The U.S. Federal Reserve appears likely to create its own capital rules for insurers deemed to be systemically important financial institutions and will not use the International Association of Insurance Supervisors capital rules for SIFIs, according to an analysis by Standard & Poor's Corp.

S&P said Monday that Daniel Tarullo, board governor at the Federal Reserve, announced in a speech May 20 an Advanced Notice of Proposed Rulemaking in the coming weeks for draft consolidated risk-based capital rules for nonbank U.S. SIFIs and “another building-blocks approach for insurance-based savings–and-loan holding companies” and gave some insight into the SIFI rules.

According to S&P, the Fed's capital rules will likely have some similarities to the initial basic capital requirements in the IAIS rules, such as being a risk-factor-based capital rule and being applied on a consolidated approach across insurance groups.

The Fed, however, “seems inclined to create its own capital rules, which will rely on consolidated U.S. generally accepted accounting principles, with a few possible adjustments,” S&P said.

S&P said it believes the Fed is reluctant to adopt the ultimate insurance capital standards and high-loss absorbency in the proposed IAIS rules for globally systemically important insurers, particularly if an internal model is part of the capital standards.

“It remains to be seen if these independent efforts by the Fed will dilute the influence of a G-SII policy that already lacks an international treaty or legal authority,” S&P said.

“Currently, the IAIS has stated 2019 as its goal for implementing G-SII capital requirements, which we view as overly aggressive and likely to face delays,” the ratings agency said.

A bifurcated approach to a capital regime for systemically important insurers likely will increase compliance costs, S&P noted.

S&P said that the Advanced Notice of Proposed Rulemaking was a first step and that the ultimate capital design of the Fed's rules could undergo various iterations following a consultation period.

“What is new, is Tarullo's indication that the capital rules will initially be 'simple in design,' ” S&P said.

“It is too early to tell if simplicity means the least constraining regulatory capital requirements,” it said. “In our view, too simplistic capital charges may run the risk of not fully accounting for insurers' heterogeneous risk profiles that could account for historical loss activity and observed volatility.”