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ACLI Files Amicus Brief in MetLife v. FSOC's picture
Commentary by Steven Lofchie

The American Council of Life Insurers ("ACLI") submitted an amicus curiae brief to the U.S. District Court for the District of Columbia in support of plaintiff, MetLife, Inc. ("MetLife"), in MetLife, Inc. v. Financial Stability Oversight Council, Civil Action No. 15-0045 (RMC). The brief argues against the designation of the plaintiff as a systemically important financial institution.

In the brief, ACLI stated that it fully endorses MetLife's argument that the designation by the Financial Stability Oversight Council ("FSOC") of the firm as a systemically important financial institution ("SIFI") is "arbitrary and capricious; unsupported by the record, empirical fact, or economic logic; and contrary to law." The brief outlines two arguments in support of MetLife's position:

  • FSOC's designation of MetLife failed to account for the fundamental differences between banks and life insurance companies; and
  • FSOC continues to predicate its designations of life insurance companies on a "basic misunderstanding of existing state regulation of the life insurance industry." Specifically, the brief argues that FSOC was under a specific statutory duty to assess the existing regulation of MetLife before subjecting it to additional federal regulation. ACLI contended that FSOC breached that duty by failing to engage "meaningfully with the state regulation system that has long governed the life insurance industry effectively."

ACLI concluded that the Court should order FSOC to rescind its designation of MetLife as a SIFI.


The SIFI designation program process is subjective and almost completely exempt from being subject to legal standards. FSOC has ten factors that it must consider – each of which is subjective – but it can determine which factors to consider, how to weigh them and which standards to apply; in other words, there are effectively no real legal standards. Writing a brief arguing that FSOC failed to reach a bar set so low is a tough task. That said, following FSOC's designation of MetLife as a SIFI, FSOC voted to impose on itself a somewhat more stringent standard of designation; for that reason, FSOC should redo its review of MetLife under its improved standards, rather than defend its work under a process that has been criticized by the U.S. GAO as inadequate, and which has since been upgraded.

The FSOC's analysis of the fundamental issues is superficial. For those interested in the logic of FSOC's determination, see FSOC's Determination That MetLife Is Systemically Significant. In particular, note the funding discussion (at page 10):

"Because these instruments are of varying maturities, some of which are short-term, MetLife is exposed to liquidity risk in the event that its investors determine not to renew their investment in MetLife's funding agreement-backed securities. This risk likely would increase if MetLife were to experience material financial distress and the program lost its prime rating."

In other words, MetLife should be designated as a SIFI because (i) it has some short-term debt, (ii) if creditors chose not to lend it more money when MetLife's repayment of its debts became due, that would be a problem for MetLife and (iii) if MetLife had a weaker credit, it would have a harder time borrowing money. That description fits every financial company in the United States and probably most industrial companies.

Another extensive section of the FSOC report on MetLife contains a general description of insurance regulation in the United States. What is implicit in that description is FSOC's discomfort with the state-by-state process by which insurance companies are regulated without any overarching federal regulator. If that is the case, then FSOC should (rather than arbitrarily singling out individual insurance companies) recommend that Congress adopt a system for the regulation of insurance companies, or insurance company holding companies. That is the way in which law should be made: by Congress, under objective standards, where it is as clear as possible to whom the law applies and why.

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