Insurers Voice Deep Concern with Fed Capital Proposals

Benmosche has already outlined what Fed regulation would look like for AIG, and the Fed capital proposal provides further guidance as to what metrics Fed regulators will be looking at when they peruse AIG's books.

The National Association of Insurance Commissioners as well as a number of insurers are not responding to request for comment on the issue.

In response to a request for comment on a number of specific issues related to the Benmosche comments and proposal by federal regulators, Kevin McCarty, NAIC president and Florida commissioner, declined comment.

"The NAIC is currently in the process of evaluating the proposed federal rules, and cannot comment further at this juncture," he said.

Representatives of property and casualty insurers have also not responding to requests for comment on the Fed proposal.

But, a spokesman for the American Council of Life Insurance said late Thursday, "We certainly are interested in the issue. On behalf of our members we plan to make our opinions very clear."

Fed officials are also declining comment.

But they are providing guidance to insurers and members of the press that their actions are mandated under the Dodd-Frank Act, and that the agencies are not acting unilaterally.

Under the proposal, special capital treatment for insurers would be only applied to specific activities, such as separate accounts, deferred acquisition costs and insurance underwriting.

At the meeting with Chicago Fed officials, according to the Fed filing, Principal officials "expressed concern" about including such insurance-specific categories as unrealized gains/losses in capital ratio calculations for insurance companies.

According to the filing, this would involve inclusion of non-guaranteed separate accounts in the denominator of the leverage ratio, and the deduction of 200 percent of the Authorized Control Level NAIC Risk-Based Capital for insurance companies,

Banks are also concerned about the proposal. It would apply tougher capital rules than now in place for all U.S. banks under an international set of rules known as Basel III.

But, under the Dodd-Frank financial services reform law, it would bring insurers for the first time under federal regulation.

The concerns of the insurers are much deeper than cited in the document provided the Fed by the Principal.

The industry lawyer says the primary concern of insurers with the proposed regulation is that it would subject them to bank-centric rules even though the businesses are fundamentally different.

"They are very scared of Fed regulation," the lawyer said. He declined to comment for the record because he and his clients are still in the process of drafting their response to the Fed proposal.

"Many insurers with thrifts or otherwise subject to federal oversight are very scared of intrusive Fed regulation," he said.

"They are also scared of having consolidated regulation at the holding company level at the first time in the way the Fed is proposing," he said. "Where does that leave the states?" they are asking.