2014 1218 - FSOC - re: MetLife - Basis for the Financial Stability Oversight Council’s Final Determination Regarding Metlife, Inc - 31p

  •  2014 1218 - FSOC re: MetLife - Basis for the Financial Stability Oversight Council’s Final Determination Regarding Metlife, Inc  ---  [BonkNote]  ---  31p
  • (p9) - 2.2.2 Funding Agreements and Funding Agreement–Backed Securities
    • MetLife’s funding agreements and related products, its FABNs and funding agreement–backed commercial paper (FABCP), constitute a significant portion of the company’s capital markets financing activities and contribute to the company’s operating leverage.30
    • MetLife issued approximately 75 percent of all FABNs issued by U.S. life insurers in the first six months of 2013.31
  • These funding agreement–related instruments could contribute to or exacerbate the transmission of MetLife’s material financial distress through the exposure and asset liquidation transmission channels. In general, funding agreements are investment products issued out of the general account of an insurer into the institutional market.
  • (p22) - [Bonk: Surrender Disincentives] - Although these products generally are considered to be long-term liabilities and a number of these products include provisions that are designed to disincentivize withdrawals, such as penalties and loss of guarantee accumulation, these disincentives could serve as less of a deterrent if MetLife’s ability to meet its obligations were in doubt. 
  • (p24) - [Bonk: Moratorium / Stays] - Further, the imposition of a suspension of insurance policy and annuity product surrender or withdrawal options could cause uncertainty to spread to the customers of other insurance companies offering similar products and could undermine confidence in the broader life insurance industry.
    • If such a situation were to occur during a period of overall stress in the financial services industry and in a weak macroeconomic environment, surrenders at other life insurers could increase, particularly if MetLife’s material financial distress were related to a broader economic shock or market event, such as an interest rate spike or impairments in a widely held asset class.