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December 1, 2014

The Beginning of a Journey for U.S. Insurers
U.S. insurers should pay close attention to the Federal Reserve’s 2014 Insurance Quantitative Impact Study (QIS) as it may affect future insurance regulation and capital adequacy requirements.

Announced on September 30, 2014, the QIS is being conducted to provide the Federal Reserve with information it will need to assess the potential effects of its revised capital framework for savings and loan holding companies and other non-bank financial companies supervised by the Federal Reserve that are significantly engaged in insurance underwriting (insurance holding companies). The data is due from QIS participants December 31, 2014.

While participants in the study are a small subset of the overall insurance industry, the QIS may be a major step in U.S. insurers’ journey toward an evolving regulatory landscape and the Federal Reserve’s influence over it.

Here are key impacts of the QIS to watch for:

  • Prior Federal Reserve QIS studies aided the assessment and calibration of Basel II capital standards. The Federal Reserve therefore has a history of utilizing QIS results to shape capital standards. Their Insurance QIS will likely take time to manifest into capital rules. However, now is the time for insurers to take a close look at this study and the potential capital requirement outcomes.
  • The Federal Reserve’s influence over prudential risk and capital standards, both domestically and globally, is growing. To date, the only risk and capital standards in place are those applied to banks and bank holding companies. Therefore, the landscape for this growing influence is unfamiliar to most insurers.
  • The capital adequacy standards ultimately applied to Federal Reserve-regulated entities will almost certainly have significant implications for the entire industry. The cascading effect of regulatory standards has already occurred overseas via Solvency II, and in the U.S. via the Own Risk and Solvency Assessment (ORSA). Regulatory momentum tends to flow one way.

Alvarez & Marsal (A&M)’s regulatory response team offers effective insight into all matters of regulatory support, including special examinations, financial and market examinations, analysis of new regulations, receivership and troubled company analysis and oversight, and company regulatory response.

Our senior professionals have worked on both sides of the regulatory aisle, supporting or running companies under close regulatory scrutiny or directly supporting regulators in gaining a clear understanding and fact-base before determining a course of action.