On June 3, 2016, the Federal Reserve Board (FRB) released two sets of regulations pertaining to insurance groups under its jurisdiction:
- Advance Notice of Proposed Rulemaking (ANPR) on insurance group capital requirements
- Request for public comment on the enhanced prudential standards for insurance groups designated as systemically important by the Financial Stability Oversight Council (FSOC).
These regulations will impact all U.S. insurance groups, either directly or indirectly, including those outside of the FRB’s jurisdiction:
- SIFI insurers will be both (i) subject to a new, GAAP-based group capital standard that is in the early stages of development (that will also form the basis of a stress testing framework) and (ii) covered by enhanced prudential standards, which are not expected to impose a significant constraint
- Non-SIFI insurers with a bank will be subject to a group capital standard (Building Block Approach; BBA) that is anchored to the existing statutory capital rules and will minimize implementation burden for these firms; these insurers will also be subject to stress testing of the BBA framework but will not be covered by the enhanced prudential standards
- Insurers not under the FRB’s purview are not covered by these proposed rules, however, we expect the NAIC’s developing group capital measure to closely align with BBA; further, the NAIC (or rating agencies) may adopt this approach as a binding capital standard; we do not expect these firms to be subject to stress testing or enhanced prudential standards
Authors:
Nick Chan, Principal in the Americas Insurance Practice
Kristin Ricci, Principal in the Americas Insurance Practice
