Vice Chair for Supervision Quarles Remarks to the International Insurance Forum, May 26, 2021 | Summary and Q&A

TL;DR

The Vice Chair for Supervision of the Federal Reserve discusses the importance of the insurance industry, the impact of COVID-19, and the development of a capital rule for insurance depository institutions.

Key Insights

• 🖐️ The insurance industry plays a crucial role in securing the financial stability of American households and is closely related to the Federal Reserve's mission.
• 🏛️ Insurers are among the largest investors in certain asset classes, highlighting their significance in financial markets.
• 😘 The Federal Reserve is monitoring the impact of the COVID-19 pandemic on insurers and financial markets, particularly the challenges posed by low interest rates.
• 📽️ The development of a capital rule for insurance depository institutions is a significant project for the Federal Reserve, aiming to address the unique characteristics of both banking and insurance operations.
• 🌍 Collaboration with international organizations such as the FSB and IAIS is crucial for coordinating insurance regulation and supervision globally.
• ❓ The Insurance Policy Advisory Committee (IPAC) is studying the potential impact of the IAIS' Insurance Capital Standard on the U.S. industry, markets, and consumers.
• 🛄 Collaboration between the Federal Reserve, states, and the National Association of Insurance Commissioners (NAIC) aims to ensure coordinated and efficient supervision of insurance companies.

Transcript

Remarks by Randal K. Quarles, Vice Chair for Supervision, Board of Governors of the Federal Reserve System to the National Association of Insurance Commissioners International Insurance Forum. May 26, 2021 Thank you for inviting me to speak today. Over the years, I have enjoyed working with many of the insurance regulators participating in this con... Read More

Questions & Answers

Q: How has the insurance industry performed during the COVID-19 pandemic?

The insurance sector has performed well, entering the pandemic with strong capital levels and avoiding large defaults. Insurers have demonstrated resilience in the face of challenges.

Q: What challenges do insurers face due to sustained low interest rates?

Insurers with long-duration policies and embedded policyholder options may struggle to match cash flows and face interest rate risks. Marketing savings products with near-zero percent returns can also be difficult.

Q: What is the Federal Reserve's current project regarding insurance supervision?

The Federal Reserve is developing a capital rule for insurance depository institution holding companies as required by the Dodd-Frank Act. The proposed rule, known as the Building Block Approach (BBA), is designed to address the challenges of supervising companies engaged in both banking and insurance operations.

Q: How does the Federal Reserve coordinate with international organizations in insurance regulation?

The Federal Reserve collaborates with the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS) to ensure global financial stability. Insurance regulation and supervision are priorities for the Federal Reserve both domestically and internationally.

Summary & Key Takeaways

• The Federal Reserve recognizes the crucial role of insurers in securing the financial stability of American households and financial markets.

• The COVID-19 pandemic has affected the insurance sector, but insurers have performed well, maintaining strong capital levels and avoiding large defaults.

• Low interest rates pose challenges for life insurers due to long-duration policies and difficulty marketing certain savings products profitably.