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Quarles Highlights Federal Reserve Priorities in Relation to the Insurance Sector During NAIC International Insurance Forum Keynote
Washington (May 27, 2021) – Vice Chair of Supervision, Federal Reserve Board and Chair of the Financial Stability Board, Randal K. Quarles, addressed the National Association of Insurance Commissioners (NAIC) via pre-recorded remarks during this year’s virtual NAIC International Insurance Forum. Quarles’ remarks were shared on Wednesday, March 26, and reinforced the importance of Federal Reserve and state insurance regulator collaboration in key domestic and international initiatives.
Quarles highlighted a few of the Federal Reserve’s priorities and shared that insurance and insurers relate closely to the Federal Reserve’s mission to provide the nation with a safe, flexible, and stable financial system.
Quarles stated one priority is monitoring the impact of the COVID event and noted that the insurance industry performed very well throughout the pandemic, crediting the industry and supervisors for this strong showing.
Quarles touched on the Board’s most significant project related to insurance and its role in supervision with the development of a capital rule for insurance depository institution holding companies subject to its supervision, as required by the Dodd-Frank Act. He provided a recap and explanation for the Building Block Approach (BBA), which uses the existing and time-tested frameworks that have been tailored specifically to measure appropriately particular risks.
Relatedly, Quarles congratulated the NAIC on adopting its Group Capital Calculation (GCC) at the end of last year and noted how the work on the BBA and GCC has helped with the development of the Aggregation Method at the international level, which could be considered an equivalent implementation of the International Association of Insurance Supervisors’ (IAIS) Insurance Capital Standard (ICS). Quarles stated that as currently constructed, the ICS would not be appropriate as a capital rule for U.S. internationally active insurance groups and described the process underway within the IAIS to assess whether the Aggregation Method and ICS have a sufficient level of comparability.
Climate change as an emerging risk is another priority that Quarles said the Board is monitoring. He noted that the insurance industry has been at the forefront of work to better understand climate-related financial risks, including through climate change modeling.