The Federal Reserve Board ("FRB") requested comment on proposed guidance on a framework for the supervision of any depository institution holding company (i.e., a bank holding company or a savings and loan holding company) that (i) is an insurance underwriting company or (ii) has over 25 percent of its consolidated assets held by insurance underwriting subsidiaries.
The proposed supervisory framework includes:
- Application of guidance and allocation of supervisory resources: Guidance and resources would be based on the complexity and risk profile of a firm's insurance business. This approach focuses "on the material risks that could pose [as] a threat to the organization's safety and soundness" and "its ability to serve as a source of strength for its depository institutions." The FRB reasoned that more complex supervised organizations carry a higher level of risk and therefore require "more frequent and intense supervisory attention."
- Formalizing a supervisory rating system: A supervisory rating system for these companies would be modeled on the current RFI framework the Federal Reserve introduced in 2011, but which reflects the specific supervisory requirements and expectations of supervised insurance organizations. Firms would be rated on (i) Capital Management, (ii) Liquidity Management, and (iii) Governance and Controls. Similar to the Large Financial Institution (LFI) rating system the Federal Reserve introduced in 2019, firms would be assigned one of four ratings for each component. The ratings include: Broadly 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 burdens associated with supervisory duplication. The Board leaves to the state regulators the roles of "oversight of pricing and reserving of insurance liabilities."
Comments on the guidance must be received no later than 60 days after publication in the Federal Register.
Primary Sources
- FRB Press Release: Federal Reserve Board invites public comment on proposed guidance to implement a framework for the supervision of certain insurance organizations overseen by the Board
- FRB Memo: Proposed Framework for the Supervision of Insurance Organizations
- FRB Proposed Framework for the Supervision of Insurance Organizations
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