NEW YORK (AP) — MetLife is challenging its U.S. designation as a company that is "too big to fail," a tag given to corporations that the government believes could pose a risk to the economy in the event of a collapse.
The designation brings with it stricter guidelines from federal overseers and, the company says, exorbitant costs. Under the classification, the nation's largest insurance company by assets would come under the supervision of the Federal Reserve. Its primary regulator has been New York state.
MetLife said Tuesday that it will file with the U.S. District Court for the District of Columbia to overturn the Financial Stability Oversight Council's designation of the New York company as a non-bank, systemically important financial institution.
Companies deemed "systemically important" are obligated to increase the money held in reserve to protect against huge losses, limit their use of borrowed money and submit to inspections by Fed examiners.
The New York company is one of only four non-bank corporations on the list - and the first of them to challenge it with a lawsuit. MetLife received the designation in December. At that time Treasury Secretary Jacob Lew said that the council had spent a year and a half conducting an "extensive and in-depth analysis" that included "significant engagement" with MetLife. The insurer was given 30 days to appeal the council's decision.
Other non-bank entities on the list are American International Group Inc., General Electric Capital Corp. — the finance arm of General Electric Co. — and Prudential Financial Inc.
The near-collapse of AIG in 2008 helped trigger the financial crisis, and it received a $182 billion federal bailout that it has since repaid.
Steven Schwartz of Raymond James said that MetLife is afraid of the Fed developing capital rules that are more restrictive than the states and rating agencies. The rating agencies regulate capital more than the states, he explained.
"If MetLife is required to hold even more capital than currently required by the rating agencies, then it could be at a disadvantage in pricing products," Schwartz said.
MetLife Inc., which has a market capitalization of about $57 billion, said the designation will increase costs for consumers. It serves approximately 100 million customers and has operations in almost 50 countries.
"MetLife has always supported robust regulation of the life insurance industry and has operated under a stringent state regulatory system for decades," said Chairman and CEO Steven Kandarian. "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."
Kandarian said that the council — which was created to help prevent another financial meltdown — designated non-bank systemically important financial institutions before the rules governing those companies have been written.
"The council should wait until the rules are in place and it knows the impact on designated firms," Kandarian said.
Kandarian cited the Dodd-Frank Act, stating that the act makes its "clear that size alone does not make a company systemic."
Gloria Vogel, a senior vice president at Drexel Hamilton, said that the rules for how designated firms will be regulated remain unclear, but noted that a draft unveiled by the International Association of Insurance Supervisors late last year on its proposed capital framework for internationally active insurers will likely serve as a model.
Vogel said there's also currently no guideline for what an insurer needs to do to be removed from the designation.
"In other words, there are no exit doors present," she said.
The council said in a statement that it has been notified of MetLife's complaint. The council stood by the designation and said it was confident in its work.
It remains to be seen how the story will unfold.
"It is likely to be a long and expensive court process, and the outcome is uncertain," Vogel said.
Shares of MetLife fell 49 cents to $49.94 in afternoon trading.
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