Federal Capital Standards

The President signed the Insurance Capital Standards Clarification Act of 2014 into law on December 18, 2014. The House previously passed S. 2270 (Collins/Brown/Johanns) on December 10 by unanimous consent. The Senate passed S. 2270 on June 6 also by unanimous consent. 

Overview

Download the ACLI Public Policy Issue Brief—Federal Capital Standards (PDF)

Through authority provided in the Dodd-Frank Act, the Federal Reserve Board (Fed) regulates at the holding company level a number of companies that are primarily life insurers. The Dodd-Frank Act granted the Federal Reserve Board new supervisory authority over Savings & Loan Holding Companies (SLHCs), many of which are, or own, life insurers. The Dodd-Frank Act also authorized the Fed to supervise nonbank financial companies, which may include insurance companies, that are designated systemically important by the Financial Stability Oversight Council.

In July 2013 the Federal Reserve Board issued a final rule implementing new capital standards for financial services companies. Known as Basel III, these new standards are bank-based capital rules that favor short-term assets and include only a temporary exemption for insurers that are or are owned by SLHCs. However, as a result of section 171 of the Dodd-Frank Act (the Collins Amendment), it remains unclear how or if the Fed will apply Basel III to those insurers, or to insurers that are designated systemically important.

Life insurers are greatly concerned that the Fed may ultimately apply bank-centric standards and methodologies to insurance companies. Life insurance companies have a need for long-term assets that match long-term, guaranteed life insurance and annuity products. Insurance risk-based capital (RBC) requirements are therefore the appropriate standards to apply to an insurance company.

  • Insurance-specific risk-based capital standards are the right standards for capital regulation for insurers that offer retirement and financial security products with long-term guarantees that protect 75 million American families.

  • Capital standards appropriate for banks are not appropriate for life insurers. The risk profiles, balance sheet characteristics, and business models of banks and insurance companies are vastly different.

  • If life insurers are required to hold excessive amounts of short-term assets by bank-based capital rules, the availability and affordability of financial security products could be affected.

  • The Federal Reserve rulemaking is the first attempt by the federal government to set capital standards to the state-regulated insurance industry.

  • State insurance regulators already enforce strict capital standards at the state level to protect consumers and ensure claims are paid quickly and efficiently.

  • Life insurers pay out $1.6 billion to families and businesses every day.

  • Our products are needed now more than ever—every day for the next 13 years, some 10,000 baby boomers will reach age 65 and need a source of long-term income to supplement Social Security.

ACLI Position

ACLI strongly supported S. 2270 and applauds Congress and President Obama for making the Act law in 2014.

ACLI looks forward to working with the Federal Reserve as it develops appropriate capital standards for insurance companies. Misapplication of bank-based standards would disrupt the insurance business model and the industry’s ability to provide long-term, guaranteed retirement products and financial protection to customers.

Publications & Resources

ACLI letter to Federal Reserve Board: Proposed rule on risk-based capital surcharges is inappropriate for insurance companies, 02/26/2015

ACLI News Release: Capital Standards Legislation Signed Into Law, 12/18/2014 

ACLI Public Policy Issue Brief—Federal Capital Standards, December 2014

State trade letters: State insurance trade associations urge Congress to take action on Insurance Capital Standards Clarification Act, December 2014.
Download the letters: California; Florida; Indiana; Kentucky; Massachusetts; New York; Ohio.

ACLI "Act Now on Insurance Capital Standards" print ad, published in National Journal, 12/4/2014

ACLI President and CEO Dirk Kempthorne's guest column, "Time To Act on Capital Standards for Life Insurers," published in The Hill, 03/10/14

CEO Letter to Congress Urging Swift Passage of Capital Standards Legislation, May 2014

ACLI Statement for the Record before the House Financial Services Committee, Subcommittee on Insurance, Housing, and Community Opportunity, 05/20/14

ACLI Print Ads

ACLI "Act Now on Insurance Capital Standards" print ad, published in Politico, 11/18/2014

ACLI CEO Letter to Congress, urging passage of the Insurance Capital Standards Clarification Act of 2014, 11/17/14

ACLI "Act Now on Appropriate Capital Standards for Life Insurers" print ad, published in the National Journal, 07/23/2014

ACLI "Act Now on Appropriate Capital Standards for Life Insurers" ad, published in Politico, 06/04/2014

ACLI "Act Now on Appropriate Capital Standards for Life Insurers" ad, published in Roll Call, 05/28/14 

In the News

President signs Insurance Capital Standards Act of 2014 into law, White House news release, 12/18/2014

House Passes Insurance-Capital Bill by Voice Vote, The Wall Street Journal, 12/10/2014 

GOP Confident Dodd-Frank Fix Will Pass Congress, The Hill, 12/03/2014

Fed Governor Says Central Bank Limited in Promoting Financial Stability, MarketWatch, 12/03/2014 

Every Day Counts: Capital Standards Bill Needs to go to the President Now, Governor Dirk Kempthorne, Roll Call, 12/01/2014 

President signs Insurance Capital Standards Act of 2014 into law, White House news release, 12/18/2014

House Passes Insurance-Capital Bill by Voice Vote, The Wall Street Journal, 12/10/2014 

GOP Confident Dodd-Frank Fix Will Pass Congress, The Hill, 12/03/2014

Fed Governor Says Central Bank Limited in Promoting Financial Stability, MarketWatch, 12/03/2014 

Every Day Counts: Capital Standards Bill Needs to go to the President Now, Governor Dirk Kempthorne, Roll Call, 12/01/2014 

Senate Approves Bill Providing Capital Flexibility to Insurers, Bloomberg, 06/04/2014 

Senate Passes Insurance Capital Bill in Rare Dodd-Frank Tweak, The Wall Street Journal, 06/03/2014

Commentary: Insurance Capital Rules Bill is Common Sense, Business Insurance, 05/11/2014

Why Nonbank SIFI Designations Put the Cart Before the Horse, American Banker, 05/8/2014

Why Changing a Dodd-Frank Provision Is an Uphill Battle in the Senate, National Journal, 05/6/2014

Fed Feels Heat to Tailor Capital Rules for Nonbank Firms, American Banker, 05/2/2014

New Bills On Insurer Capital Regs Floated In Senate, House, Law360, 04/30/2014

Senator says Fed is misreading Dodd-Frank, The Hill, 03/11/2014 

Trying to influence Washington is like playing pinball, Bloomberg Businessweek, 03/11/2014

U.S. Senator Collins says bill would tweak capital rules for insurers, Reuters, 03/11/2014

Bill would free insurance firms from bank capital rules, Bloomberg, 03/11/2014

ACLI Statement for the Record, U.S. Senate Committee Hearing titled "Finding the Right Capital Regulations for Insurers," 03/11/14

Federal Reserve Board Final Rule, 07/02/13

Bank capital standards could harm life insurers, Governor Dirk Kempthorne, Politico, 04/25/13