WASHINGTON — The Federal Reserve will vote next week on whether to publish a blueprint for capital requirements for insurance firms under its supervision and insurance companies designated as systemically risky.
The Fed board on Friday issued a notice of an open meeting on June 3 to consider an advance notice of proposed rulemaking — a sort of pre-proposal– outlining the agency’s approach to capital requirements for regulated institutions "significantly engaged in insurance activities" and insurance companies designated as systemically important financial institutions by the Financial Stability Oversight Council.
Fed Gov. Daniel Tarullo, who heads the board’s supervisory committee, said in a speech to state insurance regulators last week that the plan would regulate SIFI insurance firms with something called the "consolidated approach," which would categorize firms’ activities and assign each certain capital weights based on risk. The approach is designed to encourage less-risky activities, much the way risk-based capital standards are applied for bank holding companies.
Three insurance companies have been designated as SIFIs by the oversight council — Prudential, American International Group and MetLife. MetLife last year challenged its designation in court and had it overturned by a federal judge in March. That ruling is being appealed, but other firms — notably AIG — have said that the regulatory costs of being designated a SIFI have not outweighed the benefits of being a consolidated company. The new rules could change that calculation.
As for insurance firms that count banks or thrifts among their affiliates, Tarullo proposed a "building-block approach," which would effectively require a firm’s affiliates to comply with their lead regulator’s capital rules individually. This would preserve a state or foreign regulator’s oversight over a firm’s affiliates while preserving the Fed’s oversight role over the firm as a whole.