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Fed releases proposed insurer capital standards

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Fed releases proposed insurer capital standards

The Federal Reserve Board unveiled its anticipated capital standards for insurers Friday.

Insurers have been clamoring for further clarification of the rules since three of them — American International Group Inc., Metlife Inc. and Prudential Insurance Co. — were identified by the Fed's Financial Stability Oversight Council as Systemically Important Financial Institutions in 2013 and subjected to a higher level of regulatory scrutiny.

MetLife successfully challenged its designation this year.

In its memo, the board said it was seeking public comment on two approaches to regulatory requirements for supervised insurance institutions:

• A building block approach which would use, as a starting point, existing legal-entity capital requirements for insurers, including state and foreign insurance risk-based capital requirements, and the bank holding company or bank risk-based capital standards for banking, noninsurance and unregulated entities.

• A consolidated approach, which would categorize all of a consolidated insurance firm's assets and insurance liabilities into risk segments tailored to account for an insurer's liability structure “and other unique features of an insurance firm,” apply risk factors to amounts in each segment and then set a minimum ratio of consolidated capital resources to consolidated capital requirements.

Robert Gordon, senior vice president, policy development and research at the Property Casualty Insurers Association of America, said in a statement that the association “applauds this major step forward in developing a group capital approach for domestic insurance holding companies subject to the Fed's supervision. 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.”

Daniel Rabinowitz, a partner with Kramer, Levin, Naftalis & Frankel L.L.P. in New York, said in a statement, “The Fed's draft rulemaking is striking in that it seems far less bank-centric than prior guidance and rules” on SIFIs and savings and loan holding companies-related insurers.

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