SIFI Label Puts Industry At Risk

WASHINGTON – The non-executive chairman of American International Group (AIG) said he doesn’t think MetLife will be successful in challenging a federal agency’s designation as a systemically important financial institution (SIFI), adding that such a designation of an insurance company risks destroying the industry.

In comments on CNBC’s Squawk Box, Steve Miller said, “I don’t think (MetLife) can win” in the company’s court challenge of its SIFI designation by the Financial Stability Oversight Council (FSOC). AIG previously had been designated as a SIFI.

Miller said he believes MetLife is systemically important, but cautioned that he hopes federal regulators, “please, please, please,” treat insurance companies different from banks. “Otherwise you are at risk of destroying the insurance industry,” he said.

Miller said he will allow MetLife to “fight their own battles,” but added that he doesn’t agree “with their taking on the Fed.”

“The legal argument is that the Federal Reserve Board, or the FSOC, was capricious,” Miller said. “I don’t think so. They’ve taken two years to think about it; that’s not capricious.”

Miller was interviewed at the 2015 World Economic Forum, now underway in Davos, Switzerland.

MetLife announced Jan. 13 that it had filed a court challenge in the U.S. District Court to its designation as a SIFI. In its challenge, MetLife said that it had “provided substantial and compelling evidence demonstrating it is not systemically important under the Dodd-Frank Act criteria.”

MetLife said its SIFI designation will “harm competition among life insurers and negatively impact availability and affordability of financial protection for consumers.”

Miller said AIG wasn’t in the same position to challenge its designation as is MetLife. “Well, certainly we weren’t in a position to do it, I mean, we were the reason for the whole new regulatory regime, based on what happened in 2008.” He added that, regardless of whether or not AIG thinks a SIFI designation is a good thing, “We’re going to live with it and make the best of it, for a couple of reasons.”

One reason, Miller said, is that the SIFI designation means “it is a second set of eyes that checks us in everything we do. I have the regulator from the Federal Reserve actually sit in my boardroom, through all my board meetings so I don’t have to go back and tell them what was that was said and they can see this is an active board that’s watching the store.”

The second thing, Miller said, “Is when we go to our clients and brokers and so on and say 2008 will never happen again. Part of the answer is, I’ve got the Fed looking over my shoulder, so we couldn’t do ’08 again if we wanted.”

In other comments, Miller said AIG isn’t looking back on its decision not to join the suit filed by Starr International and its controlling shareholder, Maurice “Hank” Greenberg, former chairman and CEO of AIG, against the government for its method of taking over AIG in September 2008. Starr and Greenberg are seeking $40 billion from the U.S. government, alleging an illegal taking. The trial is being heard by Judge Thomas Wheeler in the U.S. Federal Court of Claims. Testimony ended in late November, and both sides have been given 75 days to prepare for closing arguments.

AIG decided in January 2013 not to join the lawsuit.

Miller said that based on the evidence so far, Starr and Greenberg “might have a shot” at winning. But, Miller said, “We thought three things: We didn’t think he could win; secondly, if he did win, we thought the damages could well be zero; and thirdly, we thought that the multi-year battle, which may go on for another decade in the courthouse, could utterly destroy our business because of the publicity that goes with it.

“I mean, good luck for him, he was hurt, but our business needs to survive and get on with life and we’re happy with what we decided.”

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].