Insurers Hope Under Trump They are Deemed Less Important
November 12 2016 - 7:29AM
Dow Jones News
By Leslie Scism
Insurers are hoping in a Trump administration they will be
deemed less important, systemically, that is.
Three of the biggest insurers were designated as "systemically
important financial institutions," or SIFIs, in 2013 and 2014 by a
panel of federal regulators created under the 2010 Dodd-Frank
regulatory-overhaul law. Because of the designation, American
International Group Inc. and Prudential Financial Inc. face stiffer
regulation and capital cushions than peers, though final rules are
still being crafted.
MetLife Inc. was similarly tagged but went to court and won a
ruling in March rescinding the label on the basis of a flawed
designation process. The government is appealing.
A Trump presidency, industry experts and investors say, could
mean a friendlier regulatory environment. President-elect Donald
Trump told The Wall Street Journal on Friday he planned on
deregulating financial institutions. Mr. Trump's team, people
familiar with the matter said, is focused on rescinding certain
Dodd-Frank provisions Republicans find most objectionable, such as
the Financial Stability Oversight Council's authority to designate
large non-banks systemically important.
Since Tuesday's close, shares of MetLife have advanced 12%,
Prudential's are up 10% and AIG's have advanced 6.4%, while the
broader market is up 1.2%, according to FactSet.
MetLife Chief Executive Steven Kandarian briefly addressed the
election's impact at an investor event Thursday, saying it "may
result in a more constructive approach at the federal level."
In addition, some analysts think new conflict-of-interest
regulations issued in April by the Labor Department designed to
protect retirees' from unnecessarily expensive investment products
could also be pulled back. If so, that shift could benefit insurers
selling commission-based variable and indexed annuities.
More generally, insurers are already benefiting from upward
movement in the 10-year Treasury yield, which on Thursday reached
2.118%, up from 1.867% on Tuesday. The U.S. bond market was closed
Friday for Veterans Day. With higher rates, insurance firms earn
more on the bonds they buy with customers' premiums and hold until
paying future claims.
"Future capital market gyrations are obviously uncertain, but it
is difficult to challenge investors' initial read that a Trump
presidency is a major positive (might we say nirvana) to MET,"
Janney Montgomery Scott LLC analyst Larry Greenberg told clients in
a note.
He wrote further, on the government's appeal of the MetLife
decision, that "the Trump administration could theoretically drop
the case."
A Prudential spokesman said: "It would be premature to comment
on what the Trump administration may or may not do regarding Dodd
Frank." An AIG spokesman declined to comment Friday, and MetLife
didn't have immediate comment.
One concern for insurance firms in a Trump administration
surrounds possible tax changes.
Lower corporate income-tax rates are a positive for the
industry, but a simplified tax system might not be.
"What if taxes are vastly simplified and the Byzantine array of
loopholes, tax-advantaged investment products, and tax mitigation
products eliminated? That's probably bad for life insurers that
cater to the needs of high-income individuals," said Imperial
Capital LLC credit analyst David Havens.
Write to Leslie Scism at leslie.scism@wsj.com
(END) Dow Jones Newswires
November 12, 2016 07:14 ET (12:14 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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