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Fed Seeks More Time to Test US Capital Standard as Alternative to International Requirements

U.S. representatives argue international capital standard would not be appropriate as a capital rule for U.S. internationally active insurance groups.
  • Frank Klimko
  • July 2021
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The Federal Reserve will seek more time to test proposed capital standards for U.S. insurers under its supervision in the hope of qualifying them as an alternative method of capital requirements now under development by international insurance supervisors.

The proposed domestic capital standard will not follow the path taken by European and international regulators, who are developing a global insurance capital standard, Federal Reserve Vice Chairman for Supervision Randal Quarles said during a speech to the National Association of Insurance Commissioners International Insurance Forum.

U.S. representatives, known collectively as Team USA, have argued that the International Association of Insurance Supervisors Insurance Capital Standard would not be appropriate as a capital rule for U.S. internationally active insurance groups, Quarles said. “Its market-adjusted valuation approach could introduce significant volatility into the capital measure and capital requirement, which could lead to procyclical economic effects and harm the ability of insurers to provide long-term savings products,” Quarles said.

Instead, the Fed is moving ahead with its building-block approach on domestic capital requirements for those insurers supervised by the Fed by virtue of their ownership of a depository institution, he said.

They seek to develop what “the IAIS terms the aggregation method, which could be considered an equivalent implementation of a group capital rule for large, internationally active insurers in the United States,” Quarles said.

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