AIG American International Group Inc

WASHINGTON—Big U.S. insurers Prudential Financial Inc. and American International Group Inc. would face tougher capital requirements than their peers under new rules outlined for the first time Friday by the Federal Reserve's point-man on regulation.

Fed Gov. Daniel Tarullo said the Fed will propose rules "in the coming weeks" that will have higher compliance costs for insurers considered "systemically important" to the U.S. financial system.

That group currently includes AIG and Prudential, but not MetLife Inc., which won a court case overturning its systemic label earlier this year. The government has appealed MetLife's win.

The Fed gained authority for the first time to regulate insurance companies under the 2010 Dodd Frank law, but has taken more than five years to propose rules for the industry. Mr. Tarullo's remarks Friday were the central banks most detailed description to date of the pending regulations.

Mr. Tarullo didn't give all the details of the Fed rules, but he sketched them out in a speech to the National Association of Insurance Commissioners, a group of state regulators. He said the Fed will propose different rules for systemic insurers than for other insurance companies it regulates.

The central bank also regulates a dozen U.S. insurance companies that own banks, including Nationwide Mutual Insurance Co. and State Farm Mutual Automobile Insurance Co.

"Our tentative conclusion is that a bifurcated approach to a capital regime for insurance companies makes sense," Mr. Tarullo said.

The rules for non-systemic insurance companies are likely to have a "relatively low regulatory burden," aggregating capital requirements that already exist at the state level, Mr. Tarullo said.

Prudential and AIG are likely to face a different capital requirement based on "risk segments," with the Fed placing assets and liabilities in categories based on the potential risks they pose to the company and the financial system, Mr. Tarullo said. The companies would have to maintain more capital against segments with higher risk, he said, adding that the rules for systemic firms would result in higher compliance costs.

Mr. Tarullo said the Fed also intends to impose stricter rules on systemic firms in the areas of corporate governance, risk management, and liquidity, following on a mandate from Congress to set out tougher standards on firms that have a size and complexity that a crisis at that institution could ripple through the broader financial system, the way AIG's woes aggravated the 2008 financial crisis.

He said the firms would likely face capital and liquidity "stress tests" examining their ability to fund themselves and keep operating in a crisis.

Mr. Tarullo said the Fed would issue an "advance notice" of the rules, giving the industry multiple chances to comment on them.

Write to Ryan Tracy at ryan.tracy@wsj.com

(END) Dow Jones Newswires

May 20, 2016 09:25 ET (13:25 GMT)

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