Life Insurers Seek Money in the Banks

"I think it's clear that Treasury has made a decision that aligning insurance companies into federal oversight is a good policy," says Frank Mayer III, an attorney with of Buchanan Ingersoll & Rooney specializing in advising companies on relationships with governments and government agencies. "They are only providing capital if the insurance companies are willing to become part of a federally regulated regime. "

While subsidiary insurance companies would still be regulated by the states, the holding companies would be regulated on the federal level. A turf battle among potential regulators will likely accompany federal approval of the insurers' move into the S&L business. This could be similar to the "preemption" battle between the Office of the Comptroller of the Currency, which supervises national banks, and the states, which were thwarted in efforts to curb the activities of non-bank mortgage subsidiaries held by national banks, during the housing boom.

It's reasonable to expect OTS to approve the life insurance companies' applications to convert to S&L holding companies before the end of the year. Since the insurers would be hurt quite badly if their applications were rejected, it is likely they received some assurances from the regulator and possibly from members of Congress.

Mo Money, Mo Problems

Before announcing its deal for Federal Trust, The Hartford posted a $2.6 billion third-quarter loss. Lincoln National remained profitable in the third quarter, although its $148 million in profit was down 55% year-over-year, mainly due to a $314 million in losses on derivative investments.