It's official. American International Group Inc. is the first insurance company to be designated a non-bank systemically important financial institution. The designation makes AIG the first insurance company to be regulated by the federal government in more than a century.The Financial Stability Oversight Council voted July 8 to give AIG a SIFI designation under the Dodd-Frank financial reform act. Last week, AIG announced that it would not challenge the designation once FSOC made it official.
FSOC has also designated GE Capital as a non-bank SIFI, however GE Capital does not have an insurance component. GE Capital has said previously it will not challenge the designation.
Prudential Financial Inc., one of the nation's top life insurance companies, was included on a proposed list of non-bank SIFIs earlier this month. But Prudential has requested a hearing to challenge the proposed designation, arguing that its businesses do not pose a risk to the U.S. financial system.
Only a significant company may be deemed a SIFI. To be deemed "significant," a company must have $50 billion or more in total consolidated assets or have been designated by the FSOC as systemically important.
FSOC can order companies designated as SIFIs to be placed under the Federal Reserve Board's supervision if 85% or more of the company's revenues or assets come from activities covered by the Bank Holding Company Act. The rule allows FSOC to recommend a company's primary regulator apply heightened regulatory standards to a specific financial activity or practice that it deems to be risky.
The G-20's Financial Stability Board is preparing to announce this month its own list of insurers that should be subject to greater international supervision because of their importance to the global economy. The FSB, based in Basel, Switzerland, said the names of the global systemically important institutions would be an "initial list" based on policy measures developed by the International Association of Insurance Supervisors. The way the two sets of rules are set up, it is possible to be named a G-SII and not be named a SIFI by the FSOC.
The insurance industry has been pushing back against efforts to label individual insurers as systemically important, both in the United States and internationally.