The announcement by MetLife Inc., the only major U.S. insurance group currently organized as a bank holding company, that it has been ordered by the Federal Reserve to hold off on plans to increase its dividend could offer a harbinger of things to come should other insurers be designated “systemically important” by the Financial Stability Oversight Council.

Met announced late Oct. 25 that it would keep its 2011 shareholder dividend at 74 cents a share, despite having requested permission to increase that level and to resume share repurchases, because the Fed insisted that it could not do so until after it had completed the 2012 round of bank stress tests. Though it is primarily an insurer, the company is regulated as a bank holding company due to its ownership of MetLife Bank, a unit the insurer has been attempting to unload in recent months.

In the company’s statement, Met President and CEO Steve Kandarian argued that “increasing our capital actions in this current economic environment and in this time of high unemployment would prove beneficial to the economy as our shareholders re-deploy these funds in a productive manner.”

“At the same time, we continue to move forward on our plans to explore the sale of the depository business and the mortgage origination activity conducted at MetLife Bank and to take the necessary steps to no longer be a bank holding company. As I have previously said, this will ensure that MetLife is able to operate on a level regulatory playing field with other insurance companies,” added Kandarian.

Though getting out from under the yoke of Fed oversight is the obvious motivation behind the plan to sell the bank, it is not actually guaranteed to work, as Met remains a candidate for heightened supervision even as a nonbank. Earlier this month, the FSOC published revised proposed guidance on the process by which nonbank financial institutions, including insurers, could be designated as SIFIs (systemically important financial institutions) based on their nature, scope, size, scale, concentration, interconnectedness and mix of business activities.

Though still light on specifics, the council is now proposing a three-stage process, with an initial screen that would have them focus on companies with more than $50 billion in assets as well as either more than $30 billion in notional exposure to credit default swaps, more than $3.5 billion in potential derivatives liabilities, more than $20 billion in outstanding debt, greater than 15-to-1 leverage or more than 10% of its debt held in short-term instruments.

Firms designated by the FSOC would be subject to “enhanced” prudential oversight by the Fed, although what precisely that would mean remains an open question. It’s also one on which newly minted Federal Insurance Office Director Michael McRaith shed relatively little light during his Oct. 25 appearance before the House Financial Services Committee’s insurance subcommittee.

But in MetLife, which already is subject to the Fed’s stress tests by virtue of being one of the nation’s largest bank holding companies, we may have a preview of what could await any other insurers who meet the criteria. Though it passed the prior round of tests with flying colors, the company is being denied the chance to return cash to shareholders at a time when that is likely its best strategy to remain a compelling stock. The denial effectively locks up cash in the holding company despite the company’s insistence it has no more productive use for it than its shareholders would.

Having “too much cash” may sound like an oxymoron, but that’s the situation in which many U.S. life insurers now find themselves. Life insurance is a spread-based business, where companies earn profits by reinvesting policyholder premiums, primarily in high-grade corporate bonds. With interest rates still at record low levels, there aren’t many attractive places to park that cash at the moment, making capital management strategies like special dividends and share buybacks one of the sector’s few viable strategies for remaining attractive to investors.

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