Washington, D.C. (November 29, 2012) — The Federal Reserve Board should use the current insurance risk-based capital (RBC) system as a key component in assessing the capital adequacy of holding companies and systemically-important financial institutions that are primarily life insurers, the American Council of Life Insurers (ACLI) said.

In a statement submitted to the House Financial Services Committee, ACLI said that RBC was specifically designed by state insurance regulators to measure the unique capital needs of insurance companies, which fundamentally differ from the capital needs of banks. RBC, along with other regulatory tools, has proven effective in preserving insurance company financial strength, as was highlighted by the relatively small number of insurers that became insolvent during the financial crisis, ACLI said.

ACLI presented the statement during a Committee hearing on a Federal Reserve Board proposal to apply international bank capital standards, called “Basel III,” to financial institutions under the Fed’s supervisory authority, including certain institutions that are primarily insurance companies.

However, ACLI said, the Basel III regime is bank-centric and was never intended to apply to insurance entities. Indeed, applying Basel III standards to insurance entities would disrupt insurance markets.

Moreover, the Dodd-Frank Act authorizes the Fed to recognize insurance RBC as a methodology to assess capital adequacy, ACLI said.

Download ACLI’s statement. (PDF)  

The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association with more than 300 legal reserve life insurer and fraternal benefit society member companies operating in the United States. ACLI advocates in federal, state and international forums. Its members represent more than 90 percent of the assets and premiums of the U.S. life insurance and annuity industry. In addition to life insurance, annuities and other workplace and individual retirement plans, ACLI members offer long-term care and disability income insurance, and reinsurance. Its public website can be accessed at www.acli.com.