Federal regulators may miss important threats to the financial stability of U.S. insurers by focusing on bank risks, MetLife Inc. (MET) Chief Financial Officer John Hele said.
“Bank rules overlook key insurance risks,” Hele said today at a conference in New York held by KPMG LLP. The bank regulatory system “doesn’t look at liabilities at all, it doesn’t look at asset-liability mismatch directly.”
MetLife, the largest U.S. life insurer, is in the final stage of evaluation to be designated systemically important by U.S. regulators, which would put the firm under Federal Reserve oversight. The New York-based company has been pressuring the Fed to avoid bank-like capital rules tied to Basel III for insurers that fall under the central bank’s supervision.
Rules designed for banks would raise prices for some insurance products, and may fail to make the system safer, MetLife has said. Prudential Financial Inc. (PRU), the second-largest U.S. life insurer, is challenging its systemically important designation. Both MetLife and Newark, New Jersey-based Prudential have said they aren’t systemically risky.
“If you apply Basel III to an insurance company’s balance sheet, we would be incented to shorten our assets,” Hele said today. “We have long-dated liabilities. We’re supposed to be holding long-dated bonds to match against them.”
The Financial Stability Oversight Council is voting this week on Prudential’s challenge, according to two people with knowledge of the matter.
The council, led by Treasury Secretary Jacob J. Lew and including Fed Chairman Ben S. Bernanke, received voting materials via e-mail today, said the people, who asked not to be identified because the matter hadn’t been made public. The regulators are expected to submit their decisions by tomorrow, one of the people said.
MetLife has proposed an alternative system for insurer regulation that builds on the risk-based capital system used by state watchdogs in the U.S. The company has presented the system, which calls for additional capital for activities regulators deem risky, to the Fed, and also described it at the KPMG conference.
“The life-insurance business neither caused nor contributed to the financial crisis and is not a source of systemic risk,” Hele said. Insurers that failed were brought down by activities including credit-default-swap sales and certain types of guaranteed investment contracts that fall outside traditional insurance activities, he said.
Regulators in Washington disagree with the industry over whether life insurers face a risk of rapid customer withdrawals in a crisis that would be similar to a bank run, Hele said.
Lapses and surrenders declined for MetLife during the 2008 crisis, and insurers haven’t faced runs in the past, he said.
Withdrawals from life insurance and annuities could undermine American International Group Inc. (AIG) and might harm other insurers if concerns spread, the FSOC said in July, when it declared AIG systemically risky. The products typically have restrictions such as surrender fees designed to discourage customers from ending contracts.
AIG received a U.S. bailout that began in 2008 and swelled to $182.3 billion after bets tied to home loans soured. The New York-based insurer, which repaid the rescue last year, has said it welcomes Fed supervision.
MetLife declined 2.5 percent to $48.63 at 4:10 p.m. in New York. It has rallied 48 percent this year, compared with the 43 percent advance at AIG. Prudential has jumped 50 percent.
To contact the editor responsible for this story: Dan Kraut at email@example.com