- Federal Reserve Unveils New Proposed Capital Rules for Large Insurers
- Public Comments
- Derivative Bets
- ‘Positive Step’
- MetLife’s Cloud
- March 2021 FOMC Meeting: Fed Isn’t Sweating Inflation Expectations
- The U.S. Economy Is Healing
- Wall Street’s Inflation Worries
- The Fed Ain’t Worried—Should You Be?
- What Is the Bond Market Telling Us?
- Tech Stocks Are Getting Crushed
- Inflation Concerns
- Federal Reserve issues capital standards for U.S. insurance companies, with SIFIs subject to additional enhanced prudential standards
- The Building Block Approach (BBA)
- The Consolidated Approach
- SIFIs Enhanced Prudential Standards
- Next Steps
- Content Contributed by:
Federal Reserve Unveils New Proposed Capital Rules for Large Insurers
American International Group Inc. and Prudential Financial Inc.’s new capital rules should reflect the insurance business’s differences from Wall Street banking, the Federal Reserve said in a proposal to limit the chance that the companies could threaten the financial system.
The Fed’s plan would subject AIG and Newark, New Jersey-based Prudential to a narrow set of categories by which they would have to measure the riskiness of their assets, the central bank said in a statement.
While the proposal approved Friday makes clear that the companies will be treated in a way that’s “appropriate for the longer-term nature of most insurance liabilities,” the Fed didn’t detail how it will determine the minimum capital the firms must maintain against their assets.
“This proposal is an important step toward capital standards that are both appropriate for our supervised insurance firms and that enhance the resiliency and stability of our financial system,” Fed Chair Janet Yellen said at the Friday board meeting, at which agency staff noted that the more stable funding backing the insurance industry means its risks could be addressed with a lower capital requirement than banks.
The Dodd-Frank Act of 2010 required the Fed to come up with standards for insurers that are deemed so big and complex that they could threaten the economy should they fail. New York-based AIG and Prudential are currently the only companies affected after the Financial
Stability Oversight Council declared them systemically important financial institutions. MetLife Inc. successfully sued the government to avoid the risk label, and the U.S. is appealing.
The Fed’s rule-writing process is at an early stage that’s meant to draw public comments to help the regulators craft a more formal plan. The agency will accept feedback on the capital plan for 60 days. But with a few steps still to go before the standards become a final rule, the process may be difficult to finish this year.
Also Friday, the Fed approved a formal proposal for how the designated insurers must govern themselves and manage their risks — including a new demand for a 90-day liquidity buffer that would allow the companies to keep operating in periods of stress. The cushion, new internal stress tests and other prudential standards similar to what banks operate under were also a Dodd-Frank mandate. the capital plan, these standards are also tailored for the insurance industry, the Fed said.
Banks rely heavily on funding from deposits, which are subject to immediate withdrawal, and the biggest companies in the industry have long been overseen by federal agencies. On some insurance contracts, however, companies collect periodic premiums over a period of years, and only have to make payments if a policyholder dies or becomes disabled.
Still AIG’s near collapse in the financial crisis highlighted the risks in the insurance industry, which is traditionally overseen by state watchdogs. AIG needed a U.S.
bailout after losses on mortgage-related derivative bets beyond the purview of those watchdogs. That rescue, which swelled to $182.
3 billion, led to calls for a greater federal role monitoring the industry’s largest companies.
AIG slipped 58 cents to $57.26 at 4:15 p.m. in New York, extending its decline for the year to 7.6 percent. Prudential dropped $2.61 to $76.12 and is down 6.5 percent since Dec. 31. Insurers that aren’t subject to Fed oversight also fell Friday, as disappointing U.S. jobs data led to bets that the central bank will delay an increase in interest rates.
The American Council of Life Insurers, an industry group, said it was “encouraged” by the proposal for the largest companies. Jennifer Hendricks Sullivan, a spokeswoman for AIG, declined to comment on the proposal.
“We view this as a positive step forward that recognizes the underlying economics of our businesses,” Scot Hoffman, a spokesman for Prudential, said in a statement. “We are evaluating the proposals and look forward to continuing to participate in the ongoing dialogue.”
MetLife has been embroiled in a legal battle with the U.S. government. Because a judge reversed MetLife’s designation as systemically important, it may dodge the new rules.
Chief Executive Officer Steve Kandarian said this week that as long as FSOC exists, a future version of the panel could later redesignate MetLife, so a “cloud still hangs over the company for the foreseeable future.”
The Fed also proposed a capital plan Friday for the 12 insurers it oversees because they own banks, including State Farm Mutual Automobile Insurance Co., TIAA and Nationwide Mutual Insurance Co. The proposal for those companies largely defers to the capital requirements already imposed on insurance firms by existing regulators — often state agencies.[Robert Gordon, senior vice president, policy development and research at the Property Casualty Insurers Association of America (PCI), called the Federal Reserve’s proposals a “major step forward in developing a group capital approach for domestic insurance holding companies subject to the Fed’s supervision.” Gordon said PCI believes it is important to get the rules right because “the Fed’s approach to capital standards may set a precedent for the state-based U.S. regulatory system and may also impact the international deliberations.]
Get automatic alerts for this topic.
March 2021 FOMC Meeting: Fed Isn’t Sweating Inflation Expectations
When the Federal Reserve Open Markets Committee (FOMC) last met, President Biden had just been sworn in and Congress had only just begun debating his $1.9 trillion stimulus proposal. Vaccinations were progressing haltingly, and more than 150,000 people a day were still getting Covid-19. The mood was somber.
Much has changed in the intervening seven weeks. New Covid-19 infections have fallen by two-thirds, more than a few states are ending economic lockdowns and tens of millions Americans have received vaccinations—especially the most vulnerable.
The passage of the American Rescue Plan and the brightening economic outlook are sharpening concerns about inflation, at least among professional investors. More and more observers expect the economy to come roaring back in 2021, and that might mean higher prices.
Unsurprisingly, the Fed is still playing it cool. Today, it left the federal funds rate right where it’s been since March 15, 2020: 0.00% to 0.25%. But how much longer the FOMC will hold on to their easy money stance has become a near obsession for markets and investors.
The U.S. Economy Is Healing
Today’s Fed meeting wraps up one of the more remarkable 12-month periods in the central bank’s history.
One year ago, the FOMC had held its second emergency meeting inside of a month, cut the fed funds rate to 0.00% to 0.25% and restarted quantitative easing (QE) to prop up the bond market. Since then, the Fed has added $3.5 trillion to its already bulging balance sheet, and it’s unly to raise rates again until 2023.
These emergency policies, together with more than $5 trillion in stimulus spending by the federal government, have helped the U.S. economy heal much more quickly than many expected. And thanks to thousands in direct stimulus and unemployment insurance payments, many Americans actually increased their savings over the past year.
All that cash sitting in the bank accounts is just waiting to be spent, and most American households just received $1,400 per person in stimulus checks.
With post-Covid-19 normality getting closer and closer, the U.S. economic recovery is underway. After peaking at almost 15% in April 2020, the unemployment rate declined to 6.2% in February 2021.
The Fed sees U.S. GDP growing 6.5% for 2021, according to its latest Summary of Economic Projects (SEP) forecast, up from an estimate of 4.2% almost three months ago.
It also sees the unemployment rate dropped to 4.5%.
Whereas the recovery from the Great Recession proved to be a slog, the Covid recovery is looking very bright.
Wall Street’s Inflation Worries
The Federal Reserve, as Fed Chair Jerome Powell keeps reminding the world everytime he speaks, has two jobs: maximize employment and keep prices stable.
Fed QE and Congress’s stimulus aid was intended to help keep Americans and business afloat until economic life returned to normal. Now that recovery is coming, investors are seriously worried about the Fed’s ability to keep prices stable.
One way to gauge this concern is the 10-year breakeven inflation rate, which is basically the difference between two 10-year Treasury Notes—one indexed for inflation and one that isn’t. This metric tells you where investors think inflation is going over the next decade.
Right now, the 10-year breakeven inflation rate is 2.3%, which is slightly higher than where it was in the summer of 2018, when the Fed was still raising interest rates. More to the point, it’s also the highest it’s been, period, since 2014. At the start of 2020, it was right around 2%.
On the one hand, investors are correct in expecting inflation to rise.
Not only is the federal government spending vast amounts of money, but Powell himself said the Fed will tolerate inflation above its 2% target for a period of time before raising interest rates.
One of the reasons the Fed welcomes higher prices is that inflation growth was well below target since the Great Recession—and low inflation is not always a good thing.
But inflation is a word that strikes fear into the hearts of rich Wall Street investors. For some, the words “high inflation” provoke memories of the terrible era of the late 1970s and early ‘80s, when the economy was stuck in neutral and inflation grew control, a state of affairs called stagflation.
The Fed Ain’t Worried—Should You Be?
Wall Street’s inflation concerns may be overblown. While the labor market has improved dramatically since the darkest depths of the pandemic, tens of millions are still work today. Meanwhile, many of the other advanced economies around the globe are also struggling to recover from the crisis.
The Fed believes inflation, according to its preferred gauge, will rise 2.4% this year, and so-called core inflation, which strips out volatile food and energy prices, will gain only 2.2%.
“The combination of slower growth in many of America’s major trading partners, remaining slack in the labor market and contained expectations of future inflation—helped by the Fed’s previous efforts to break a coercive inflationary spiral—should prevent inflation from becoming unbridled over the next few years,” said a trio of Wells Fargo economists in a recent note.
Nevertheless, Fed watchers will be on the lookout for any sign that the central bank may tighten, even subtly, its money spigot.
* * * * *
You’d think the FOMC)would be meeting under happier circumstances this month.
Covid-19 hospitalizations have fallen off a cliff, millions of Americans are getting vaccinated every day and consumers have kept spending thanks in part to the $900 billion relief package passed late last year. Economists believe that after a rough 2020, the economy will experience a boom in 2021 the s of which has not been seen for years.
Yet investors are acting skittish. Stocks are off recent all-time highs, and tech companies in particular have gotten hammered. The yield on the 10-year Treasury has risen in recent weeks, showing less demand for fixed income (bond prices and yields have an inverse relationship).
Here’s the culprit: Everyone is suddenly worried about inflation, which has been muted since the end of the Great Recession more than a decade ago. Well-heeled Wall Street investors are worried that a roaring economic comeback coupled with almost $2 trillion in Covid-19 relief spending will cause prices to soar, they did in the 1970s.
Federal Reserve Chair Jay Powell has tried to pump the brakes on this narrative, to no avail, saying again and again that the economy has so much ground to make up that inflation shouldn’t be anybody’s main concern.
“We’re still a long way from our goals of maximum employment and inflation averaging 2% over time,” Powell said in an interview at The Wall Street Journal Jobs Summit on March 4.
Professional investors can be a delicate lot, though. They want calming words of encouragement from Chair Powell before they can sleep soundly at night.
What Is the Bond Market Telling Us?
Bond yields have been rising for much of the past two months. For instance, the yield on the 10-year Treasury Note was:
- 0.917% on January 4
- 1.148% on February 4
- 1.552% on March 4
The fact that investors are shedding fixed income assets shouldn’t be particularly surprising.
President Joe Biden recently announced that there would be enough vaccines to inoculate all U.S. adults by the end of May, roughly two months earlier than expected. Congressional Democrats are poised to pass a $1.9 trillion relief package that comes with $400 per week in extra unemployment insurance, $1,400 stimulus checks for many adults and a bigger child tax credit.
The labor market went a bit sideways in the winter months, it’s true, thanks to rising Covid levels and redoubled state lockdowns, but the most recent report showed signs of progress. After shedding almost 230,000 jobs in December, employers added back almost 50,000 in January. That number will ly improve in February, with Covid cases falling dramatically.
Tie it all together, and you see an economy ready to return to normal, with the bond market adjusting accordingly.
“Bond yields are rising right now because the market is pricing in the reopening of the economy for the post-Covid-19 world and accelerating economic growth,” said Richard Saperstein, chief investment officer for New York City-based wealth advisor firm Treasury Partners.
Tech Stocks Are Getting Crushed
And yet some market participants are getting jittery. The S&P 500 traded at an all-time high of nearly 4,000 in the middle of February, but has since dropped to less than 3,800 as of early March.
Tech stocks have borne the brunt of the sell-off. Electric car maker Tesla Inc (TSLA), for instance, dropped from more than $850 a share in early February to about $620 a month later, a massive decline of about 25%. Nasdaq, the tech-heavy stock exchange, was down 10% from its high.
This is the opposite of last year, when bond yields crashed, tech stocks roared and Tesla became the world’s most valuable car company by a mile.
Right now, though, higher yields are hammering stock valuations since investors can pocket more money by sticking it in safe assets. Tech stocks Tesla promise fast growth in years to come, but those lofty goals are harder to reach when the money needed to fund that growth comes with increasingly high price tags and investors get a higher return by simply parking their money in safe bonds.
“The tech stock sector is the most vulnerable from rising bond yields and will face the brunt of the decline,” said James McDonald, chief investment officer of Los Angeles-based Hercules Investments.
“Un other stock sectors cyclicals, stocks in the tech sector are valued on longer-term earnings. If bond yields and borrowing costs are rising, a company’s longer-term earnings may be negatively affected.
Despite his best efforts, Powell can’t quite get investors not to worry so much about inflation. It’s a strange situation, especially when you realize that inflation hasn’t been a thing to worry about in a while.
The Fed’s stated goal is to keep prices rising by around 2% a year, as measured by the Core Personal Consumption Expenditures Price Index. Commonly known as Core PCE, this is the inflation measure the Fed uses when it makes projections.
The core in Core PCE refers to stripping away volatile food and energy prices, which tend to swing around widely month to month, season to season.
And you can see below that Core PCE inflation has spent most of the past decade or more below the Fed’s 2% target.
To address this long-term trend, Powell laid out a new policy last August in which the Fed would let inflation rise moderately above 2% for a spell without raising interest rates. In his recent talk with the WSJ, Powell said he wouldn’t raise rates even if the unemployment rate dropped to pre-Covid recession lows.
Basically, the Fed wants to see inflation rise quite a bit, and for a sustained period, before it even thinks about doing anything with interest rates.
This is making some investors very antsy, and they worry the Fed might end up in a position where it’s unable to stop a runaway train. Should prices pop later in the spring, after the economy begins to recover and more relief payments go out to individuals, these Chicken Littles may feel vindicated.
The conventional wisdom, though, is that any inflation pick-up would be short lived.
“We believe inflation will be more of a concern to markets in the near-term but not as much over the long-term,” said Rod von Lipsey, managing director of UBS Private Wealth Management.
“Year-over-year comparisons in headline inflation data will show a sharp increase over the coming months, which may spook markets, but we expect those elevated numbers to be short-lived and decline back near the Fed’s expectations of inflation by the end of the year.”
That’s Powell’s plan, anyway.
The Federal Reserve is in charge of monetary policy for the U.S., and the Federal Open Markets Committee (FOMC) is the committee that decides how to manage monetary policy. The FOMC meets eight times a year to debate interest rates, and vote on policies.
There are 12 members of the FOMC:
- The seven members of the Fed Board of Governors, which is lead by Fed Chair Jerome Powell
- Five of the 12 Federal Reserve Bank presidents, although the head of the Federal Reserve Bank of New York is a permanent member of the FOMC. The other four voting positions are filled on a rotating basis by the presidents of the other Federal Reserve Banks across the country. Even though most presidents don’t vote, they can all attend the meetings and debate policy.
The FOMC usually meets eight times a year, which translates to about once every six weeks. But the monetary governing body can meet more often if world events get crazy and the Fed believes it needs to act, such as during the outset of the pandemic.
The Fed had multiple unscheduled meetings in March when it decided to cut interest rates to near zero, and buy trillions of dollars of bonds to prop up the economy.
After this meeting, the FOMC meets on November 4th and 5th and then again on December 15th and 16th, the last meeting of the year. In that get-together, the FOMC will release a summary of economic projections, which lets the public know where it sees economic growth and inflation going in the near future.
The FOMC releases minutes of its meetings three weeks after the committee gathers. A full transcript isn’t available for a full five years after a meeting.
The Fed is unly to raise rates this year as the U.S. economy continues to recover from Covid-19. In fact, the Fed could wait until 2022 to increase borrowing costs following its announcement to let inflation run a bit higher than its 2% target.
Federal Reserve issues capital standards for U.S. insurance companies, with SIFIs subject to additional enhanced prudential standards
The Federal Reserve proposed capital standards have been designed to ensure the framework is as standardized as possible, which echoes the general regulatory desire for firms to reduce their reliance on internal capital models in order to “produce more consistent capital requirements, enhance comparability across firms and promote greater transparency.”11 The dual approach the Federal Reserve has proposed attempts to quell industry fears that capital standards imposed generally on insurance firms would create an unlevel playing field for the smaller players.
The Building Block Approach (BBA)
Although the Federal Reserve has traditionally set capital requirements for holding companies on a consolidated basis to deter firms from placing assets in legal entities that may be subject to lower capital requirements, or no requirements at all, such an approach would be difficult for smaller insurers to comply with, because many own depository institutions that do not produce consolidated financial statements.
To address this challenge in a bid to avoid unnecessary regulatory burden, the Federal Reserve suggests using the BBA, which would aggregate capital resources and capital requirements across various legal entities in the group to calculate combined qualifying and required capital. Under this approach, a firm’s aggregate capital requirements generally would be the sum of the capital requirements at each subsidiary.
The capital requirement for each regulated insurance or depository institution subsidiary would be the regulatory capital rules of that subsidiary’s functional regulator. The BBA would then build on and aggregate legal entity (insurance, noninsurance financial, nonfinancial and holding company) qualifying capital and required capital, subject to adjustments.
The BBA may require the use of several types of adjustments in the calculation of a firm’s enterprisewide capital requirement, while adjustments may be necessary to conform or standardize the accounting practices under statutory accounting principles, or SAP, among U.S. jurisdictions and between SAP and foreign jurisdictions. Similarly, adjustments may be necessary to eliminate intercompany transactions.
Additionally, the BBA may require consideration of cross-jurisdictional differences, which would be achieved through the use of scalars.
These may be appropriate to account for differences in stringency applied by different insurance supervisors and to ensure adequate reflection of the safety and soundness and financial stability goals, as opposed to policyholder protection, that the board is charged with achieving.
The ratio of aggregate qualifying capital to aggregate required capital would represent capital adequacy at a consolidated level.
Represented in an equation, the BBA could be summarized as follows:
The Federal Reserve paper highlights the efficient use of existing legal-entity-level regulatory capital frameworks as a major strength of the BBA, adding that such an approach could be developed and implemented expeditiously, involving relatively low regulatory costs and burdens for the institutions while also producing regulatory capital requirements tailored to the risks of each distinct jurisdiction and line of business of the institution.
At the top-tier level, the BBA is an aggregated, but not a consolidated, capital framework, which would not discourage regulatory arbitrage within an institution due to inconsistencies across jurisdictional capital requirements and may be vulnerable to gaming through techniques such as double leverage. Another identified weakness with this approach is that it would need to account for intercompany transactions, which may result in extensive adjustments.
It will also require the firm to determine scalars regarding a large number of state and foreign insurance regulatory capital regimes and would require legal-entity-level stress tests, presenting challenges to appropriate reflection of diversification and intercompany risk transfer mechanisms and other transactions.
Overall, the Federal Reserve maintains that the strengths of the BBA are maximized and its weakness minimized if the BBA is applied to insurance depository institution holding companies, which it describes as generally less complex, less international and not systemically important. “In this context, incremental safety and soundness benefits would appear to be complemented by the lower compliance costs due to the smaller number of scalars involved,” says the paper.11
The standardization of the BBA is emphasized again as a major advantage, as is the fact that it is executable, applies U.S.-based accounting principles for U.S.
legal entities, accounts for material insurance risks, strikes a balance between risk sensitivity and simplicity and is well tailored to the business model and risks of insurance.
What the Federal Reserve maintains that it does not do well, however, is capture the full set of risks SIFIs impose on the financial system without significant use of adjustments and scalars, thereby negating any potential burden reduction from the approach for SIFIs.
The Consolidated Approach
The Federal Reserve is also proposing a consolidated approach to capital with risk segments and factors appropriate for supervised insurance institutions.
The CA is a capital framework designed for supervised institutions significantly engaged in insurance activities that would categorize insurance liabilities, assets and certain other exposures into risk segments; determine consolidated required capital by applying risk factors to the amounts in each segment; define qualifying capital for the consolidated firm; and then compare consolidated qualifying capital to consolidated required capital.
Un the BBA, which fundamentally aggregates legal-entity-level qualifying capital and required capital, the CA would take a fully consolidated approach to qualifying capital and required capital.
Mindful of industry criticism that capital regimes designed for bank holding companies are inadequate for insurance companies because liability structures, asset classes and asset-liability matching of insurance companies differ substantially, the paper proposes that the CA use risk weights and risk factors that are appropriate for the longer-term nature of most insurance liabilities.
The foundation of the CA for SIFIs would be consolidated financial information U.S. generally accepted accounting principles (GAAP), with adjustments for regulatory purposes. Application of the CA to insurance depository institution holding companies that do not file U.S.
GAAP financial statements would require the development of a consolidated approach SAP.
The Federal Reserve paper suggests that initially, the CA could be simple in design, with broad risk segmentation, but that it could evolve over time to have an increasingly granular segmentation approach with greater risk sensitivity.
Represented as an equation, the CA could be summarized as:
The Federal Reserve paper views the simple and transparent factor-based design of the CA as one of its key strengths and one of its main weaknesses.
The paper warns that the initially simple design of the CA would result in relatively crude risk segments and thus limited risk sensitivity.
However, a main advantage is that the CA covers all material risks of supervised institutions significantly engaged in insurance activities and it is a fully consolidated framework with the potential to reduce regulatory arbitrage opportunities and the risk of double leverage.
The Federal Reserve believes that the CA would be relatively expeditious for it to develop and for institutions to implement, particularly in light of its broad risk segmentation. It is also described as providing a solid basis on which to build consolidated supervisory stress tests of capital adequacy for institutions subject to stress testing requirements.
One weakness of the approach is that substantial analysis would be needed to design a set of risk factors for all the major segments of assets and insurance liabilities of supervised institutions significantly engaged in insurance activities.
In addition, a separate SAP-based version of the CA would need to be developed for the insurance depository institution holding company population if CA were ever applied to an insurance depository institution holding company that uses only SAP.
Taking all of these points into account, the paper advises that this approach is an appropriate regulatory capital framework for SIFIs because it would more easily enable supervisory stress testing and other macroprudential features for them. The paper acknowledges that such benefits may be outweighed by the additional implementation costs for smaller firms.
SIFIs Enhanced Prudential Standards
Concurrently, the Federal Reserve has proposed enhanced prudential standards for SIFIs for liquidity, governance and risk management.
SIFIs are required to employ a chief risk officer and a chief actuary as well as maintain a risk committee, which approves and periodically reviews the risk management policies of the company’s global operations and oversees the operation of the company’s global risk management framework.
The risk committee would oversee the firm’s enterprisewide risk management framework, which should be commensurate with the SIFI’s structure, risk profile, complexity, activities and size.
The risk management framework would be required to include policies and procedures for establishing risk management governance and procedures and risk control infrastructure for the company’s global operations.
SIFIs are further required to ensure that processes and systems are put in place that have mechanisms to identify and report risks and risk management deficiencies, including emerging risks, and ensure effective and timely implementation of actions to address such risks and deficiencies.
These systems should also establish managerial and employee responsibility for risk management, ensure the independence of the risk management function and integrate risk management and associated controls with management goals and its compensation structure for its global operations.
The proposal would require that a SIFI implement a number of provisions to manage its liquidity risk.
SIFIs will need to meet key internal control requirements with respect to liquidity risk management, generate comprehensive cash-flow projections, establish and monitor liquidity risk tolerance and maintain a contingency funding plan to manage liquidity stress events when normal sources of funding may not be available.
The proposed rule also would introduce liquidity stress-testing requirements for a SIFI and would require the company to maintain liquid assets sufficient to meet net cash outflows for 90 days over the range of liquidity stress scenarios used in the internal stress testing. Although large bank holding companies are required to use a 30-day period for the liquidity buffer requirement, the proposed 90-day period for systemically important insurance companies is consistent with the generally longer-term nature of insurance liabilities.
Under the proposed rule, SIFIs would be required to conduct liquidity stress tests that, at a minimum, involve macroeconomic, sector-wide and idiosyncratic events (for example, including natural and artificial catastrophes) affecting the firm’s cash flows, liquidity position, profitability and solvency. Liquidity stress tests will be conducted monthly or more frequently, as required by the Federal Reserve.
SIFIs will be granted a phase-in period to comply with the enhanced prudential standards, which has been set as the first day of the fifth quarter following the effective date of the proposal, although SIFIs are encouraged to comply earlier, if possible.
The paper states that the Federal Reserve is continuing to analyze whether the BBA is appropriate as a regulatory capital framework for all firms or whether SIFIs should be subject to a regulatory capital framework other than the BBA, such as the proposed CA.
Comments on both the ANPR and the proposed rule are due by August 2, 2016.
After that, the preliminary notice of proposed rulemaking (NPR) will be issued and open for further comment before the rules are finalized and the implementation period can begin.
In the paper’s conclusion, the Federal Reserve emphasizes, as it did throughout the paper, the need for comments on its approaches to insurance regulatory capital.
The regulator plans to take its time with finalizing these proposals into firm rules in a bid to avoid insurance industry backlash, because these changes may significantly impact the U.S. insurance business in whichever final form they take, with the largest and most prominent insurers facing the most impact.
Content Contributed by:
Michael PisanoManaging Director, Internal Audit Services+1.212.708.6353[email protected]
Matthew MooreGlobal Risk & Compliance Practice Leader+1.704.972.9615[email protected]
1Capital Requirements for Supervised Institutions Significantly Engaged in Insurance, Federal Reserve System, June 3, 2016
2Press release, Board of Governors of the Federal Reserve System, June 3, 2016
3MetLife Statement on U.S.
District Court Ruling, March 30, 2016, and Statement from Treasury Secretary Jacob J.
Lew On MetLife V, Financial Stability Oversight Council, April 7, 2016
4Enhanced Prudential Standards for Systemically Important Insurance Companies, Federal Reserve System, June 3, 2016
5Press release, Board of Governors of the Federal Reserve System, June 3, 2016
7“PCI Applauds Fed’s Proposal as a Major Step in the Right Direction,” Property Casualty Insurers Association of America, June 3, 2106
8AIA Statement on the Federal Reserve Board’s Advanced Notice of Proposed Rulemaking Related to Insurers, American Insurance Association, June 6, 2016
9NAMIC Cautiously Optimistic on Fed’s Proposed Capital Standards, National Association of Mutual Insurance Companies, June 3, 2016
10“AIG Faces Push to Break Up,” by Leslie Scism, Joann S. Lublin and David Benoit, Wall Street Journal, October 28, 2015
11Capital Requirements for Supervised Institutions Significantly Engaged in Insurance, Federal Reserve System, June 3, 2016