Reg capital proposal for Fed-supervised insurance firms in Federal Register Thursday

A Federal Reserve Board proposal, issued in September, to create risk-based capital requirements for depository institution holding companies that are significantly engaged in insurance activities is slated for publication in the Federal Register Thursday.

Comments will be due on or about Dec. 23.

As the Fed said in September, the proposed rule builds on existing state-based insurance standards while also establishing minimum capital requirements that are specific to the business of insurance. Referring to this as a framework – the “Building Block Approach” – the Fed said the BBA would require holding companies significantly engaged in insurance activities 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.

Although the Fed specifically pointed out that the BBA is specific to the insurance industry and is distinctive from bank capital requirements, the minimum standard under the BBA would be comparable to banks’ minimum total capital ratio, which is set at 8%, the Fed said, calling that “one of the key measures of banks’ health.”

The Fed supervises eight depository institution holding companies that are significantly engaged in a wide variety of insurance activities, and which range in size from $10 billion to more than $250 billion in total assets. Its proposal stems from a 2016 “conceptual proposal” that described the BBA.

The Fed said it plans, as part of the proposal, to conduct a quantitative impact study of the BBA to better inform the framework.

The proposal was accompanied with a white paper that the Fed said explains the methodology it proposes to use to adjust for the differences between different state-based insurance capital requirements and bank capital requirements.

Regulatory Capital Rules: Risk-Based Capital Requirements for Depository Institution Holding Companies Significantly Engaged in Insurance Activities (Federal Register notice)

White paper: Comparing Capital Requirements in Different Regulatory Frameworks

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