Weeks after agreeing to issue separate capital requirements for insurance firms singled out for heightened oversight, the Federal Reserve has released its proposals.
The new standards, approved unanimously by the central bank Friday, tag Prudential Financial and American International Group as “systemically important” to the US and global economy, and subject them to tougher financial rules. However, key details – including specific numerical capital requirements for the group – have yet to come.
The standards do ask that Prudential and
AIG maintain enough safe assets to cover cash flows for 90 days and that they run “stress tests” periodically to ensure those cash-flow needs are met.
Public comment on the preliminary blueprint is being requested before publishing a draft rule, though the new standards are expected to take effect before the capital rules. The Fed said it expects the firms will be able to meet the requirements fairly easily, referring to them as “existing best practices.”
“I believe this proposal is an important step toward capital standards that are both appropriate for our supervised insurance firms and that enhance the resiliency and stability of our financial system,” said Fed Chairwoman Janet Yellen.
Other Fed officials said the rules “would have addressed the risks” posed by AIG in 2008, before the company was subject to capital and liquidity rules.
Insurance industry representatives, meanwhile, are having mixed reactions to the rules, which ask firms to continue operating without knowing full details of the forthcoming requirements.
Howard Mills, leader of the global insurance regulatory practice at Deloitte LLP, told the
Wall Street Journal that the Fed’s proposal “will largely be welcomed by the US insurance industry,” but that “it is premature from the US industry perspective to declare victory.”
“Insurers still need to be prepared for a great deal of uncertainty, and they need to remain very engaged,” Mills said.
The rules will notably not include 12 insurance companies that own banks, such as
Nationwide Mutual or
State Farm.
