Federal Reserve Proposes Enhanced Prudential Standards for Insurance SIFIs

6 June 2016
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Key takeaways

  • On Friday, June 3, 2016, the Federal Reserve proposed certain management- and liquidity-related enhanced prudential standards (“EPS”) for insurance companies that the Financial Stability Oversight Council has designated as systemically significant.  These standards prescribe requirements relating to corporate governance, risk management framework and liquidity risk management, including stress testing and liquidity buffers.  Proposals regarding other elements of the EPS rules, relating to capital, are in a separate proposal and are discussed in another Client Update.
  • The proposed EPS are based on the EPS already in force for large U.S. bank holding companies, with adjustments to reflect the business models and risk profiles particular to insurance companies.  For example, the proposed EPS requires insurance SIFIs to appoint a chief actuary.  Nonetheless, lessons learned from the application of the EPS to large banking organizations would be applicable here.
  • Insurance SIFIs will need to engage in a thorough review of their policies and procedures in order to ensure compliance with the proposed EPS.  In our experience with banking organizations, while organizations have robust risk management standards, evaluation and tailoring nonetheless is likely necessary to comply with the proposal.  Moreover, while insurers owning thrifts are not subject to these EPS rules, the Federal Reserve nonetheless may regard them as a "best practice" for governance of such insurers.