A proposal outlining the factors federal regulators want to use in determining whether an insurer is “systemically significant” has launched a period of great uncertainty for the life insurance industry.
The proposal was published for comment Sept. 11 by the Financial Stability Oversight Council.
Under the law, if an insurer were to be designated as SIFI, it would be regulated by the Federal Reserve Board, which will establish the “prudential standards” the non-bank SIFIs must adhere to. The SIFI would have to register with the Fed within six months and would be subject to additional capital standards as well as other requirements.
Above all else, it ushers in a brave new world of regulation and scrutiny regardless of how many institutions, if any, are cited as SIFI.
In addition, according to a legal alert Oct. 17 by Sutherland, Asbill and Brennan, as a fail-safe device for situations where these simple thresholds may not capture a potentially significant company, the FSOC reserves the right to evaluate nonbank financial companies on other “firm-specific qualitative or quantitative factors, such as substitutability and existing regulatory scrutiny.” The companies identified in Stage 1 (the Stage 2 Pool) would be further assessed in Stage 2.
According to Jeff Schuman of Keefe, Bruyette & Woods, only MetLife and Prudential Life as stock life insurers are likely to be subject to the second and third test as SIFI under the new scrutiny.
“When they get tested, they put Met through the same set of tests that they use to measure bank holding companies,” Levine said.
“What tests will be used to evaluate whether an insurer is SIFI remains to be determined—and that is important,” Levine said. “How strict is that evaluation going to be? We don’t know. It is hard to form an opinion.”