Fed seeks input regarding establishment of insurance capital requirements

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Federal Reserve Board officials are seeking the public’s input regarding a proposal to establish capital requirements for certain insurance companies the Board supervises.

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The proposal, known as the Building Block Approach (BBA), builds on existing state-based insurance standards establishing minimum capital requirements specific to the business of insurance.

Under the BBA framework, holding companies significantly engaged in insurance activities would be required to aggregate their state-based capital requirements into a consolidated requirement while the plan would also establish both minimum requirements and a buffer on top of the minimum.

“The Building Block Approach looks to the well-known insurance capital standards from state regulators to establish minimum requirements,” Randal K. Quarles,
vice chair for Supervision, said. “Banks and insurance companies can face materially different risks and this proposal takes that into account.”

Comments on the proposal will be accepted for 60 days after publication in the Federal Register, officials said, noting it builds on comments received on a conceptual proposal from June 2016 describing the BBA.

The Board supervises depository institution holding companies, including those significantly engaged in insurance activities, and the Board currently oversees eight firms.

The Federal Reserve Board previously published a white paper explaining the methodology proposed to adjust for differences between different state-based insurance capital requirements and bank capital requirements.

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