Sources Say Prudential Likely to Be Designated as Systemically Important

Prudential Financial on Thursday advanced to the final stage of the government's process for designation as a non-bank systemically important institution (SIFI), according to several sources.

A Treasury spokesperson says, "The Financial Stability Oversight Council (FSOC) does not intend to publicly announce the name of any non-bank financial company that is under evaluation before a final determination with respect to such a company."

But analysts at Washington Analysis say Prudential will likely join American International Group (AIG), MetLife and possibly the Hartford among insurance companies the FSOC is considering designating as SIFIs.

Ryan Schoen and other analysts at Washington Analysis say they expect the FSOC to name the first non-bank SIFIs "in the coming months."

Other non-banks likely to be considered for designation as SIFIs in the first FSOC action include GE Capital and BlackRock, the analysts note.

Robert DeFillippo, Prudential spokesman, declined to comment. Prudential officials had previously said the firm met the FSOC's quantitative standards for consideration as a SIFI.

At the same time, DeFillippo says, "We continue to have discussions with regulators to help them understand that insurance companies should not be treated like banks in the regulatory process."

If designated a SIFI, insurers would have to submit to Federal Reserve Board as well as state supervision. That would include stress tests and tougher standards for capital and liquidity. The U.S. spent, lent or committed as much as $12.8 trillion to bolster financial firms and automakers amid the financial crisis.

The FSOC is proceeding under Sec. 113 of the Dodd-Frank financial services reform act. The law establishes a three-stage process for designating a non-bank as SIFI.

Schoen cites the minutes of the Sept. 28 meeting of the FSOC as indicating that "regulators are mindful of possible legal challenges from companies that are designated, and are therefore likely to be extremely deliberate in their selections."

The minutes indicated that the FSOC spent a lot of time at the Sept. 28 meeting discussing how non-banks should be overseen by the FSOC.

Schoen says the minutes indicated that "there is significant insurance regulation expertise" on the FSOC, and that "this reinforces our view that new regulations of insurers are likely to be tailored to their specific risks and business activities."

The group of insurance experts includes Roy Woodall, independent member with insurance expertise; Michael McRaith, director of the Federal Insurance Office; and John Huff, director, Missouri Department of Insurance.

Besides other Treasury officials who participated in the discussions, among those attending the meeting were staffers from the Missouri, Louisiana and North Carolina insurance departments, according the minutes of the meeting.