It’s rare that all the players across the insurance industry are united over a given legislative question, but carriers and industry associations are unanimous in pushing back against regarding insurance enterprises as “systemically important financial institutions” (SIFIs) under Dodd-Frank. MetLife CEO Steven Kandarian could have been speaking for many when he addressed the topic on April 10 at the Capital Markets Summit sponsored by the U.S. Chamber of Commerce in Washington, D.C. Kandarian rhetorically asked whether life insurance companies should keep systemic regulators up at night and gave an unambiguous answer:
I do not believe the traditional business of life insurance presents systemic risk to the U.S. economy, nor do I believe that MetLife is a systemically important financial institution.
The MetLife CEO went on to affirm the need to regulate life insurers and acknowledged the example of AIG as “the elephant in the room” (he wisely avoided the 800lb gorilla metaphor used in another company's clever advertisements) but insisted that it wasn’t insurance operations that caused AIG’s collapse. After explaining the role of AIG’s Financial Products division, which was not regulated as an insurance company, he offered an observation: “To put it another way,” he said, “AIG’s life insurance subsidiaries did not cause the company’s financial distress. They were victims of it.”
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Kandarian’s speech mirrored other industry voices, according to Howard Mills, director and chief advisor of Deloitte’s Insurance Industry Group. “We are seeing across industry a number of insurers are very actively trying to make the case that they shouldn’t be designated a SIFI,” he comments. “They are making the case both in terms of a philosophical argument and, in the case of some companies, making structural changes, such as getting rid of a thrift or bank to avoid federal oversight.”
MetLife in fact finalized the sale of its banking business to GE Capital earlier this year. But it’s not only insurers who are pushing back against SIFI but also trade organizations such as the American Council of Life Insurers (ACLI) and the Property Casualty Insurers Association of America (PCI) have taken a position against insurer’s being classified as SIFIs, according to Mills.
There seems to be one exception to the industry’s united chorus against further regulation. Bob Benmosche, CEO of AIG (and former CEO of MetLife) has embraced the need for regulators to prevent a collapse such as AIG suffered during the financial crisis. However, even Benmosche makes the distinction between the need for insurers to be designated as SIFIs and for companies that are not under the watch of insurance regulators. He had the following to say in a CNBC video linked below:
I don't see the insurance companies in that category — even AIG today. The challenge for SIFI — and so [is that] to say AIG shouldn't be regulated? No. What I'm saying is that you need a regulator to oversee us to make sure that we don't go back to doing things we shouldn't be doing. That's what you want regulators to do…
The question becomes a holding company that's unregulated; how do you regulate the resources? And at AIG there's huge resources at the top of the company. So you do need somebody to regulate it. You do need to make sure that somebody is making sure we have rules and that the rules make sure that we don't sink the country or the financial system …and that we live by the rules.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio