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US Fed plans tougher capital standards for insurers

The US Federal Reserve is planning to unveil proposals to beef up prudential requirements for systemically important insurance companies and other insurers that own an insured depository institution.

“In formulating capital standards for the insurance companies we supervise, our goals should track our overall goals in financial regulation,” Federal Reserve Board Governor Daniel Tarullo said on Friday.

“The enhanced prudential standards must include, among other things, enhanced capital requirements, liquidity requirements, corporate governance and risk management standards, and resolution planning requirements.”

Insurance holding companies supervised by the Federal Reserve hold about $US2 trillion ($2.8 trillion) in total assets and account for about a quarter of US insurance industry assets.

“We should distinguish between insurance companies that we oversee solely because they own an insured depository institution and those that have been designated as systemically important by the [Financial Stability Oversight Council],” Mr Tarullo said.

“This is precisely the path we are taking with regard to our supervision of these firms.”

The Federal Reserve was given regulatory responsibility for insurance holding companies that own a federally insured bank, and insurers deemed as systemically important by the oversight council under the Dodd-Frank financial regulation bill in 2010.

The bill was in response to the 2008 Wall Street financial meltdown, and was aimed at reforming the investment markets and giving consumers greater protection.

“The financial crisis underscored the importance for safety and soundness, of not waiting until problems in the holding company were manifestly affecting the depository institution,” Mr Tarullo said.