WASHINGTON—U.S. officials voted Friday to remove federal oversight of American International GroupInc.,AIG 0.69% an insurance company now about half the size it was when it was on the brink of collapse and became a poster child of the global financial crisis.
The move is one of the most tangible steps yet in the Trump administration’s push to re-evaluate financial regulations, which has included a top-to-bottom review of rules put in place in response to the crisis. Friday’s move frees the insurance company of stricter oversight by the federal government, such as tighter capital rules, federal approval for large mergers and placement of government examiners at the firm.
The Financial Stability Oversight Council, a group of senior financial regulators, voted 6-3 to rescind the global insurer’s designation as a “systemically important financial institution,” indicating they no longer view AIG as a threat to the broader economy.
The action came earlier than many analysts expected. Although the Trump administration has recommended dozens of changes to financial rules, it has so far taken action incrementally, in part because of the slow pace of installing personnel at key regulators.
AIG Chief Executive Brian Duperreault said in a statement that the council’s “decision reflects the substantial and successful de-risking that AIG’s employees have achieved since 2008. The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients.”
The practical impact of Friday’s action was limited because many of the rules for insurance companies have yet to be written.
The council applied the label to AIG in July 2013 and previously had affirmed its findings annually. This year, regulators appointed by President Donald Trump reversed course, pushed along by new leaders at AIG who were more aggressive about disputing the systemically important tag.
“This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability,” Treasury Secretary Steven Mnuchin said in a statement.
Two Obama-era appointees, Fed Chairwoman Janet Yellen and Roy Woodall, the council’s insurance expert, joined four Trump appointees in approving the action. Three Obama appointees opposed the move, and none commented on why. Securities and Exchange Commission Chairman Jay Clayton recused himself.
Ms. Yellen declined to comment through a spokesman.
AIG “has changed dramatically since the start of the financial crisis,” said National Credit Union Administration Chairman Mark McWatters, a council member who voted in favor of removing the label. “It’s time to let them go back to traditional insurance regulators.”
Freeing AIG of the “SIFI” label is steeped in significance. AIG received one of the government’s biggest bailouts during the crisis as regulators feared its collapse would have far-reaching and unpredictable repercussions. It had extensive and complex financial dealings with big banks and other financial firms in the U.S. and Europe.
Its rescue package, which ultimately topped $182 billion, upset many people, including homeowners who were struggling to keep up mortgage payments. The missteps that brought AIG to the brink played heavily into lawmakers’ decision to create the new oversight council in the 2010 Dodd-Frank financial regulatory law and give it the authority to pull in firms such as AIG for tougher regulation.
“AIG got a $180 billion taxpayer bailout less than a decade ago and, without proper oversight, it will remain a huge and interconnected company that could bring down the financial system again,” said Sen. Elizabeth Warren (D. Mass.).
AIG fully repaid its bailout by the end of 2012 by selling off businesses and other assets to roughly halve its size. Months later, the oversight council determined stress at AIG could threaten the economy and designated it as systemically important. It was the first time the council had used its main Dodd-Frank power.
The label subjected AIG to potentially onerous oversight, including supervision by the Federal Reserve. AIG and other insurers are primarily regulated by state insurance departments.
Entering 2008, AIG had $1.048 trillion in assets on its books, though their true value was unknown at that point. Many government and insurance officials expected a liquidation.
As of June 30, 2017, the company had $499.76 billion of total assets. That makes it smaller than other insurers not labeled significantly important, including Warren Buffett’s Berkshire HathawayInc., which has $666 billion in assets.
AIG remains one of the world’s biggest sellers of property-casualty insurance to businesses world-wide and is also a major seller of life insurance and retirement-income products in the U.S., along with home and car insurance to wealthy households.
Removal of the label leaves Prudential FinancialInc.PRU 0.30% as the sole nonbank firm with the label, for now. Regulators rescinded it for General ElectricCo.’s financing arm in June 2016.
Another insurer, MetLifeInc., successfully challenged its designation in federal court, though the matter was appealed and is now on hold while the Treasury Department reviews the designation process.
Some Wall Street analysts think Prudential will be freed of its label soon. In a statement Friday, Prudential said it “will consider our options while contesting our designation through the review process. Prudential has long maintained that we do not meet the standard for designation.”
Analysts said AIG’s share price in recent weeks has reflected a high probability that it would get out of the label. Still, action by regulators could give shares a lift “as it should help reduce regulatory costs and eliminate the potential annual ‘black cloud’ associated with” stress testing by the Fed, Thomas Gallagher of Evercore ISI said in an analyst note.
AIG’s lead regulator will once again be New York’s Department of Financial Services, widely considered one of the strictest and most well-staffed insurance departments in the country. Superintendent Maria T. Vullo said in a statement that the department “will continue to conduct in-depth and rigorous supervision of AIG’s insurance companies to ensure their financial soundness and compliance with law. This state-based regulation will continue to keep our financial markets strong and robust while protecting consumers.”
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.
TimelessInvestor
AIG is out of SIFI label, a great step forward! – from WSJ
AIG is out of SIFI label, a great step forward! I need to come back and study its options again.
U.S. Rescinds Federal Oversight of AIG
Financial Stability Oversight Council decides insurer no longer poses economic threat
WASHINGTON—U.S. officials voted Friday to remove federal oversight of American International Group Inc., AIG 0.69% an insurance company now about half the size it was when it was on the brink of collapse and became a poster child of the global financial crisis.
The move is one of the most tangible steps yet in the Trump administration’s push to re-evaluate financial regulations, which has included a top-to-bottom review of rules put in place in response to the crisis. Friday’s move frees the insurance company of stricter oversight by the federal government, such as tighter capital rules, federal approval for large mergers and placement of government examiners at the firm.
The Financial Stability Oversight Council, a group of senior financial regulators, voted 6-3 to rescind the global insurer’s designation as a “systemically important financial institution,” indicating they no longer view AIG as a threat to the broader economy.
The action came earlier than many analysts expected. Although the Trump administration has recommended dozens of changes to financial rules, it has so far taken action incrementally, in part because of the slow pace of installing personnel at key regulators.
AIG Chief Executive Brian Duperreault said in a statement that the council’s “decision reflects the substantial and successful de-risking that AIG’s employees have achieved since 2008. The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients.”
The practical impact of Friday’s action was limited because many of the rules for insurance companies have yet to be written.
The council applied the label to AIG in July 2013 and previously had affirmed its findings annually. This year, regulators appointed by President Donald Trump reversed course, pushed along by new leaders at AIG who were more aggressive about disputing the systemically important tag.
“This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability,” Treasury Secretary Steven Mnuchin said in a statement.
Two Obama-era appointees, Fed Chairwoman Janet Yellen and Roy Woodall, the council’s insurance expert, joined four Trump appointees in approving the action. Three Obama appointees opposed the move, and none commented on why. Securities and Exchange Commission Chairman Jay Clayton recused himself.
Ms. Yellen declined to comment through a spokesman.
AIG “has changed dramatically since the start of the financial crisis,” said National Credit Union Administration Chairman Mark McWatters, a council member who voted in favor of removing the label. “It’s time to let them go back to traditional insurance regulators.”
Freeing AIG of the “SIFI” label is steeped in significance. AIG received one of the government’s biggest bailouts during the crisis as regulators feared its collapse would have far-reaching and unpredictable repercussions. It had extensive and complex financial dealings with big banks and other financial firms in the U.S. and Europe.
Its rescue package, which ultimately topped $182 billion, upset many people, including homeowners who were struggling to keep up mortgage payments. The missteps that brought AIG to the brink played heavily into lawmakers’ decision to create the new oversight council in the 2010 Dodd-Frank financial regulatory law and give it the authority to pull in firms such as AIG for tougher regulation.
“AIG got a $180 billion taxpayer bailout less than a decade ago and, without proper oversight, it will remain a huge and interconnected company that could bring down the financial system again,” said Sen. Elizabeth Warren (D. Mass.).
AIG fully repaid its bailout by the end of 2012 by selling off businesses and other assets to roughly halve its size. Months later, the oversight council determined stress at AIG could threaten the economy and designated it as systemically important. It was the first time the council had used its main Dodd-Frank power.
The label subjected AIG to potentially onerous oversight, including supervision by the Federal Reserve. AIG and other insurers are primarily regulated by state insurance departments.
Entering 2008, AIG had $1.048 trillion in assets on its books, though their true value was unknown at that point. Many government and insurance officials expected a liquidation.
As of June 30, 2017, the company had $499.76 billion of total assets. That makes it smaller than other insurers not labeled significantly important, including Warren Buffett’s Berkshire Hathaway Inc., which has $666 billion in assets.
AIG remains one of the world’s biggest sellers of property-casualty insurance to businesses world-wide and is also a major seller of life insurance and retirement-income products in the U.S., along with home and car insurance to wealthy households.
Removal of the label leaves Prudential Financial Inc. PRU 0.30% as the sole nonbank firm with the label, for now. Regulators rescinded it for General Electric Co.’s financing arm in June 2016.
Another insurer, MetLife Inc., successfully challenged its designation in federal court, though the matter was appealed and is now on hold while the Treasury Department reviews the designation process.
Some Wall Street analysts think Prudential will be freed of its label soon. In a statement Friday, Prudential said it “will consider our options while contesting our designation through the review process. Prudential has long maintained that we do not meet the standard for designation.”
Analysts said AIG’s share price in recent weeks has reflected a high probability that it would get out of the label. Still, action by regulators could give shares a lift “as it should help reduce regulatory costs and eliminate the potential annual ‘black cloud’ associated with” stress testing by the Fed, Thomas Gallagher of Evercore ISI said in an analyst note.
AIG’s lead regulator will once again be New York’s Department of Financial Services, widely considered one of the strictest and most well-staffed insurance departments in the country. Superintendent Maria T. Vullo said in a statement that the department “will continue to conduct in-depth and rigorous supervision of AIG’s insurance companies to ensure their financial soundness and compliance with law. This state-based regulation will continue to keep our financial markets strong and robust while protecting consumers.”
About Timeless Investor
My name is Samual Lau. I am a long-term value investor and a zealous disciple of Ben Graham. And I am a MBA graduated in May 2010 from Carnegie Mellon University. My concentrations are Finance, Strategy and Marketing.