MetLife, the largest U.S. insurer, will make a final plea on Monday to a group of U.S. regulators determined to subject it to tougher oversight as they probe which firms could pose a risk to the larger financial system.
MetLife will meet behind closed doors the heads of the agencies grouped together in the Financial Stability Oversight Council (FSOC), who want the Federal Reserve to oversee MetLife's business and force it to meet higher capital standards.
Metlife, unlike counterparts AIG and Prudential which have already been deemed "systemic" by FSOC, has vigorously fought the tag.
After FSOC in September proposed to add MetLife to that group, the insurer's chief executive Steven Kandarian hit back. He issued a statement saying MetLife was a source of strength during the 2008 financial crisis and that the insurer was "not ruling out any of the available remedies."
But observers say MetLife faces an uphill battle, especially after an international body of regulators had already deemed MetLife systemic on a global level in July 2013.
"MetLife has a strong case on the substance ... but the FSOC is not likely to listen," said Phillip Swagel, a professor at the University of Maryland School of Public Policy who was a senior Treasury official during the recent credit crisis.
FSOC is housed within the Treasury Department, which also chairs the group, and is comprised of the leaders of all the major U.S. financial regulators.
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After hearing from MetLife on Monday, the first such in-person meeting between the insurer and the top regulators after months of staff-level talks, regulators will have 60 days for a final decision. MetLife can challenge the decision in court.
Metlife declined to comment.
The 2010 Dodd-Frank Wall Street reform act automatically designated banks with more than $50 billion in assets as "systemically important financial institutions."
But it gave the risk council the power to also tap financial firms that are not banks, if they are so big and risky that their activities could destabilize U.S. markets.
To date, the regulators who make up FSOC have not spoken publicly about MetLife. However, public documents justifying their designations of AIG and Prudential, and FSOC's annual report, shed light on their concerns.
The watchdogs worry insurers have their fingers in too many risky activities even after the credit crisis, and that they are no longer just straightforward providers of traditional life or car insurance policies.
One issue likely to be weighed is captive reinsurance, an accounting practice through which life insurers can lower their reserves, or funds set aside to pay claims.
In captive reinsurance, life insurance companies transfer risk to entities affiliated with their business in overseas jurisdictions or U.S. states with light-touch rules, which allows them to free up regulatory capital.
Benjamin Lawsky, the New York Superintendent for Financial Services, has stopped issuing licenses for such activity, which he called "shadow insurance," while Vermont and Delaware still actively court the business.
In an apparent effort to reduce some scrutiny, MetLife last year announced it would merge three of its life insurance companies and a Bermuda-based captive reinsurance unit into one U.S.-based company, to "address regulatory concerns about the use of captive reinsurance."
Another point regulators have looked into is securities lending.
Insurers hold huge portfolios of stocks and bonds that they often lend out, typically to broker-dealers or hedge funds, backed by collateral, in return for a small fee.
This is generally seen as a low-risk activity, but played a key role in the near-collapse of AIG, which was reinvesting much of its collateral in often complex and risky instruments that rapidly lost their value when the crisis hit.
Insurers say such risky behavior is a thing of the past, yet they continue to lend out considerable amounts of securities. MetLife's securities lending portfolio ended 2013 at $28 billion, according to Moody's Investors Service.
Lastly, regulators are wary about a possible run on an insurer much in the same way as on a bank. The industry is fiercely contesting this perception, saying their business model is different, and funding more stable.
But the Federal Insurance Office, a Treasury unit that monitors the industry, last year pointed out that AIG was not the only U.S. insurer in trouble. Insurers Hartford Financial Services and Lincoln National both received taxpayer aid during the crisis.