Oct. 29 (Bloomberg) -- Insurance companies including Lincoln National Corp. may seek to become banks to qualify for a slice of the $250 billion being doled out to financial firms by the U.S. government.

Lincoln National Chief Executive Officer Dennis Glass said today he's weighing the transformation of his Philadelphia-based life insurer into a bank holding company. His comment came as Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency, which protects bank customers, may play a role in regulating insurers.

Companies that reorganize as banks, a step already taken by securities firms Goldman Sachs Group Inc. and Morgan Stanley, may be able to more easily participate in the Treasury's rescue package and get direct loans from the central bank. GMAC LLC, the money-losing mortgage lender, is seeking such a transformation.

``We would do that,'' Glass said on a conference call with analysts and investors today after the company said third-quarter profit fell by half. ``I doubt seriously it would prevent us from doing anything we are doing.''

Life insurers lost more than 40 percent of their market value this month on concern that declines in their asset-backed securities and corporate debt holdings would squeeze liquidity. American International Group Inc., once the world's largest insurer, ceded control to the U.S. on Sept. 16 after losses from bad bets tied to housing.

The FDIC may expand to offer protection and regulations for more types of financial institutions, including insurers, Bair said today at a conference of international deposit insurers in Arlington, Virginia.

FDIC's Role

``That might be a direction where our abilities would be expanded,'' Bair said.

Bair's comments dovetail with a push by Treasury Secretary Henry Paulson and some of the largest U.S. insurers for the federal government to replace the regulation provided by each of the 50 states. The so-called ``optional federal charter'' would give insurers the choice between national or state oversight.

State insurance commissioners have argued that the continued ability of AIG's state-regulated insurance units to pay claims even as its federally regulated parent company ran short of capital belies the assertion that national oversight is preferable for the people who buy insurance policies.

`Systemic Implications'

AIG obtained an emergency federal credit line last month after regulators determined its collapse would roil financial markets. The New York-based insurer has units that originate, insure and invest in home loans, and its financial products unit sold protection on more than $400 billion of corporate debt and mortgage-backed securities.

``If Lincoln National went bust it wouldn't have systemic implications'' for the economy, and policyholders would be protected by state regulators, said Robert Haines, an analyst with Credit Sights Inc. in New York. ``I don't see the argument why life insurers should be allowed to participate'' in the federal capital plan.

David Skidmore, a spokesman for the Federal Reserve, declined to comment.

Investors who expect life insurers will get capital from the Treasury ``are too optimistic,'' Eric Berg, an analyst at Barclays Plc, said in a note today. Berg said he reached the conclusion that government help was unlikely under the existing program after discussion with the Financial Services Roundtable, a trade association. His note to investors didn't address the possibility of insurers becoming banks.

Hartford, Prudential

Some investors speculated insurer Hartford Financial Services Group Inc. may get federal cash from the so-called Capital Purchase Program or that Prudential Financial Inc. may fund an acquisition with Treasury funds, Berg said.

``What the government sees as the intent of the CPP program and what insurers may want to do with the government's money may be at odds,'' he said.

Bob DeFillippo, a spokesman for Prudential, declined to comment. Harford's Shannon Lapierre didn't return a call.

Financial Services Roundtable asked Treasury last week to consider buying stakes in insurers, said Scott Talbott, senior vice president of government affairs for the Washington-based group. The association didn't get a formal reply, he said.

`Distorting Subsidy'

Ace Ltd. CEO Evan Greenberg said he is ``adamantly opposed'' to the U.S. including insurers in the program. Any sale of equity by life or property-casualty insurers to the government would be a ``cheap and distorting subsidy,'' Greenberg said today on a conference call with analysts. Greenberg chairs in industry group that opposes federal capital injections for insurers.

Goldman and Morgan Stanley last month transformed into bank holding companies and the federal government agreed to inject $10 billion into each of the New York-based firms. GMAC, the primary lender to customers of General Motors Corp., is seeking holding company status to quell doubt about its survival. The Detroit- based firm gained access to a separate program that's designed to unlock the commercial paper market, a company spokesman said yesterday.

The federal government has already committed more than $160 billion to propping up banks.

To contact the reporters on this story: Erik Holm in New York at eholm2@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net

Last Updated: October 29, 2008 14:58 EDT