Fed Proposes Risk-Based Capital Requirements for Insurance Firms It Oversees

The Federal Reserve on Friday proposed to establish risk-based capital requirements for the eight depository institution holding companies it oversees that are significantly engaged in insurance activities.

The proposed framework—which the Fed referred to as “the building block approach”—would group together insurance subsidiaries covered under the same existing state-based capital framework and use these “building blocks” to calculate the combined, enterprise-level available capital and capital requirement.

Under the framework, firms would be required to meet a minimum capital ratio of 8%. In addition, the Fed proposed to apply a 2.5% buffer that, were it not met, would limit the capital distributions and discretionary bonus payments the firm would be permitted to make.

To help industry stakeholders understand the calculation methodology, the Federal Reserve issued a white paper on the building blocks approach. The Fed also said it intends to conduct a quantitative impact study of the proposed method. Comments on the proposal will be due 60 days after publication in the Federal Register.

Read the proposal. Read the white paper.