The provision seeks to impose stronger federal oversight on financial services companies that engage in proprietary trading and enter into joint ventures with hedge funds and private equity funds.

The PCI letter contends that insurers' investment activities are not funded with depositors' funds and are necessary to offset insurance underwriting risk.

Moreover, the PCI letter said, insurer investments are generally low-risk and "tailored to the insurer's liabilities in order to ensure that policyholders' claims will be paid, and enable insurers to offer insurance products that can require policyholder claim payments over long periods of time."

The PCI letter was signed by James M. Olsen, its senior director of accounting and investment policy.

In the letter, Olsen said that in crafting the Volcker Rule, "Congress also recognized that insurer investment activities are already heavily regulated and closely supervised by state insurance regulators, whose job it is to ensure that insurers licensed in their states remain solvent and able to pay claims."

The letter said that state rules are "strict," and prohibit insurers from making investments that are detrimental to the interests of policyholders.

"In light of these facts, Congress included the Volcker Rule exemption for investments by a regulated insurance company or its affiliates for the general account of the insurance company," the letter notes.

"The exemption is predicated on a requirement that the investments be in compliance with all applicable state insurance investment laws and regulations, and that the federal banking agencies do not jointly determine that the existing state investment laws and regulations are insufficient to protect the safety and soundness of the banking entity or the nation's financial stability," the PCI letter says.

The PCI letter also makes clear that the trade group and its members understand that the insurance exemption does not affect an insurer's affiliated banks and non-insurance affiliates "which, where required under the Volcker Rule, are subject to proprietary trading restrictions."

The letter states, "Regulators must follow the considered judgment of Congress not to restrict the investment activities that are a necessary part of the business of insurance, and must avoid unwarranted interference with state insurance regulation frameworks, which already provide very strict and conservative solvency protections and oversight for the insurance marketplace."

It adds, "Given the havoc that could be created if regulatory obstacles began to emerge that prevent insurers from investing to manage risk and cover claims liabilities, PCI believes it is important that the FSOC's recommendations emphasize the intent and the decision of Congress in this regard."