Fed proposes capital requirements for insurance units

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WASHINGTON — The Federal Reserve is seeking feedback on a proposed risk-based capital framework for firms supervised by the central bank that are heavily engaged in insurance activities.

The Fed is proposing a “Building Block Approach” to determine a company’s enterprise-wide capital requirements. The framework would be aligned with state-based capital requirements.

The proposal "looks to the well-known insurance capital standards from state regulators to establish minimum requirements," Fed Vice Chairman for Supervision Randal Quarles said in a press release. "Banks and insurance companies can face materially different risks and this proposal takes that into account."

The approach constructs “building blocks,” or groupings of entities in the supervised firm, to be covered under the same capital requirements. The blocks are used to calculate combined, enterprise-level available capital and the capital requirements.

The Fed's proposal accounts for risks specific to the insurance business, but the minimum standard would be comparable to banks’ minimum total capital ratio, which is set at 8%.

The Fed will conduct a quantitative impact study of the “Building Block Approach” to better inform the framework. Stakeholders have 60 days to submit comments on the proposal.

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Insurance SIFIs Minimum capital requirements State regulators Regulatory reform Randal Quarles Federal Reserve