Fed readying capital rule for insurance firms under its watch

WASHINGTON — Federal Reserve Vice Chairman for Supervision Randal Quarles on Wednesday said the agency’s approach to regulating insurance companies that include banking subsidiaries will be tailored to address each subsidiary appropriately.

Speaking to the executive roundtable of the American Council of Life Insurers in Naples, Fla., Quarles said that the agency is taking a “building-block approach” to capital requirements for those insurers that fall under the Fed’s umbrella. The Fed will flesh out that approach in a proposed rule “in the not-too-distant future,” Quarles said.

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“As the name implies, the [building block approach] constructs ‘building blocks’ — or groupings of entities in the supervised firm — that are covered under the same capital regime,” Quarles said. “These building blocks are then used to calculate combined, enterprise-level capital resources and requirements. In each building block, the BBA generally applies the capital regime for that block to the subsidiaries in that block.”

The approach was first described in an advance notice of proposed rulemaking from June 2016, but since then it has been unclear when the Fed would move toward issuing an actual proposed rule or whether the building block approach would ultimately be adopted.

The Dodd-Frank Act gave the Fed authority to set capital requirements for insurance companies that own a federally insured bank as part of their structure, as well as any insurance firm designated as a "systemically important financial institution" by the Financial Stability Oversight Council.

There were at one time four companies designated as SIFIs, but the last of them, the insurance giant Prudential, shed its designation in October. Insurers subject to the Fed’s jurisdiction amount to about 10% of the insurance industry.