The property/casualty insurance industry is giving a generally favorable response to the Federal Reserve Bank's possible capital standards for systemically important insurance companies.

The Fed issued an advance notice of proposed rulemaking on Friday, 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. “one approach — called the consolidated approach — that would apply to systemically important insurance companies, and a second approach — called the building block approach — for less complex insurance companies that also own a bank or thrift,” said the statement.

“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 statement noted that the Fed currently 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 systemically important financial institution 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,” said Robert Gordon, PCI's Washington-based senior vice president, policy development and research, 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.”

“Congress has been very engaged in expressing concerns about adoption of international insurance standards and the need to appropriately sequence the development of domestic capital standards that are pro-consumer and pro-competition,” added Mr. Gordon. “PCI will continue to engage with members of Congress who are developing legislation also addressing some of these issues.”

“Today's 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,” said Leigh Ann Pusey, president and CEO of the Washington-based American Insurance Association, 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,” said Charles M. Chamness, president and CEO of the Indianapolis-based National Association of Mutual Insurance Companies, 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.”

“The frameworks we are considering would address all the risks across an insurance company's regulated and unregulated subsidiaries,” said Federal Reserve Chair Janet L. Yellen in the Fed 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.”