Fed's Tarullo Outlines Rules for Big U.S. Insurers--Update
May 20 2016 - 9:35AM
Dow Jones News
By Ryan Tracy
WASHINGTON -- Big U.S. insurers Prudential Financial Inc. and
American International Group Inc. would face tougher capital
requirements than their peers under new rules outlined for the
first time Friday by the Federal Reserve's point-man on
regulation.
Fed Gov. Daniel Tarullo said the Fed will propose rules "in the
coming weeks" that will have higher compliance costs for insurers
considered "systemically important" to the U.S. financial
system.
That group currently includes AIG and Prudential, but not
MetLife Inc., which won a court case overturning its systemic label
earlier this year. The government has appealed MetLife's win.
The Fed gained authority for the first time to regulate
insurance companies under the 2010 Dodd Frank law, but has taken
more than five years to propose rules for the industry. Mr.
Tarullo's remarks Friday were the central banks most detailed
description to date of the pending regulations.
Mr. Tarullo didn't give all the details of the Fed rules, but he
sketched them out in a speech to the National Association of
Insurance Commissioners, a group of state regulators. He said the
Fed will propose different rules for systemic insurers than for
other insurance companies it regulates.
The central bank also regulates a dozen U.S. insurance companies
that own banks, including Nationwide Mutual Insurance Co. and State
Farm Mutual Automobile Insurance Co.
"Our tentative conclusion is that a bifurcated approach to a
capital regime for insurance companies makes sense," Mr. Tarullo
said.
The rules for non-systemic insurance companies are likely to
have a "relatively low regulatory burden," aggregating capital
requirements that already exist at the state level, Mr. Tarullo
said.
Prudential and AIG are likely to face a different capital
requirement based on "risk segments," with the Fed placing assets
and liabilities in categories based on the potential risks they
pose to the company and the financial system, Mr. Tarullo said. The
companies would have to maintain more capital against segments with
higher risk, he said, adding that the rules for systemic firms
would result in higher compliance costs.
Mr. Tarullo said the Fed also intends to impose stricter rules
on systemic firms in the areas of corporate governance, risk
management, and liquidity, following on a mandate from Congress to
set out tougher standards on firms that have a size and complexity
that a crisis at that institution could ripple through the broader
financial system, the way AIG's woes aggravated the 2008 financial
crisis.
He said the firms would likely face capital and liquidity
"stress tests" examining their ability to fund themselves and keep
operating in a crisis.
Mr. Tarullo said the Fed would issue an "advance notice" of the
rules, giving the industry multiple chances to comment on them.
Write to Ryan Tracy at ryan.tracy@wsj.com
(END) Dow Jones Newswires
May 20, 2016 09:20 ET (13:20 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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