FRB – Released Vice Chair Quarles’ remarks on progress to determine insurance-related capital requirements

May 26, 2021

One-Size-Fits-All vs Building Block Approach
Advanced notice of proposed rulemaking (ANPR) utilizes the building block approach (BBA) Aggregates legal entity capital to set enterprise-wide capital requirement. ANPR separates the capital structure for banking activities from the BBA structure for insurance, for FRB supervised firms engaging in both including life, casualty, and property. By contrast, the International Association of Insurance Supervisors (IAIS) Insurance Capital Standard (ICS) uses the aggregated approach across all activities.

Quarles remarked further assessment needs to be conducted to determine if a one-size-fits-all approach vs BBA is appropriate for firms without insurance-related activity.

The FRB Insurance Policy Advocacy Committee (IPAC) is reviewing ICS, especially the impact of the ICS approach to life and retirement products, on the US market or firms. Further, Quarles advocated extending the ICS monitoring period, given constraints created by the pandemic, to assess its impact more fully and complete the originally intended analysis.

In support of BBA and state insurance supervisors, Quarles noted there is no duplication between BBA and NAIC on Group Capital Calculation (GCC).

Insurance Savings and Loan Holding Companies
Separately, Quarles noted that the FRB is developing a tailoring framework for insurance savings and loan holding companies (ISLHCs) to articulate methodology to rate and assess. Tailoring framework scheduled to be published later in 2021, with a request for comment. The framework will seek to ensure no duplicative efforts with state insurance supervisors.

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