AIG’s Benmosche: Too big to fail tag no big deal

Robert Benmosche, chief executive of American International Group Inc., is unfazed over his massive insurance company coming under the supervision of the Federal Reserve as a too-big-to-fail financial institution.
He just wants to make sure the regulators digging into his business understand the insurance industry and its current regulatory framework.
“The degree of oversight has to be decided. How you do that in cooperation with the states?” Mr. Benmosche asked today at the Standard & Poor’s 2013 Insurance Conference. “We want to have [federal and state regulators] all together in the same room at the same time. We’re starting to broker some consolidation of thinking and approach.”
He noted that AIG succeeded in doing so last year.
As a non-bank systemically important financial institution, or SIFI, however, AIG will demand a different approach regarding federal regulation.
“We tend to be different from banks in one basic perspective: Banks want everything done in a specific way,” Mr. Benmosche said. “With insurance companies, there’s a different discipline.”
The Fed will want to know, “’Do you do things in an exact way?’” he added. “’Do you have the right controls?’ They want documentation. It’s form over substance, but they want to see you’re doing the things you’re supposed to do.”
As far as stress testing, “forget about company profits,” Mr. Benmosche said. “They want to see what happens to you when the S&P [500] goes down 50%,” he said. Mr. Benmosche noted that federal regulators have had a hard time understanding the liabilities and assets of an insurer; carriers don’t hold deposits subject to runs as banks do.
Nevertheless, even as Federal Reserve supervision becomes a distinct possibility, AIG has made significant headway in the past five years.
“We’re adding more equity capital to this industry and strengthening it in a positive way,” Mr. Benmosche said. “We’re not sitting today in 2013 the way we were in 2008. We’ve dramatically improved.”