Insurers worry the Federal Reserve Board will impose inappropriately “bank-centric” financial standards on insurers it regulates, including those designated as systemically important financial institutions.

The Fed has not yet spelled out the details of its “enhanced prudential standards” for nonbank SIFIs, but last year proposed applying Basel III capital standards aimed at banks to insurers. It has since said that it would assess the business models, capital structure and risk profile of nonbank financial companies and tailor the standards as needed.

The problem, said Charles M. Horn, a partner with Morrison & Foerster L.L.P. in Washington, is “at this point, we just don't know what they mean by that.”

Insurers — particularly life insurers — argue that insurer operations and balance sheets are unlike those of banks and that applying bank rules could be harmful.

Banks have short-term liabilities and higher levels of leverage that demand more capital, experts say. Insurers, with longer-term liabilities, are less subject to unpredictable outflows of capital; short-term capital adequacy measures would encourage short-term investing that would create asset/liability mismatches, the American Council of Life Insurers has warned.

The question is, “can you have a run on an insurance company like you can on a bank?” said Thomas Sullivan, partner with the financial services regulatory practice of PricewaterhouseCoopers LLP in Hartford, Conn. The widely held belief, he said, is that it can't.

The ACLI maintains that the Federal Reserve should use the risk-based capital standards developed by state insurance regulators.

Steven A. Kandarian, chairman, president and CEO of MetLife Inc., expressed doubts that “bank-centric” regulation can be made to work for insurers: “No amount of "tailoring' will ever make bank capital standards fit a life insurer's balance sheet,” he said in an April speech at the U.S. Chamber of Commerce in Washington.

MetLife, widely expected to be designated a nonbank SIFI, performed poorly last year in Federal Reserve stress tests designed for bank holding companies.

PwC said in an analysis that it expects the Federal Reserve to finalize its enhanced prudential standards for nonbank SIFIs by the end of this year.

Insurers, meanwhile, are lobbying against a parallel effort by the International Association of Insurance Supervisors to impose enhanced financial standards on companies deemed “global systemically important insurers,” or GSIIs.

The Basel, Switzerland-based IAIS has not yet designated any global insurers as GSIIs.