WASHINGTON — The Property Casualty Insurers Association of America (PCI) submitted comments yesterday on the Federal Reserve Board’s (Board) advance notice of proposed rulemaking (ANPR) on capital requirements for insurance holding companies that are either SIFIs (systemically important financial institutions) or affiliated with a depository institution. The following comment can be attributed to Steve Broadie, PCI’s, vice president, financial policy.
“PCI applauds the Board for its appropriate recognition that an insurance group capital standard should be appropriately tailored to the business of insurance,” said Broadie. “The ANPR correctly acknowledges the significant differences between the insurance and banking business models, and the resulting need for an insurance group capital standard to be structured differently than the banking capital standard.
“PCI strongly supports the Building Block Approach described in the ANPR as the only group capital standard for insurance holding companies supervised by the Board, including systemically important financial institutions. It makes maximum use of the time-tested U.S. risk-based capital requirements developed and maintained by state insurance regulators,” continued Broadie. “However, we are concerned with the Board’s statement that ‘the parent holding company should be a source of capital strength to the entire entity, including to the subsidiary insurance companies…’ It is inappropriate to apply the source of strength doctrine to insurance companies in the group. The Board should not be making judgments about the capital soundness of insurers. This determination should remain within the jurisdiction of the state insurance commissioners, who possess the expertise to address such matters.
“PCI also recommends that before any final capital standard is adopted, the Board should engage in an appropriate voluntary field testing program to establish the effects of its proposed approach,” said Broadie.
“PCI appreciates and commends the Board for exposing its thinking for comment before it has made many of the critical decisions that are necessary. We urge the Board to continue to follow a transparent process in developing and implementing its capital framework,” concluded Broadie.
PCI’s comments are attached.