A recent filing by the Federal Reserve Board brings to light insurance companies’ efforts to preserve state regulation and avoid federal oversight of their activities,National Underwriter reported.

Rules now being considered under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act could subject insurers that have significant banking operations to federal oversight. The Fed is creating a process to examine insurers that own or operate thrift institutions, among them Principal Financial Group Inc., which operates Principal Bank.

At an Aug. 6 meeting with officials from the Federal Reserve Bank of Chicago, 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, among other provisions. 

Susan Houser, assistant vice president for corporate relations for Principal, told National Underwriter that Principal presented its views at the meeting and plans to submit a comment  letter. “However, we cannot speculate about specific impact to The Principal until the final rules are released,” she said.

The Fed has identified at least 20 financial institutions that would face new scrutiny under the new rules, among them American International Group Inc., State Farm Mutual Automobile Insurance Co., Nationwide Mutual Insurance Co., Prudential Financial Inc., Northwestern Mutual Life Insurance Co. and W.R. Berkley Corp.

An insurance industry attorney said insurers’ primary concern 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,” said the attorney, who was not identified by National Underwriter 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.”