Capital requirements for insurance companies regulated by the Federal Reserve Board were the subject of a speech given by Governor Daniel K. Tarullo at the National Association of Insurance Commissioner’s (NAIC) International Insurance Forum in Washington, D.C. on May 20, 2016.
First—for insurance companies managed by the Federal Reserve Board because they own an insured depository institution—supervision focuses on suitable internal controls, corporate governance, risk management
Second—for insurers that are designated as “systemically important” by the FSOC—oversight efforts emphasize capital requirements, liquidity planning, and management of core business lines.
The Federal Reserve Board is holding an open board meeting on Friday, June 3, to discuss: a) the advance notice of proposed rulemaking regarding capital requirements for supervised institutions significantly engaged in insurance activities; and b) its notice of proposed rulemaking to apply enhanced prudential standards for systemically important insurance companies.
Dodd-Frank and the Insurance Industry
The Federal Reserve Board maintains oversight responsibility for savings and loan holding companies (SLHCs) that contain insurance companies, a function inherited from the Office of Thrift Supervision.
Under The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the Federal Reserve Board was also granted regulatory authority for two categories of insurance companies:
- Insurance holding companies that own a federally insured bank or thrift; and
- Insurance companies designated as systemically important by the U.S. Financial Stability Oversight Council (FSOC).
Under the second category listed above, the FSOC has designated three insurance companies as being “systemically important financial institution” (SIFI) on the dates indicated:
- American International Group, Inc. (7/8/13)
- Prudential Financial, Inc. (9/19/13)
- MetLife, Inc. (12/18/14; rescinded by a federal judge on 3/30/16)
General Electric Capital Corporation, Inc. also carries a non-bank SIFI designation.
In both of the above categories for which the Federal Reserve Board has regulatory authority over insurance companies, consolidated total assets amount to approximately $2 trillion representing about 25 percent of all U.S. insurance industry assets.
Insurance Industry is Significant Component of U.S. Economy
Tarullo also noted the importance of the insurance industry within the U.S. economy. He stated that all combined sectors of the insurance industry accounted for approximately $2 trillion in written premiums and $1.8 trillion in earned premiums on an annual basis. Overall, this represents 7 percent of U.S. gross domestic product.
The two largest insurance market sectors, property/casualty and life/annuities, wrote almost $1 trillion of premiums in 2015 on a combined basis.
Recent growth patterns in the insurance industry are positive, with written and earned premiums in 2015 at the highest levels in the past five years.
The Federal Reserve Board’s regulatory objectives for supervised insurance companies, according to Governor Tarullo, are to:
- Protect the safety and soundness of the consolidated company
- Protect any subsidiary depository institutions of the company
- Mitigate any threats to financial stability that might be posed by the activities, material financial distress, or failure of the company.
About Insurance Expert Bill Hager
Bill Hager is a former Commissioner of Insurance (Iowa), First Deputy Commissioner of Insurance and Assistant Attorney General (assigned on a full time basis to the Department of Insurance). He is a past member of the executive committee of the National Association of Insurance Commissioners (“NAIC”).
Mr. Hager has extensive and substantive experience in interpreting insurance policy language and determining the insurer’s obligations under such policies.
Click on the link to read more about Bill Hager’s insurance expertise.
Material for this article was taken from a collection of industry sources relating to the subject.
In all of the general statements here, see the state law of the controlling jurisdiction. Every case is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.
This blog is provided for educational purposes only. It is not intended to provide legal advice or an opinion in regard to any topic discussed. The blog should not be used as a substitute for legal advice from a licensed attorney in your state.