U.S. Defends MetLife Decision, Seeks Dismissal of Suit

Federal regulators defended their heightened oversight of giant insurer MetLife Inc. in an unsealed filing Monday, saying the company could pose a threat to U.S. financial stability because of its complex financial transactions and capital-markets activities.

The defense came in a 75-page filing seeking the dismissal of a lawsuit filed by MetLife in the U.S. District Court for the District of Columbia, in January. The MetLife lawsuit challenges a federal panel's designation of the company as a "systemically important financial institution."

The label from the Financial Stability Oversight Council means federal regulators believe the company could pose significant risks to the financial system should it collapse, and thus warrants additional oversight, such as more robust capital buffers against losses.

MetLife has been adamant that its activities don't pose any sort of risk to the broader financial system, and that the government used flawed metrics in arriving at its decision. The nation's biggest life insurer by assets also maintains that the designation is premature, because the rules governing insurers aren't yet written and could put the company at a disadvantage as compared with other insurers.

The New York company's lawsuit is the biggest test yet for regulators responsible for protecting the U.S. financial system from another crisis.

A MetLife spokesman said: "Far from presenting systemic risk to the U.S. economy, MetLife is a source of financial stability. We strongly disagree with the arguments laid out by the government in its brief and look forward to responding in court next month."

The panel's brief was filed on Friday and a redacted version was entered into the court record late Monday. It contains relatively few redactions among its many pages.

In the filing, the Financial Stability Oversight Council repeated some of its earlier arguments about why MetLife had been designated as systemically important.

The company "engages in significant financial activities beyond simply selling life insurance," the council said in the filing. "MetLife engages in complex financial transactions and capital markets activities which, in a distress situation, not only could expose other major market participants to substantial losses, but could also put cash strains on the company, requiring it to sell assets at a scale and speed that could impair or freeze up broader financial markets."

MetLife "is a complex organization, with 359 subsidiaries in 50 countries," according to the filing, and its operations "are subject to separate regulatory regimes administered by scores of state, federal, or foreign regulators." In a case where MetLife experiences financial distress, winding it down "could thus prolong uncertainty, requiring complex coordination among numerous regulators, receivers, or courts that would have to disentangle a vast web of intercompany agreements."

The panel defended its earlier analysis as "far from being "vague and generalized," as MetLife contends." The designation followed 17 months of study, during which the council or staff met with MetLife more than a dozen times, reviewed nearly 21,000 pages of material submitted by the company, and issued a 270-page proposed decision that the company challenged in both a written and an oral hearing before the council, according to the filing.

Write to Leslie Scism at [e-mail]

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