MetLife Says AIG De-Designation Confirms Argument for Regulatory Relief
October 31, 2017 by Frank Klimko
WASHINGTON – Attorneys for MetLife Inc., said the recent de-designation of American International Group Inc. as a systemically important financial institution validates the company’s arguments MetLife should never have been named a SIFI.
MetLife shed the SIFI designation last year via litigation and the FSOC de-designated AIG, last month. Only Prudential Financial Inc. is so designated (Best’s News Service, Oct. 27, 2017).
The MetLife ruling was appealed by the U.S. Justice Department and the case is pending before the U.S. Court of Appeals for the District of Columbia Circuit. MetLife has argued the lower court ruling be upheld and Eugene Scalia, of Gibson, Dunn & Crutcher, who represents MetLife, said the recent FSOC decision on AIG augments the company’s argument.
“FSOC’s explanation of its rescission conflicts with its treatment of several issues when it designated MetLife, vindicating arguments that MetLife made before this court,” Scalia said. Oral arguments in the MetLife case were heard on Oct. 24, 2016.
The AIG decision deflates the “fire sale” determination that was a basic tenet of MetLife SIFI designation, Scalia said.
When it designated AIG, the council determined in the event of AIG’s theoretical financial distress, a massive wave of policyholder surrenders or withdrawals could cause significant disruptions to key markets. However, upon further review, the council found certain disincentives for retail policyholders, like tax penalties, indicate there would not be a significant risk of asset liquidation, he said.
“In de-designating AIG, however, FSOC undertook ‘additional analyses’ and now agrees that it is ‘highly unlikely’ that ‘the full amount’ of the policies ‘would be withdrawn,’” Scalia said.
In the de-designation notice, the council also said the market impact of a downward shock to the net worth of AIG has decreased since 2012, largely due to AIG’s decrease in size.
The FSOC also now acknowledges the significance of states’ capital regulatory requirements for insurance companies, Scalia said.
“In de-designating AIG, it recognized the ‘significant changes to the regulatory environment’ in the past few decades, ‘including risk-based capital requirements,’ that reduce the likelihood of mass policyholder surrenders,” Scalia said.
State insurance regulators impose minimum capital requirements on a legal entity basis but have not yet developed a capital assessment for insurance groups. The National Association of Insurance Commissioners is working on a U.S. group capital calculation using a risk-based capital aggregation approach. The Federal Reserve has also proposed rules to establish a capital consolidated approach for insurer SIFIs and a building block approach for carriers supervised by the Fed by virtue of their ownership of a depository institution. A recent U.S. Treasury Department report called into question the efficacy of designating individual nonbanks as SIFIs.
(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)