Metlife May Not Be "Too Big To Fail," But Is It "Too Big To Handle" For State Insurance Regulators?
Time 2 Minute Read
Categories: Industry News

On March 31 and April 15, we wrote blog posts (which can be accessed here and here) about a D.C. federal judge's decision to rescind MetLife's systematically important financial institution (SIFI) status. On October 24, a D.C. Circuit three-judge panel heard oral argument of the appeal of that decision. The federal government advocated to reinstate MetLife's "too big to fail" designation by arguing that regulators were not required to prove the insurance giant was likely to collapse before imposing enhanced federal oversight. Conversely, attorneys for MetLife argued that the Financial Stability Oversight Council (FSOC) acted arbitrarily by not partaking in any threshold analysis of how MetLife would be vulnerable to a financial collapse.

This case has drawn substantial attention because rescinding MetLife's SIFI status highlighted a bigger dispute over federalism and the role of state insurance regulators – as opposed to the federal government – in preventing a catastrophic financial crisis.

One side of the argument is that FSOC is overstepping its boundaries and regulating the insurance giant because of its sheer size. State regulators have argued that FSOC disregarded the balanced goals of the Dodd-Frank Act by "ignor[ing] or discount[ing]. . . the state regulatory system and the view of the state regulators and its own insurance expert in favor of speculation, assumptions about consumer and regulatory responses to distress that have no basis in fact or history, and a flawed analysis of the insurance business and its regulation." Shayna Posses, MetLife Gets Support in DC Cir. Appeal Over SIFI Label, Law360 (Aug. 23, 2016, 8:18 PM).

The other side of the argument is that state regulation of collected risk in the insurance system is inadequate because state regulators would face extreme difficulties in handling the risk associated with a company of MetLife's size and scope. Therefore, FSOC should regulate companies as big as MetLife to minimize risk to prevent another AIG, which required the federal government to step in with $182 billion of public money.

If the D.C. Circuit affirms the District Court Judge's rescission of MetLife's "too big to fail" title, the decision would be a huge win for state insurance regulators. On the other hand, should the D.C. Circuit reinstate MetLife's "too big to fail" title, the decision would pressure the federal government to take a more pronounced role in the oversight of companies as big as MetLife. We will continue to monitor the decision for our readers.

  • Counsel

    Patrick counsels clients on all aspects of insurance and reinsurance coverage. He assists clients in obtaining appropriate coverage and represents clients in resolving disputes over coverage, including in litigation and ...


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