WASHINGTON — The insurance provider MetLife said it will file a lawsuit Tuesday to challenge its designation as a systemically important financial institution, arguing the Financial Stability Oversight Council erred in making the determination.

Steven Kandarian, the firm's chief executive, said it had hoped to avoid a legal battle over the designation and provided evidence to the council that MetLife did not pose an economic threat.

Kandarian said the FSOC's decision to label the largest insurers with the systemically important financial institution label - and subject those institutions to oversight by the Federal Reserve - is an ineffective way of managing risks in the insurance industry. The council instead ought to apply appropriate rules to the insurance industry as a whole, which it has the power to do under the Dodd-Frank Act.

Kandarian added that the council has embraced such a strategy towards the asset management industry when the council voted to accept public comment on activities-based rules for that industry.

"Adding a new federal standard for just the largest life insurers and retaining a different standard for everyone else will drive up the cost of financial protection for consumers without making the financial system any safer," Kandarian said. "The government should preserve a level playing field in the life insurance industry. If additional regulation is necessary, the government has a superior tool at its disposal - an approach that focuses on potentially systemic activities regardless of the size of the firm. FSOC has already embraced that activities-based approach for the asset management industry."

A Treasury spokesperson said that it has been notified of MetLife's complaint and that the council decided to assign MetLife the SIFI designation "only after a thorough analysis and extensive engagement with the company." The spokesperson said the council is "confident" in its designation process.

The suit comes only days before the company's statutory deadline to challenge the designation. The FSOC has already designated two other insurance companies - AIG and Prudential - as SIFIs last year. Those companies opted not to challenge the designation in court.

No matter which way the court rules, the MetLife suit will likely have broad effects on how the FSOC designates entities as systemically important. The suit will be the first opportunity the courts have to weigh in on the SIFI designation process, a key element of Dodd-Frank.

The case is made somewhat more complex because the Fed, which is responsible for regulating nonbank SIFIs, has not yet developed any rules for those designees to follow, thus making it hard to prove injury as a result of the label. By the same token, the FSOC also may struggle to prove that the designation of the individual companies makes the financial system safer.

The suit could also open the door for judicial review of the FSOC's nonbank designation process, which was only finalized in 2013. Treasury Secretary Jack Lew, who also chairs the oversight council, announced in October that the council was reviewing its process for potential changes amid concerns from industry that the process was too opaque.

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