Standard & Poor’s said the Federal Reserve Board’s proposed rules for insurers under its oversight are strong as far as risk management, but uncertainty remains as to other crucial details.
“We view the [Federal Reserve Board’s] key enterprise risk management recommendations as supportive of a robust risk-management framework,” S&P said in its latest report on the issue.
But the ratings agency asserted that the proposed capital rules remain relatively unformed.
“It is still too early to tell whether they will result in increased capital requirements for the targeted insurers,” S&P said. “The advance notice highlights the conceptual framework, but does not go any further.”
The FRB’s issued its proposed rules on Jun 3, and Standard & Poor’s said that it includes “a robust risk-management and liquidity stress-testing framework for the insurers.”
Regulators want to exclude bank deposits and securities issued by financial institutions from the list of highly liquid assets used to support insurers’ liquidity buffer calculation. S&P noted that the two insurers considered systemically important – AIG and Prudential Financial Inc. – held more than $50 billion of bonds issued by financial sector entities as of the end of 2015. As well, S&P said, “the available corporate bond market comprises a significant amount of securities issued by financial institutions.” But that could present some problems for those two industry giants.
“They may end up with a less diversified portfolio and fewer options for assets to match their long-term liability profiles,” Standard & Poor’s wrote.
Standard & Poor’s added it is not taking any rating actions based on the proposals. The reason: it expects the proposed liquidity framework and stress testing to effect insurers more than the proposed risk management and capital rules, S&P Global Ratings credit analyst Deep Banerjee said in prepared remarks.
Source: Standard & Poor’s