Insurance Industry Fears US Regulators Council Ready To Strike

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WASHINGTON (MNI) - Treasury Secretary Jack Lew is chairing his third meeting of the Financial Stability Oversight Council, with part of it a rare open session later Thursday afternoon, but it is what the Council may be doing in private that worries the insurance industry.

Lew, testifying in the morning before a House Appropriations subcommittee, said he feels the Council is making progress in the cooperation of its five member agencies in completing the wide array of Dodd-Frank Act regulations.

At 2:30 P.M. ET, the FSOC meeting will showcase the Council's expected vote to accept its annual report with a live Webcast at http://www.treasury.gov/press-center.../Webcasts.aspx.

Several Council members, which include the heads of the SEC, the FDIC, the CFTC, the Federal Reserve and the Office of the Comptroller, are expected to comment in general on the Council's work. It will be the first FSOC meeting for the new chief of the Securities and Exchange Commission Mary Jo White.

There was no agenda made public for the private part of the FSOC meeting, already under way, but several insurance industry Web sites have speculated that the Council's first designation is imminent of one and possibly more insurance companies as systemically important non-bank financial institutions.

If the Council makes such a designation that fact may not be known for weeks, when the usual bare-bones minutes of the closed-door portion of the meeting are posted. Or the designated firm or firms could make announcements almost immediately.

Such designations would be a regulatory disaster from the point of view of the insurance industry given that up to now it has been regulated only by the states for 150 years and insurance firms universally like it that way. There is even a provision in a 1999 law the prohibits the Fed from being involved in insurance regulation.

In the cross-hairs are assumed to be at least AIG, Prudential and MetLife, with that firm making known it is bitterly opposed to being named. Once designated by the Council costs go up and profits moderate at least somewhat as various new government requirements -- such as for minimum capital, liquidity and counterparty risk -- are imposed.

AIG, given its prominent role in the financial crisis, would be no surprise if it turned up on FSOC's list, although the component parts of the company have changed a lot in the last few years. In recent weeks, in fact, company executives have hinted that customers might find some reassurance if the company were to come under even closer government oversight.

Not so for Prudential and MetLife, which have maintained being lumped in with financial services firms which deserve the designation would be unfair, since their businesses, they say, do not pose any threat to the financial system.

Another firm outside the insurance industry, General Electric, is already considered to also be a prime candidate for the unwanted distinction because of the size of its financing arm.

--MNI Washington Bureau; tel: +1 202-371-2121; email: dgulino@mni-news.com