Insurers Push Back Against Stricter Regulation -- Update

By Ryan Tracy, Leslie Scism and Stephanie Armour 

WASHINGTON--Some of the nation's largest insurance companies are mounting a coordinated behind-the-scenes push to thwart stricter federal regulation in the wake of the financial crisis.

Seven insurance companies have begun working together to persuade top lawmakers, Federal Reserve officials and other regulators that insurance companies aren't risky like big banks and shouldn't be subject to the same rules for determining capital levels, according to people familiar with the meetings.

The coalition--consisting of Nationwide Mutual Insurance Co., MetLife Inc., Prudential Financial Inc., New York Life Insurance Co., Mutual of Omaha Insurance Co., State Farm Mutual Automobile Insurance Co., and TIAA-CREF--has come together as regulators prepare to impose new rules on insurance companies designated "systemically important" enough to pose risks to the financial system or insurers that own banks.

Regulators, using authority they gained under the 2010 Dodd-Frank law, already have designated Prudential and American International Group Inc., and MetLife is expected to receive that label in coming months. The industry is trying to shape what comes next: Tougher oversight by the Fed.

The pushback poses an important test for Janet Yellen, who takes over as Fed chairwoman on Feb. 1 and must determine how tightly the central bank should rein in the insurers who fall under Fed oversight for the first time. The Fed has given itself until January 2015 to craft the rules.

The outcome also could ripple beyond the insurance industry to other nonbank financial firms under consideration for Fed oversight, like BlackRock Inc. and Fidelity Investments, which already are chafing against the potential for tighter rules.

The insurance coalition is mobilizing against capital rules that may force life insurers, like big banks, to hold billions of dollars in extra funds as a thicker buffer in times of market stress. Insurers--and their state regulators--say the companies have ample capital under long-standing state requirements and that a bank-focused approach ultimately would drive up the price of life-insurance products.

Since August 2012, senior executives from MetLife and Prudential each Fed officials eight times, public records show.MetLife Chief Executive Steven Kandarian and Prudential Vice Chairman Mark Grier have met in recent months .

"We have been working on a bipartisan basis with members of Congress and other critical stakeholders to ensure that bank-centric capital standards are not applied to insurance companies," said Bridget Hagan, a former Nationwide lobbyist who leads the coalition.

Noticeably absent from the coalition is American International Group, whose $182 billion rescue during the financial crisis helped spur Dodd-Frank. AIG Chief Executive Robert Benmosche has said repeatedly heightened oversight was a given for the property-casualty and life insurer.

"The policies and regulations that they're implementing are bringing us a whole new level of discipline, not just us, but the whole industry, which everyone can benefit from," Mr. Benmosche said in a written statement.

Life insurers in the coalition say a bank-centric approach would be inappropriate for their business models since it would require firms to hold extra capital for practices that look risky to banking regulators but typify the industry. For instance, life insurers typically buy and hold long-term bonds to pay future death benefits. Regulators force banks to hold a capital buffer for those types of assets to protect against losses, but insurers say they don't need as much of a buffer because many policies pay out only upon death.

MetLife, which has told investors the company would consider breaking itself up if bank-centric rules are imposed, has marshaled its 35,000 U.S. employees in the fight. In a September email to employees, MetLife's Mr. Kandarian said "there has never been a policy issue of greater importance to MetLife" and urged them to communicate with lawmakers through a website the insurer set up.

The pushback, which began after the Fed first proposed capital rules for insurers in June 2012, is having an impact: More than 20 senators signed on to an October 2012 letter to top regulators saying bank-focused rules could "unintentionally harm insurance policyholders, savers and retirees."

Last summer, two senators with large insurers in their home states wrote a bill that would give the Fed more flexibility on insurance rules. Sen. Sherrod Brown, (D., Ohio), whose state is home to Nationwide, and Sen. Mike Johanns (R., Neb.), where Mutual of Omaha is based, also quizzed Ms. Yellen on the issue before her Nov. 14 confirmation hearing, according to people familiar with the conversations.

The industry also pressed its case with lawmakers including Sen. Susan Collins (R., Maine), who sponsored a Dodd-Frank amendment the Fed says restricts its flexibility in tailoring industry-specific rules. In a November 2012 letter to the Fed, Ms. Collins said "it was not Congress's intent" to supplant state insurance regulation "with a bank-centric capital regime."

Ms. Yellen, at her Nov. 14 confirmation hearing, told lawmakers "one-size-fits-all should not be the model for regulation."

At a conference of state regulators in Washington, D.C., the following month, Prudential's Mr. Grier said its message "has penetrated all the appropriate levels" at the Fed.