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.