Bank-Wannabe Insurers Seek to Avoid Oversight
Stock Chart for MetLife Inc (MET)
MetLife Inc. (MET) Chairman Robert Henrikson stood before an assembly of insurance executives in October and said his push to lobby U.S. financial overseers on the Dodd-Frank regulation law was nearing a close.
Ten months later, MetLife, the biggest U.S. life insurer, still has time. The industry’s American Council of Life Insurers has pressed for a delay on the rules and said its members pose less risk to financial stability than banks. To help the effort, New York-based MetLife is selling its deposit-gathering business, and rival Allstate Corp. (ALL) is shutting its bank.
“Time is great for shareholders,” said Randy Binner, an analyst with FBR Capital Markets, who has an “outperform” rating on MetLife. “That allows for more lobbying.”
Insurers, which are regulated by the U.S. states, increased lobbying in Washington as policy makers sought to stabilize the financial system. The ACLI pushed the U.S. Treasury Department in 2008 and early 2009 to include insurers alongside banks in its bailout program. The industry reversed course after Dodd- Frank was passed last year and sought to distance itself from banking and federal oversight.
MetLife is seeking to exit a deposit-gathering business that submits the firm to federal regulation, the company said last month. Northbrook, Illinois-based Allstate, the auto, home and life insurer, said this week it would shut its bank. A deal to sell deposits to Discover Financial Services failed to win regulatory approval.
“We thought it would be difficult to operate with a dual regulatory structure,” Allstate Chief Executive Officer Thomas Wilson said in an interview this week.
“It’s to get out from under federal regulation,” Michael Byrne, a partner in Dewey & LeBoeuf LLP’s insurance regulatory department, said of insurer sales of banking assets. “Banks and insurance companies are different in the risks they’re taking on, so they should be treated differently.”
Hartford Financial Services Group Inc. (HIG) struck a deal in May to sell the lender that it had acquired in 2009 to qualify for a bailout. American International Group Inc. (AIG), which took a $182.3 billion rescue, sold its American General Finance lender last year at a loss. AIG had been overseen by the Office of Thrift Supervision, the regulator that said it failed to recognize the risk from the insurer’s subprime mortgage bets. The OTS was later closed and oversight transferred to other regulators.
The Federal Reserve may get the added task of overseeing the biggest life insurers. Dodd-Frank expanded the Fed’s mandate to include non-bank firms deemed systemically important financial institutions. MetLife and Prudential Financial Inc. (PRU), the second-largest U.S. life insurer, have said they may be subject to SIFI rules.
“I prefer to call it sci-fi,” Prudential Vice Chairman Mark Grier said at a June 9 investor meeting, using a term for science fiction. “They won’t let Prudential go unregulated at the group level.”
The SIFI designation was created after the 2008 financial crisis when gaps in oversight between federal and state regulators allowed AIG to slide to the brink of bankruptcy. AIG, once the world’s biggest insurer, got a bailout when policymakers decided a failure by the firm would cause widespread collapse among other financial companies.
The ACLI told Treasury Secretary Timothy F. Geithner in February that the eventual failure of a life insurer isn’t likely to provoke widespread distress in other financial firms. Geithner is chairman of a group of regulators, the Financial Stability Oversight Council, charged with designating SIFIs. That effort was set back by at least several months as lawmakers and industry executives said that proposed criteria were too vague. FSOC met last month without setting a standard.
The Wider Economy
“The traditional core activities of a life insurance organization do not present systemic risk,” ACLI Senior Vice President Julie Spiezio said in a Feb. 25 letter. “Insurance companies can fail without disrupting the wider economy.”
Frank Keating, who served as ACLI CEO during the lobby’s push for bailouts two years ago, said in a March 2009 interview the industry was “systemically important” and should be “a part of whatever solution the government and Congress divine.”
Insurer liabilities, such as death benefits and annuity payouts, tend to be more stable than the deposits and short-term debt that fund banks, the ACLI told Geithner in the letter. The ACLI said standards that help monitor the health of banks won’t work if applied to insurers. The lobby in February requested a “delay of implementation” until FSOC’s criteria were made available for public comment.
“ACLI and America’s life insurers have been consistent in our position that the life insurance industry as a whole is systemically important, but that no single life insurer represents a systemically significant entity,” Whit Cornman, a spokesman for the group, said in a statement.
Henrikson, who left his position as ACLI chairman, used his remarks in October to exhort executives to press their lobbying.
“We cannot afford to drop our focus,” Henrikson said at the ACLI meeting in Baltimore. “The game is only in the fourth quarter. The fourth quarter is when the game is won and lost.” Henrikson was unavailable for comment, said Christopher Breslin, a spokesman for MetLife.
MetLife returned to profit last year after posting a $2.2 billion loss in 2009. The company, which spent about $16 billion in November buying a non-U.S. unit from New York-based AIG, is considering share buybacks, a dividend increase and further acquisitions as profits build. MetLife told analysts last week it is putting off decisions on how to use the $4.8 billion of cash it expects to have by the fourth quarter.
‘Prudent to Wait’
“We’ve seen a great deal of uncertainty still remain in the marketplace around regulatory issues,” MetLife CEO Steven Kandarian said on MetLife’s July 29 earnings conference call. “So, we just think it’s prudent to wait at this point.”
The insurer, which started MetLife bank in 2001, said it plans to continue mortgage lending. Policyholder-owned State Farm Mutual Automobile Insurance Co., the largest U.S. home and auto insurer, affirmed its commitment to its bank unit as it braces for tighter regulation.
State Farm Bank is “a valuable part” of the insurer’s business, said Dick Luedke, a spokesman for the company. State Farm is in talks with regulators to “minimize duplicative regulation,” Luedke said.
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