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Fed's Quarles offers support for NAIC life insurance capital framework

The Federal Reserve is supportive of using the National Association of Insurance Commissioners' existing capital framework for its proposed "building block approach" to setting consolidated capital requirements, Fed Vice Chairman Randal Quarles said Jan. 9.

Speaking during a roundtable discussion hosted by the American Council of Life Insurers, Quarles also noted that differences could arise between the BBA and the NAIC's Group Capital Calculation because of the role the Federal Reserve Board is obligated to play.

"The Board's mandate includes protection of a federally insured depository institution and the attendant safety-and-soundness objectives," Quarles said. "As to a firm's insurance subsidiaries, the states' focus is on the policyholder protection, while the Board serves as the overall firm's consolidated safety-and-soundness supervisor."

The proposal for BBA, which was first released in June 2016, also includes setting broader standards for liquidity risk and risk management. The Fed has been meeting with the NAIC since August 2017 to help implement consistency between the two organizations, Quarles said, noting that the Board would be conducting a quantitative impact study of the BBA to test and gain input on the approach.

He also said the Fed aims to use the BBA and the GCC to advocate for its preferred "aggregation method" approach to devising an international capital standard. The current core proposal from the International Association of Insurance Supervisors "would face implementation challenges" in the U.S., he said, including its failure to consider U.S. accounting frameworks.

"It remains in our national interest to engage in the international insurance standards-development process so that it produces standards that are appropriate for the U.S. market and consumers and for U.S. companies operating abroad," Quarles told the ACLI.