MetLife CEO Warned Federal Regulators in 2014 of Possible Breakup, Court Filing Shows

By Leslie Scism

MetLife Inc. Chief Executive Steven Kandarian warned federal regulators 15 months ago that the big life insurer could split up if subjected to stricter U.S. oversight, according to new court documents filed Wednesday.

"Frankly, what we have under consideration is a breakup of MetLife," Mr. Kandarian said at a closed-door hearing of the Financial Stability Oversight Council on Nov. 3, 2014.

The CEO's comments, which haven't previously been reported, came about six weeks before the panel of U.S. regulators concluded MetLife posed significant risks to the financial system and warranted tougher oversight. It was the fourth nonbank financial firm to be designated as a "systemically important" firm after rival insurers American International Group Inc. and Prudential Financial Inc., and General Electric Co.'s finance arm.

MetLife is now challenging that designation in federal court, saying it doesn't pose risks to the financial system and that the government used flawed metrics in reaching its decision. On Wednesday it filed a transcript of the 2014 hearing with some portions unredacted.

Mr. Kandarian said at the hearing he raised the prospect of a breakup because "I don't want people to say later on, 'Geez, we had no idea that you were thinking of this,' " according to the transcript.

Earlier this month, MetLife said it would divest a large part of its U.S. life-insurance business, both for strategic reasons and to ease some of the capital burden it anticipates facing as a systemically important firm. The Federal Reserve has yet to develop rules for MetLife and two other insurers designated as systemically important.

At the 2014 hearing Mr. Kandarian identified greater capital requirements as a primary concern, saying that an investment bank had been hired to analyze the potential impact.

"If the capital rules are extremely harsh from our perspective and makes us uncompetitive in certain lines of business, then we will have to exit those businesses in some form," he said, according to the transcript. "And that is what is being studied: How would you do that? How would you exit those businesses?"

At the time, MetLife was concerned the Fed would use rules tailored for the banking industry, as the Fed hadn't historically regulated insurance companies. MetLife's fear was that such bank-centric rules could result in unusually steep capital amounts for MetLife.

Since then, the Fed has indicated it would adjust rules for the insurance industry. But MetLife has said the insurer would still operate at a disadvantage as compared with smaller rivals.

Write to Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

January 27, 2016 17:36 ET (22:36 GMT)

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