PhotoMetLife is the largest life insurance company in the United States. About 100 million consumers worldwide rely on it for life insurance, annuities, and other safety net products. But is it too big to fail?

A federal judge says it isn't and yesterday struck down the U.S. government's determination that MetLife needs to build up its capital reserves and submit to tight regulation to ensure its financial well-being.

"From the beginning, MetLife has said that its business model does not pose a threat to the financial stability of the United States," the company's chief executive, Steven Kandarian, said in a statement.

The decision is seen as a victory for big business, and it was quickly followed by a report that General Electric, which owns Genworth, might be next in line to challenge its designation as "systemically important" to the U.S. economy. Wall Street is also pressing AIG and Prudential to respond. 


The "too big to fail" test was created by the Dodd-Frank Act of 2010. Instituted after the financial crisis of 2008, it was initially aimed at banks but was later extended to other major companies who were so important to the economy that their collapse could trigger another crisis.

MetLife is one of the few financial powerhouses that did not receive any government assistance during the financial crisis. 

Kandarian has argued that life insurance companies don't carry the same risks as other financial institutions, since in most cases, funds are not subject to immediate withdrawal. Most life insurance policies, for example, pay out only when the policyholder dies.

Kandarian also contends that insurance companies are adequately supervised at the state level. That argument may not sit well with consumer advocates, who just this week formed organizations in Connecticut, Colorado, Florida, Ohio, and Virginia. They plan to pressure insurance commissioners, attorneys general, and state lawmakers to hold public hearings on the proposed mergers of health insurers, such as Aetna with Humana and Anthem with Cigna.

A U.S. Treasury spokesman took issue with the decision by U.S. District Court Judge Rosemary Collyer, saying regulators had conducted "a rigorous analysis of MetLife, including extensive engagement with the company, and determined that material financial distress at MetLife could pose ... a threat to the financial system." 

Effect on consumers

What does all this mean for the consumers who buy insurance? To hear Wall Street tell it, it means that MetLife will be able to price its products more competitively, since it will not be held to tighter capital rules. It would also be more easily able to return more money to shareholders and sell off parts of the company, according to analysts quoted by Insurance Journal.

MetLife's Kandarian has indicated a desire to "separate" one or more retail units, most likely the variable annuity product line. Variable annuities are closely tied to stock market fluctuations and are thus more volatile.

The issue came up at Wednesday's White House briefing, where spokesman Josh Earnest declined to respond to the specific ruling but said that "one core component of Wall Street reform legislation that was passed early in President Obama’s presidency included giving regulators the tools that they need to regulate non-bank financial institutions."

"This is one of the lessons that we’ve learned from the Great Recession — that it’s not just banks on Wall Street that could potentially shake the foundation of our financial system if they make a bunch of risky bets that go bad without proper oversight.  Worse yet, it could also put taxpayers on the hook for bailing them out," Earnest said.

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