The biggest US insurance companies are still a threat to the country’s financial system and should be required to carry higher amounts of capital, Federal Reserve Governor Daniel Tarullo said Monday.
In prepared remarks, Tarullo suggested that the US central bank is preparing to heighten capital requirements for some of the largest insurers in a new set of rules that will reportedly go further than those already in place at the state level.
“If the books of the insurance company are large enough, it then becomes a potential vehicle for transmitting distress at the company to other parts of the financial system,” Tarullo said. “Yet capital regulation currently applicable to insurance companies seems not to make some of the relevant distinctions” between traditional insurance companies and those that could threaten the US economy.
Tarullo does not seem to be talking about property/casualty insurance, however. Instead, the Fed governor said he is concerned with insurers that engage in activities like derivatives that create “tighter connections to the rest of the financial system,” as well as those providing wealth and retirement products that consumers can withdraw on demand.
The
Wall Street Journal reports that with these parameters, the Fed is likely taking aim at wealth management or annuity businesses like Prudential Financial and
MetLife, as opposed to
State Farm of various
Berkshire Hathaway companies.
Officials with the Fed have not given an official timeline for the developing regulations, and have given almost no hint of what they will entail.
Insurers have long resisted the capital rules imposed by 2010’s Dodd-Frank Act, banks and insurance companies are different entities and therefore should be regulated as such.
Independent agents have also supported that position, though the issue of adequate capital and financial stability – outside of a regulatory context – continues to be an important one. In
Insurance Business America’s latest “Producers on Carriers” survey, agents ranked financial stability as their third most important priority when evaluating a carrier.
Several survey respondents noted they refuse to do business with carriers boasting anything less than an A+ rating. “My reputation is always on the line – especially now,” said one producer. “Working with a reputable carrier is helpful.”
