Fed tells insurers to meet new capital requirements

By FinancialsFOXBusiness

Federal Reserve raises capital reserve requirements for large insurers

The Federal Reserve will require eight large insurance companies to raise their capital requirements in a preemptive safety move.

The Federal Reserve is requiring eight large insurance companies, which have a banking component, to meet new capital requirements in what is part of the Dodd-Frank legislation which aims to further strengthen the U.S. financial system.

Continue Reading Below

Though the Fed calculates the new rules will not require the insurers to raise further capital at this time, the companies are now on notice about the rule change.

Required to Comply:

•             USAA

•             TIAA

•             State Farm

•             Ameriprise

•             Mutual of Omaha

•             AAA

•             Ohio Farmers

•             First American

TickerSecurityLastChange%Chg
KIESPDR SERIES TRUST KBW INSURANCE ETF35.46+0.17+0.48%
AMPAMERIPRISE FINANCIAL INC.149.12+1.58+1.07%
FAFTHE FIRST AMERN58.82+0.88+1.52%

MORE FROM FOXBUSINESS.COM...

Insurers like banks fall under the Fed’s purview due to how they function with the U.S. financial system. The insurers range in size from less than $10 billion in total assets to more than $250 billion. These insurers account for roughly 10% of the insurance market.

Under the proposal, the Fed would use capital insurers already required to keep on hand by state regulators, plus additional capital based on the risks the insurer has taken on. In addition, insurers would have to meet a 2.5% capital buffer. If they fall short of that buffer the Fed will limit capital distributions and bonus payments.

The move mirrors how the Fed helped shore up the big banks following the financial crisis of 2008, in some cases limiting the distribution of dividends based on how well the companies were capitalized.