United States: Federal Reserve seeks comments on proposed insurance business oversight
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The Federal Reserve Board (“FRB”) request comment proposed directions on a framework for the oversight of any depository institution holding company (that is to saya bank holding company or savings and loan holding company) that (i) is an insurance underwriting company or (ii) more than 25% of its consolidated assets are held by insurance underwriting subsidiaries insurance.
The proposed oversight framework includes:
- Application of guidelines and allocation of monitoring resources: Advice and resources would be based on the complexity and risk profile of a company’s insurance business. This approach focuses “on material risks that could pose [as] a threat to the security and strength of the organization” and “its ability to serve as a source of strength for its depository institutions. .”
- Formalize a prudential rating system: A prudential rating system for these companies would be modeled on the current RFI framework introduced by the Federal Reserve in 2011, but which reflects the specific prudential requirements and expectations of supervised insurance organizations. Companies would be rated on (i) capital management, (ii) liquidity management and (iii) governance and controls. Similar to the Large Financial Institution (LFI) rating system introduced by the Federal Reserve in 2019, companies would be assigned one of four ratings for each component. Ratings include: Overall Meets Expectations, Conditionally Meets Expectations, Deficient-1 and Deficient-2.
- Relationship with state insurance regulators: The guidance attempts to leverage the work of state insurance regulators to minimize the burdens associated with duplicating oversight. The Council leaves to state regulators the role of “oversight of pricing and the provision of insurance liabilities”.
Comments on the guidelines must be received no later than 60 days after publication in the Federal Register.
- FRB Press Release: Federal Reserve Board Invites Public Comment on Proposed Guidance to Implement Framework for Oversight of Certain Board-Supervised Insurance Organizations
- FRB memo: proposed framework for the supervision of insurance organizations
- Framework proposed by the FRB for the supervision of insurance organizations
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