By Leslie Scism
Life insurer MetLife Inc. intends to sue the U.S. Tuesday over a
ruling that it poses significant risks to the financial system and
warrants tougher federal oversight, the company said.
MetLife said in an announcement that it plans to file a lawsuit
Tuesday asking a U.S. district-court judge to overturn the
move.
The nation's largest life insurer by assets would become the
first to challenge the "systemically important" designation from
the Financial Stability Oversight Council, a panel of regulators
chaired by Treasury Secretary Jacob Lew that determines which
financial firms deserve more scrutiny as a way of averting another
widespread crisis.
Three other nonbank financial firms received the same label, but
American International Group Inc., General Electric Co.'s finance
arm and Prudential Financial Inc. decided not to bring a lawsuit
testing the accuracy of the assessment.
MetLife Chairman and Chief Executive Steven Kandarian called the
U.S. designation "premature" in the news release because the rules
aren't yet crafted that will govern MetLife and the other insurers.
"The council should wait until the rules are in place and it knows
the impact on designated firms," he said.
The 62-year-old executive has been adamant in recent months that
the state-regulated insurer doesn't deserve the designation because
if it were to fail, it wouldn't bring down any other companies. Mr.
Kandarian also has expressed concern that the additional U.S.
oversight will result in an unnecessarily fat capital cushion that
could drive up product prices and put MetLife at a competitive
disadvantage to insurers that won't be held to the same,
yet-to-be-determined standards.
"MetLife has always supported robust regulation of the
life-insurance industry and has operated under a stringent
regulatory system for decades," he said in the release. "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."
The government, he added, "should preserve a level playing field
in the life insurance industry."
A Treasury spokeswoman said: "We have been notified of MetLife's
complaint. 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."
When the council voted 9-1 last month to apply the label to
MetLife, which operates in 50 countries and has about $900 billion
in assets, it cited MetLife's size, complexity, links to other
financial firms and reliance on complex products. Mr. Lew said the
decision came "after a year and a half of extensive and in-depth
analysis" as well as "significant engagement with the company."
The criteria for the designation came from the 2010 Dodd-Frank
financial-overhaul legislation that put new clamps on big firms in
the wake of the 2008 crisis. The legislation allows any firm
labeled as systemically important to challenge that determination
in federal court.
The council's conclusion rested partly on concerns that
MetLife--were it in financial distress and facing demands from
customers to cash in certain products--might have to dump
substantial bondholdings from its investment portfolio at fire-sale
prices. That could destabilize capital markets and hurt other
companies and investors, according to the council's summary of its
decision.
The lone dissenter, former Kentucky Insurance Commissioner and
insurance lawyer S. Roy Woodall, filed a written objection arguing
that other council members relied on "implausible, contrived
scenarios" and failed "to appreciate fundamental aspects" of
MetLife's products and regulatory controls, he said.
A MetLife lawsuit faces a high bar because of a 1987 Supreme
Court decision that ruled courts should defer to a governmental
agency's interpretation of a statute, legal experts said. It must
prove that the government acted unreasonably in taking its action,
these experts said.
MetLife is likely to enjoy the political support of many
Republican members of Congress who have heaped criticism on FSOC's
process for reviewing and designating nonbanks. Political observers
expect that criticism to intensify this year with Republicans in
control of the Senate and the influential Senate banking panel.
Legislation to force changes in the panel's practices is also
possible.
Write to Leslie Scism at leslie.scism@wsj.com
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