that don’t have to satisfy a standard that has not been decided. Kandarian thinks that subjecting the big insurers to this new standard while everyone else is left to meet a different one would raise the cost of financial protection without making the system safer.
The U.S. Treasury Department has said that it stands by its decision to mark MetLife as too big to fail.
In a separate case, a policyholder is suing MetLife, accusing the insurer of taking part in practices that place the country’s economic health at risk. According to Andrew Yale, the insurance giant is taking part in behavior that places the “financial future” of its "policyholders, their beneficiaries, and the public” in financial peril.
He wants the return of life insurance premiums that MetLife policyholders have bought since 2009. Yale filed a similar complaint against AXA Life Insurance Co. last year. Axa has said the claim has no merit.
The SSEK Partners Group is an institutional investor fraud law firm.
MetLife Suit Sets Up Battle Over Regulation, The Wall Street Journal, January 14, 2015
MetLife Sued Over ‘Shadow Insurance’ Targeted by Regulators, Bloomberg, January 12, 2015
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