Featured Product

    FED Proposes Capital Requirements for Insurers Under Its Supervision

    October 24, 2019

    FED launched a proposal to establish risk-based capital requirements for depository institution holding companies that are significantly engaged in insurance activities. Under the proposed framework, known as the Building Block Approach or BBA, holding companies significantly engaged in insurance activities would be required to aggregate their state-based capital requirements into a consolidated requirement. The proposal would establish both minimum requirements and a buffer on top of the minimum. Comments on the proposal will be accepted until December 23, 2019. FED also published a white paper that explains the methodology being proposed to adjust for the differences between different state-based insurance capital requirements and bank capital requirements.

    The proposal would also revise reporting requirements for depository institution holding companies significantly engaged in insurance activities. FED proposes to implement a new reporting form for use in the Building Block Approach. The proposed reporting form, titled “Capital Requirements for Board Regulated Institutions Significantly Engaged in Insurance Activities” (Form FR Q-1), and instructions focus on information needed to perform the Building Block Approach calculations. The proposed Form FR Q-1 is not intended to be exhaustive in terms of addressing supervisory needs other than the needs for the Building Block Approach. The vast majority of the information reported to FED through the proposed reporting form would not be public. The information that FED proposes to make public would consist of the building block available capital, building block capital requirement, and Building Block Approach ratio for the top-tier parent of an insurance depository institution holding company’s enterprise. The proposed effective date for the reporting form is January 2021.

    The Building Block Approach accounts for risks that are specific to the business of insurance and is different from the calculations used for bank capital requirements. However, the minimum standard under the Building Block Approach would be comparable to one of the key measures of bank health, the minimum total capital ratio, which is set at 8% for banks. The proposal builds on comments received on a conceptual proposal from June 2016 that described the Building Block Approach. FED supervises depository institution holding companies, including those significantly engaged in insurance activities and the Board currently oversees eight firms. Their insurance activities include life, title, and property and casualty, and the firms range in size from less than USD 10 billion in total assets to more than USD 250 billion. The proposal builds on existing state-based insurance standards while establishing minimum capital requirements that are specific to the business of insurance. As part of the proposal, the Board will conduct a quantitative impact study of the Building Block Approach to better inform the framework. 

    The accompanying white paper describes the FED attempt to identify and evaluate different scaling methodologies. FED finds that the probability of default (PD) approach based on historical data could be used to translate information between regimes in a way that preserves the economic meaning of solvency ratios. This method, however, requires data that are not currently available for some regimes outside of the United States. The election of the scaling approach is, therefore, a choice between using a single simple approach to scaling in all economies or differentiating the scaling approach by country and using the historical PD domestically. FED recommends the latter approach. Although this approach will involve more work and some uncertainty for companies operating in countries with limited data, it should allow for scaling that is more accurate and aid comparability. 

     

    Related Links

    Comment Due Date: December 23, 2019

    Keywords: Americas, US, Insurance, Capital Requirements, Building Block Approach, Reporting, FR Q-1, Risk-based Capital, Scaling Methodologies, FED

    Featured Experts
    Related Articles

    PRA Publishes Q&A on Property Valuation Requirements Under CRR

    PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.

    May 29, 2020 WebPage Regulatory News
    News

    IOSCO Consults on Outsourcing Principles for Operational Resilience

    IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.

    May 28, 2020 WebPage Regulatory News
    News

    MAS Consortium to Develop AI Fairness Metrics for Credit Scoring

    MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.

    May 28, 2020 WebPage Regulatory News

    BoE Updates Definitions for BTL Data Collection

    BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.

    May 28, 2020 WebPage Regulatory News
    News

    FSI Examines Financial Stability Implications of Payment Deferrals

    FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.

    May 28, 2020 WebPage Regulatory News
    News

    PRA Finalizes Policy on Prudent Person Principle Under Solvency II

    PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.

    May 27, 2020 WebPage Regulatory News
    News

    EBA on Extending Large Exposure Limits for French Systemic Banks

    EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).

    May 27, 2020 WebPage Regulatory News
    News

    ECB Highlights NPL Resolution as Key Policy Issue in Post-COVID Europe

    As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.

    May 27, 2020 WebPage Regulatory News
    News

    RBNZ Publishes Financial Stability Report for May 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.

    May 27, 2020 WebPage Regulatory News
    News

    ECB Updates Guidance on Reporting of Securities Holdings Statistics

    ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).

    May 26, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5231