2 Life Insurers Meet Systemic Risk Criteria

October 13, 2011

Only two life insurers — MetLife Inc.. and Prudential Financial Inc. — meet the newly developed requirements to be considered “systemic” and regulated as such, KBW analysts said Wednesday.

The Financial Stability Oversight Council Tuesday proposed a three-stage test to figure out which nonbank financial firms should come in for tighter capital and liquidity regulation by the Federal Reserve.

The insurance industry has argued aggressively that no insurer should be designated a “strategically important financial institution,” or SIFI, in part on fears that any company so tagged would have difficultly competing with peers who are free to take more risk.

KBW said only MetLife and Prudential crossed the council’s $50 billion asset threshold and also crossed at least one of the secondary hurdles as well. While that does not guarantee that they will be designated systemic, it does suggest they will at least get further scrutiny in the review process.

“Presumably, companies not tripping any thresholds are unlikely to be seriously considered for SIFI status (and) are likely out of the woods,” analyst Jeffrey Schuman said in a note to clients.

Schuman said that was good news for the other large life insurance companies, among them Aflac and Hartford Financial. He also said it was still “far from certain” that MetLife or Prudential would be tagged either.

(Reporting by Ben Berkowitz, editing by Dave Zimmerman)

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