Tag Archives: Marion Leydier

Federal Reserve Adopts Supervisory Framework for Supervised Insurance Organizations

by Marion Leydier, Benjamin Weiner, and Rodrick Gilman Jr. 

New Supervisory Framework Applies to Depository Institution Holding Companies Significantly Engaged in Insurance Activities

SUMMARY

The Board of Governors of the Federal Reserve System (“Board”) issued, on September 28, 2022, final guidance (“Final Guidance”) establishing a framework (“Framework”) for the supervision of depository institution holding companies significantly engaged in insurance activities, or “supervised insurance organizations” (“SIOs”).[1]  A depository institution holding company is considered to be an SIO if (1) it is an insurance company, or (2) over 25% of its consolidated assets are held by insurance company subsidiaries, or (3) it has been otherwise designated as an SIO by the Board.  The Framework provides a risk-based approach to establishing supervisory expectations and conducting supervisory activities; a supervisory rating system with three components for capital management, liquidity management, and governance and controls; and a description of how Board examiners will incorporate and rely on the work of state insurance regulators and other supervisors of SIOs in order to limit supervisory duplication.  Board supervisory activities will focus on understanding risks that could threaten the safety and soundness of the SIO or its ability to act as a source of strength for its depository institutions.  Each SIO will be classified by the Board as either complex or noncomplex, which will serve as the basis for determining the level of supervisory resources dedicated to the SIO and the frequency and intensity of the Board’s supervisory activities.  Classification under the Framework will be based on the Board’s assessment of various factors relating to an SIO’s risk profile, with a firm automatically classified as complex if its depository institution’s average assets exceed $100 billion.

The Framework will become effective November 3, 2022.

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New York Department of Financial Services Issues Final Guidance on Managing the Financial Risks of Climate Change for Insurers

by Marion Leydier, William Torchiana, Roderick Gilman, Sarah Mishkin and Samuel Saunders

On November 15, 2021, the New York State Department of Financial Services (“DFS”) issued detailed final guidance (the “Final Guidance”) addressing how New York domestic insurers should analyze and manage the financial risks of climate change.[1] The Final Guidance builds on the DFS’s proposed climate guidance released in March 2021.[2]

The Final Guidance reflects relatively limited changes from the proposed guidance.  The changes include additional guidance on the time horizon insurers should consider when integrating climate risks into business decisions; how insurers should manage uncertainty related to climate change; and how the guidance applies to insurers that are part of groups. The DFS notes that it expects insurers to implement its guidance relating to board governance and to have specific plans in place to implement the guidance relating to organizational structure by August 15, 2022. The DFS plans to issue further guidance on the timing for implementation of more complex areas that will take insurers longer to implement, such as those relating to risk appetite, analysis of the impact of climate risks on existing risk factors, reflection of climate risks in the Own Risk and Solvency Assessment (“ORSA”), scenario analysis and public disclosure, but the DFS notes that it encourages insurers to begin working on these now.

The Final Guidance comes as U.S. financial regulators and policy makers, including the U.S. Department of Treasury, the U.S. Securities and Exchange Commission (“SEC”) and the Federal Reserve Bank, are focused on the potential systemic risk that climate change poses to the financial sector.[3]

Insurance and other prudential regulators outside of the U.S. are also addressing climate-related risks, and the DFS notes that the Final Guidance is modeled on publications and guidance from international regulators and networks, including the Bank of England Prudential Regulation Authority, the International Association of Insurance Supervisors (“IAIS”), the European Insurance and Occupational Pensions Authority (“EIOPA”), the European Central Bank and the Network for Greening the Financial System.[4]

An overview of recent actions by regulators and lawmakers in the U.S., EU and UK related to climate change and other environmental, social and governance topics is provided in the Firm’s ESG update newsletter, available here.

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