MetLife Inc., the largest U.S. insurance company by assets, announced Tuesday that it is taking the government to court to appeal its assessment by the Financial Stability Oversight Council as "systemically important." That means regulators believe MetLife is so big and entwined with the financial system that it could threaten the economy if it collapsed.
The oversight council, a group of top federal regulators created by the 2010 Wall Street overhaul law to monitor the financial system, decided last month to label MetLife as systemically important. The designation brings stricter government oversight and, MetLife says, exorbitant costs.
MetLife will be required to increase its cushion of capital held in reserve against losses, limit its use of borrowed money and submit to inspections by examiners. New York-based MetLife will come under the supervision of the Federal Reserve. Its primary regulator has been New York state.
The Financial Stability panel was empowered by the 2010 law to tag certain companies for stricter supervision as a way to end "too big to fail" — the idea that some financial institutions are so big and crucial to the system that the government would step in to rescue them if they veered toward collapse. That's what happened in the 2008 crisis, with hundreds of millions of dollars in taxpayer aid going to big U.S. banks and other financial institution.
MetLife was the fourth nonbank financial firm to be given the label. The other three are American International Group Inc., General Electric Capital Corp. — the finance arm of General Electric Co. — and Prudential Financial Inc.
They did not appeal the designation. But MetLife insists that tougher requirements on life insurance companies would force the companies to raise the prices of their products, reduce the amount of risk they take on in their products, or stop offering some products altogether. Capital requirements for banks were established to protect depositors, rather than ensuring that life insurers can meet their obligations to policyholders, the company says.
MetLife is filing suit in U.S. District Court in Washington, D.C.
Analyst Steven Schwartz of Raymond James said MetLife is afraid of the Fed developing capital rules that are more restrictive than the states and credit rating agencies.
"If MetLife is required to hold even more capital than currently required by the rating agencies, then it could be at a disadvantage in pricing products," Schwartz said.
The FSOC is led by Treasury Secretary Jack Lew and includes Federal Reserve Chair Janet Yellen and Mary Jo White, chair of the Securities and Exchange Commission.
Treasury spokeswoman Suzanne Elio said Tuesday that the council has been notified of MetLife's legal action. "The council's decision to designate a nonbank financial company is reached only after a thorough analysis and extensive engagement with the company, both of which occurred in this case. We are confident in the council's work," Elio said.
The near-collapse of AIG in 2008 helped trigger the financial crisis, and it received a $182 billion federal bailout that it has since repaid.
MetLife, which has a market capitalization of about $57 billion, said the designation will increase costs for consumers. It serves approximately 100 million customers and has operations in almost 50 countries.
"MetLife has always supported robust regulation of the life insurance industry and has operated under a stringent state regulatory system for decades," said Chairman and CEO Steven Kandarian. "However, adding a new federal standard for just the largest life insurers and retaining a different standard for everyone else will drive up the cost of financial protection for consumers without making the financial system any safer."
Kandarian said that the council — which was created to help prevent another financial meltdown — designated non-bank systemically important financial institutions before the rules governing those companies have been written.
"The council should wait until the rules are in place and it knows the impact on designated firms," Kandarian said.
Kandarian cited the 2010 Dodd-Frank law, stating that the act makes its "clear that size alone does not make a company systemic."
Gloria Vogel, a senior vice-president at Drexel Hamilton, said that the rules for how designated firms will be regulated remain unclear, but noted that a draft unveiled by the International Association of Insurance Supervisors late last year on its proposed capital framework for internationally active insurers will likely serve as a model.
Vogel said there's also currently no guideline for what an insurer needs to do to be removed from the designation.
"In other words, there are no exit doors present," she said. "It is likely to be a long and expensive court process, and the outcome is uncertain," Vogel said.
Shares of MetLife fell 62 cents to $49.81 in late afternoon trading Tuesday.
Marcy Gordon reported from Washington.