Fed's proposed SIFI rules seen as a relief for insurersReprints
Calling the Federal Reserve Board's proposed capital standards for systemically important insurance companies “very, very significant,” Howard Mills, global insurance regulatory leader at consultant Deloitte L.L.P. in New York, said “I think it is a pretty clear signal to the U.S. insurance industry that their worst fears will not be realized."
“The Fed appears to be taking a line that comports with U.S. state regulators and is an indication that the Fed is looking out for the U.S. insurance industry with regard to the ongoing debate around global insurance capital standards,” Mr. Mills said.
Mr. Mills adds his voice to the generally favorable response to the Fed's action Friday, when it issued an advance notice of proposed rulemaking, inviting comment on conceptual frameworks for capital standards that could apply to systemically important insurance companies and to insurance companies that own a bank or thrift.
The Fed said in a statement that it was considering two approaches: the consolidated approach, which would apply to systemically important insurance companies; and the building block approach, which would be for less complex insurance companies that also own a bank or thrift.
“For systemically important insurance companies, the consolidated approach would categorize an entire insurance firm's assets and insurance liabilities into risk segments, apply appropriate risk factors to each segment at the consolidated level, and then set a minimum ratio of required capital,” said the Fed in the statement.
“The frameworks we are considering would address all the risks across an insurance company's regulated and unregulated subsidiaries,” Federal Reserve Chair Janet L. Yellen said in the statement. “I believe 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.”
The statement noted that the Fed supervises two systemically important insurance companies: American International Group, Inc. and Prudential Financial, Inc. A third insurer — MetLife Inc. — successfully challenged its designation as a SIFI in U.S. District Court, but the federal government is appealing.
Property/casualty insurers generally hailed the Fed's move.
The Property Casualty Insurers Association of America “applauds this major step forward in developing a group capital approach for domestic insurance holding companies subject to the Fed's supervision,” Robert Gordon, PCI's Washington-based senior vice president, policy development and research, said in a statement. “PCI will analyze the proposed rule and looks forward to continuing to work with the Fed. It is important to get this right, as 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.
The “issuance of the ANPR outlining the Federal Reserve's bifurcated approach to group capital for prudentially supervised insurance firms is an important next step in the implementation process of the Dodd-Frank Act,” Leigh Ann Pusey, president and CEO of the Washington-based American Insurance Association, said in a statement issued Friday. “It provided additional clarity on the Federal Reserve's underlying rationale and sets the stage for public input on its intended approach.”
“For any additional regulation or standards for American insurers to be effective, it's vital that they be based on the state regulatory system,” Charles M. Chamness, president and CEO of the Indianapolis-based National Association of Mutual Insurance Companies, said in a statement. “Relying on risk-based capital standards and allowing the use of statutory accounting principles will provide everything the Fed needs to monitor the solvency of those insurance companies under its jurisdiction not labeled systemically important.”