The Financial Stability Oversight Council’s decision to maintain MetLife’s systemically important financial institution (SIFI) designation is the latest sign that regulators are standing firm against large insurers and other financial institutions.
While the FSOC’s announcement last week did not exactly come as a surprise, it is likely to resonate through the corner offices as carrier executives think hard about the heavier regulatory burdens they will face in a post-Dodd-Frank world.
MetLife executives certainly did, and gave notice Feb. 28 that the company had entered into a deal to sell 4,000 career agents to MassMutual. The deal marks MetLife’s exit from the U.S. retail business, from which it operated since its founding in 1868.
Regulators were unmoved.
“Following a discussion of recent developments at the company, the Council voted not to rescind the designation of MetLife,” the FSOC said in a March 2 news release.
A SIFI designation places MetLife on a compliance burden more closely resembling that of banks, which are held to different capital standards — standards that MetLife executives insist should not apply.
It wasn’t for lack of trying that MetLife tried to get out from under its SIFI designation. First, it protested the designation before the FSOC’s initial designation in December 2014, and then challenged the SIFI designation in federal court. Finally, MetLife opted to exit important business lines and change the company’s business model.
The court challenging is pending.
Despite exiting the bulk of the retail business and moving out of business lines with potentially much higher capital requirements — such as variable annuities — and into lines that generate more cash, the FSOC concluded that MetLife still had not done enough to warrant a change in the SIFI designation.
“As a general matter, if the Council determines in an annual review that a company has addressed the key factors in the Council’s basis for its designation, the Council would rescind the designation,” the FSOC said.
MetLife Calls for FSOC Transparency
Randolph Clerihue, a MetLife spokesman, said in a statement last week that the FSOC decision was not unexpected.
“While FSOC’s decision comes as no surprise, it does highlight the need for Congress to move forward with legislation that provides more transparency to FSOC’s actions so that companies can address concerns directly and take steps that lead to de-designation,” Clerihue said.
So far, it would seem that MetLife CEO Steven A. Kandarian and his lieutenants made the right call in that the FSOC wasn’t going to let the company off the SIFI hook, not after the searing criticism leveled against regulators in the wake of the financial crisis.
If regulators weren’t going to back down, why hold on to business that could potentially weight down the company’s future financial performance, particularly in light of separate regulations from the U.S. Department of Labor, MetLife executives reasoned.
The DOL fiduciary rule is expected to be published any day now, with the goal of forcing industry compliance by early 2017. It carries a costly disclosure burden for sellers of more complex annuities.
MetLife’s executives said in a conference call with analysts last month that MetLife’s future lies in being a nimbler, more competitive company. After all, the regulatory world is forever altered by the financial crisis and the control frameworks that grew out of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Not only are there more regulators for some insurers to satisfy—and more regulations to comply with—but there is also a more aggressive tone in the air as various regulatory entities jockey for position and assert their authority,” said Deloitte Advisory, in a recent report on 2016.
FSOC’s latest decision maintaining MetLife as a SIFI would appear to sustain that argument.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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