Fed Regulation For Insurance Firms Bidding To Become Thrifts

In the wake of a monumental move by six major insurance firms to become thrift institutions, speculation is rising what this will mean to the insurance industry as whole. The question is one of federal regulation and everyone is wondering how it will take shape if the applications are approved.

The players include Genworth Financial Inc., The Hartford Financial Services Group Inc., Lincoln National Corp., Transamerica Corp., and The Phoenix Cos. Inc. All of the companies have filed applications with the Office of Thrift Supervision (OTS), requesting savings and loan holding company status. This reason for this radical move has much to do with meeting requirements to be eligible for the Treasury Department’s Capital Purchase Program.

The six insurer, Protective Life Corp., located in Birmingham, Alabama, filed a similar application but reported requested bank holding company status rather than savings and loan status. The company hopes to snatch up The Bank of Bonifay and the Bonifay Holding Co. Inc., both located in Florida.

Once an insurer is approved for thrift status, the business will be required to make some internal adjustments, including a rearrangement of its regulatory structure. The result would mean a blending of federal regulation for the holding company with state regulation for subsidiaries. Meanwhile, the insurance parent company would fall under the supervision of the OTS regulatory agency. Potential risks would be isolated and dealt with by the agency and the management.

Those insurance programs regulated at the state level would not be including in OTS oversight listings. The insurer-now operating as a bank-would partner with the OTS and other state regulators. The OTS will play a distinctive role in program.

Those interested in participating in the Capital Purchase Program will be required to meet exacting standards on executive compensation to remain eligible.

While it may be too early to tell, many industry observers are already expressing concerns about how these carriers would operate differently under the new oversight.