Open Board Meeting June 3, 2016 | Summary and Q&A

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June 3, 2016
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Federal Reserve
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Open Board Meeting June 3, 2016

TL;DR

The Federal Reserve is considering two proposals for insurance companies: one on insurance capital rules and the other on enhanced prudential standards for systemically important insurance companies.

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Key Insights

  • 🛄 The proposed regulations aim to address the risks posed by systemically important insurance companies and provide tailored capital and prudential standards.
  • ✳️ The regulations differentiate between systemically important insurance companies and less complex insurance companies, reflecting the varying risks they pose to the financial system.
  • ✳️ The proposed enhanced prudential standards focus on corporate governance, risk management, and liquidity risk management to promote resiliency in the insurance industry.

Transcript

CHAIR YELLEN. Good afternoon and welcome to our guests who are attending or watching our meeting. Today, we are considering two proposals related to the insurance companies subject to the Federal Reserve's oversight. The first is an advance notice of proposed rulemaking or ANPR on insurance capital rules to address the risks for two groups of firms... Read More

Questions & Answers

Q: How do the proposed capital regulations differ for systemically important insurance companies and less complex insurance companies?

The proposed capital regulations take into account the different risks posed by these two types of companies. The systemically important insurance companies will be subject to more stringent capital requirements, while less complex companies will have a more tailored approach to capital regulation.

Q: How do the proposed enhanced prudential standards differ from existing regulations for insurance companies?

The proposed enhanced prudential standards are specifically designed for systemically important insurance companies and aim to address issues related to corporate governance, risk management, and liquidity risk management. These standards are based on best practices for large interconnected financial institutions but are modified to suit the insurance industry.

Q: How will these proposals be coordinated with state-level regulations for insurance companies?

The state-level supervision focuses on individual legal entities, whereas the proposed regulations for systemically important insurance companies will consider the entire enterprise. The Federal Reserve aims to ensure coordination and will work with state regulators to implement these regulations.

Q: Will there be a quantitative liquidity requirement for systemically important insurance companies?

Currently, the proposed standards focus on qualitative requirements for liquidity risk management. However, the Federal Reserve is considering the possibility of a future quantitative liquidity rule that would be tailored to the unique nature of insurance liabilities.

Summary & Key Takeaways

  • The first proposal addresses capital regulations tailored to the risks posed by systemically important insurance companies and less complex companies that own an insurance subsidiary and a bank or savings and loans subsidiary. Different approaches to capital regulation are outlined for these different risks.

  • The second proposal focuses on establishing enhanced prudential standards specifically for systemically important insurance companies. These standards would build upon existing regulatory frameworks but will be tailored to the business of insurance.

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