MetLife Inc. Chief Executive Officer Steve Kandarian, who issuing to reverse a U.S. finding that subjects the insurer to greater oversight, said his company’s performance in the financial crisis shows its ability to withstand turmoil.
The insurer’s cost was less than $20 million when it had to rewrite derivative contracts with Lehman Brothers Holdings Inc., which collapsed in 2008, Kandarian told Bloomberg Television’s Erik Schatzker and Stephanie Ruhle in an interview today. “That’s one day’s profits of MetLife.”
MetLife, the largest U.S. life insurer, last month was named as a systemically important financial institution by the Financial Stability Oversight Council, which could lead to tighter capital, leverage and liquidity rules. The council cited the New York-based company’s holdings of hard-to-sell assets and reliance on derivatives, which increase its connections to other financial firms.
“We post collateral on a nightly basis, back and forth with our counterparties,” Kandarian said. “If you’re using derivatives to take risk, that’s one question. In our instance, we’re using to hedge our risk.”
MetLife held more than $400 billion in gross notional derivatives as of Sept. 30, according to a regulatory filing. Kandarian uses them to guard against risks such as fluctuations in interest rates, currencies, stocks and bonds.
The insurer also uses derivatives to make investments that are similar to corporate bonds. The maximum at risk on credit- default swaps sold by MetLife was $10.9 billion as of Sept. 30, while the fair value of the contracts was $147 million.
“The company writes credit-default swaps for which it receives a premium to insure credit risk,” MetLife said in the filing.
‘Very Respectful’
MetLife said it would file a suit Tuesday in Washington to overturn the SIFI label, becoming the first non-bank financial firm to take its clash with FSOC to court. The group of regulators includes Treasury Secretary Jacob J. Lew and Janet Yellen, head of the Federal Reserve.
“We are taking this action in a very respectful way,” Kandarian said of the planned lawsuit. “I don’t anticipate that the Fed, which will be the ultimate regulator for MetLife as a SIFI, which is one of 10 voting members of FSOC, is going to look at this as something that would change the way they’re going to regulate us.”
FSOC was created as part of the Dodd-Frank Act to limit the risk that losses at one firm would infect the rest of the financial system. The council’s evaluation focuses on the consequences of a company’s failure, rather than on the likelihood of a collapse.
MetLife, the largest U.S. life insurer, didn’t take a capital injection from the Treasury in the financial crisis of 2008. Kandarian, 62, was chief investment officer at that time and became CEO in 2011.
–With assistance from Ian Katz in Washington.