Nonbank SIFIs agenda set for Sept. 4 FSOC. Is MetLife SIFI-hood soon?

 MetLife, the country’s largest life insurance company, could have its day of reckoning next week with regard to a potential systemically important financial institution designation.

 Treasury Secretary Jacob Lew has scheduled  a closed session of the Financial Stability Oversight Council  (FSOC) for Thursday, Sept. 4.

If  later designated, MetLife would be subject to enhanced prudential supervision from the Federal Reserve Board, with a host of accompanying  holding company oversight and capital standards, a yet to be worked out by the Fed.

A vote by the 10-member Council would not mean a proposed SIFI designation is official until MetLife is given a chance to respond, which may mean it decides to appeal or does nothing and the time-frame to respond elapses.

According to the FSOC’s notice, the preliminary agenda next week includes a discussion of nonbank financial company designations, consideration of the Council’s fiscal year 2015 budget, a discussion of the its analysis on asset management’s systemic risk, if any, and an update on the Board of Governors of the Federal Reserve System and FDIC’s recent review of resolution plans submitted by large, complex banking organizations.

Although the book is closed on MetLife now, after an August 19 notational vote by FSOC in a closed session, that doesn’t mean the FSOC is necessarily ready with its proposal to designate MetLife and has scheduled a vote. The  Council agenda’s use of the word “preliminary” means things are still fluid in workflow in that corner of the world that determines SIFI designations. It is also understood, based on earlier minutes referring to presentations from the Federal Insurance Office (FIO) that there is another insurer under review, in Stage 2 of SIFI analysis. This may be Berkshire Hathaway, as was suggested by Bloomberg news reports  in early 2014.

On Aug. 19,  the Council deemed its evidentiary record regarding a nonbank financial company

to be complete in accordance the rules and guidance of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

FSOC will not officially identify the institutions under review until a final determination is made but MetLife, like Prudential Financial land AIG before it, has made no bones about its position. It also has opposed SIFI status in public remarks for well over the year MetLife has been under consideration.

There is legislation pending in the House meant to establish a six-month moratorium on SIFI designations and to make the meetings open to more officials developed by members who fear a black box operation at the FSOC.  Meanwhile, in both chambers of Congress, there is legislation to make Section 171 of Dodd Frank, the so-called Collins Amendment, flexible so it does not establish unwanted minimum capital standards in line with bank models on insurers supervised by the Fed, which include not only SIFIs but insurers with savings and loans. The Fed’s general counsel Scott Alvarez  has issued an opinion that as Section 171 stands, there is no flexibility to carve out a way to treat insurers differently.

MetLife, along with AIG and Prudential, are already deemed to be global systemically important insurers (G-SIIs). reinsurers are expected to be named by the  International Association of Insurance Supervisors (IAIS)  and the G-20’s  Financial Stability Board (FSB) in November.

UPDATE: TRIA Renewal voted out of House Financial Services Committee 32-27

The new U.S. House Terrorism Risk Insurance Act extension was voted out of the House Financial Services Committee (HFSC) Friday morning 32-27, with Democrats objecting to many of the provisions increasing the insurance industry exposure, arguing  it could lead to job loss issues and concentration of risk. 

TRIA Reform Act of 2014, H.R. 4871, legislation to reauthorize the Terrorism Risk Insurance Act (TRIA), will now go to the House floor, and get passes, insurers hope, before the August recess. It is here where insurers and others hope to  soften the terms of the HFSC’s version, including the $500 million trigger, the 20% co-pay and the recoupment amounts.

Also attached was the proposed NARAB 2 producer clearinghouse, the darling of the insurance broker community, and two separate bills on the Financial Stability Oversight Council (FSOC), on opening it up to more federal participants or observers  and to the Sunshine Act, and another putting a six-month moratorium on any designations. The FSOC bills are separate, and not attached to TRIA, as NARAB 2 is.

An amendment by Democrats to extend the five year TRIA program extension to 10 years was defeated.

 NARAB 2 was accepted on a unanimous bipartisan basis as an amendment by Insurance Subcommittee Chairman Randy Neugebauer, R-TX. The FSOC bills also split along party line votes, with Republicans the majority. 

“As the debates made clear yesterday, the proper role for the federal government in backstopping terrorism losses is an exceptionally sensitive philosophical debate.  While both House and Senate leaders currently feel strongly about their respective views, we view the House committee’s action today to be a positive step toward the ultimate resolution of TRIA extension this year.  It could, however, get uglier before it gets nicer,” wrote Joel Wood of the Council of Insurance Agents & Brokers after the vote today. 

Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies (NAMIC), was more skeptical.

“We are appreciative of the committee’s willingness to work with stakeholders to reauthorize a program that is essential for protecting the U.S. economy from the potentially devastating effects of a catastrophic terrorist attack,” Grande said. “That said, NAMIC has serious concerns about some of the provisions in the House bill that, if not addressed, could severely curtail some companies’ access to the program and significantly disrupt the currently competitive marketplace for terrorism insurance coverage.”

Please see more  coverage in Carrier Management. Here’s the link http://www.carriermanagement.com/news/2014/06/20/124852.htm