By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Quick, who’s the chief executive of MetLife? That the name Steve Kandarian doesn’t roll off the tongue for almost anyone who isn’t deeply steeped in the insurance business is probably a good thing for his shareholders. How he handles his company’s inevitable designation later this week as a systemic threat to the financial industry could change that. A Jamie Dimon-style public spat with regulators would be foolish. Better to speak softly, and keep the CEO’s relative anonymity intact.
It’s understandable that MetLife objects to being labeled a systemically important financial institution, or SIFI. At a minimum, it imposes a higher level of oversight from regulators. It also would probably force the insurer to submit to cumbersome stress tests. More ominously, it could require MetLife, with its $890 billion of assets, to set aside a lot more capital, potentially lowering returns or forcing it to exit certain businesses. The precise rules on how insurers will be treated haven’t been worked out, however.
Insurers do not obviously pose the level of systemic harm that investment banks and other financial institutions do, a fact conceded even by Barney Frank, whose name adorns America’s post-crisis financial reform.
For starters, their liabilities, which are effectively the claims of the insured, are matched with corresponding assets. The disparity of long-term investments funded by short-term money befell many banks during the last crisis. Moreover, insurers are not at the same risk of a run as banks by their depositors. And, strictly speaking, there are few historical instances of pure insurance businesses creating system-wide ruin.