MetLife, because of its ownership of MetLife Bank, an online retail unit, was forced to submit to the Federal Reserve’s stress testing and failed, possibly because it was “unfairly penalized” by regulators.
Dave Jones
MetLife was the only insurer among 19 companies deemed bank holding companies that underwent the testing, which seeks to determine if financial service companies can meet the government’s minimum capital requirements under a highly stressed market scenario. The testings an outgrowth of the global financial crisis in 2008, which almost caused American Insurance Group to fail.
Because it failed the testing, the government rejected MetLife’s requested $2 billion share buyback and dividend increase, from 74 cents to $1.10.
Since July 2011, MetLife, the largest life insurer in the U.S., has been trying to get rid of MetLife Bank, so it will no longer be classified as a bank holding company that must submit to the stress testing.
Even with its sale of MetLife Bank, MetLife may remain in the government’s crosshairs, if classified as a non-bank systemically important financial institution (SIFI), which Fitch said is “reasonable to expect.” Those falling into the non-bank SIFI category, another aspect of the Dodd-Frank regulatory changes, are expected to be announced later this year.
Fitch Ratings called the Federal Reserve’s latest stress test results “inconsistent with both our view of MetLife’s capital position and MetLife’s reported insurance regulatory capital measures.”
The ratings service said it feels that MetLife may have been “unfairly penalized” in the comprehensive capital analysis and review (CCAR), which is a supervisory assessment geared specifically toward banks.
“We believe insurers and banks have fundamentally different asset and liability profiles as well as capital structures,” Fitch Ratings said in a statement. “These differences limit the utility and comparability of stress test results.”
The ratings service said it finds MetLife’s insurance operations are well capitalized and consistent with its Fitch-assigned IDR “A” rating. Established capital metrics in the insurance industry indicate that MetLife is well in excess of regulatory minimums. The insurer’s National Association of Insurance Commissioners risk-based capital ratio was 450% Dec. 31, 2011.
California Insurance Commissioner Dave Jones also offered support for MetLife after its failed test.
“I believe the Federal Reserve’s ‘stress test’ is directed primarily at non-insurer financial institutions and the non-insurance operations of institutions with insurance subsidiaries,” Jones said. “The methodology utilized for analyzing and stress testing banks is not intended to measure insurance solvency as the business models are quite different.”
He added, “While we are confident that Metropolitan Life Insurance Group is financially strong, we will continue to monitor its insurance operations and protect the interests of insurance consumers.”
Fitch did indicate the “challenging low interest rate environment could result in a need for MetLife’s U.S. life insurance subsidiaries to strengthen statutory reserves, but we feel the impact on the company’s statutory capital levels will be manageable.”
Fitch, Jones fault U.S. for MetLife’s failing of financial stress test via IFAwebnews .