[Federal Register Volume 81, Number 79 (Monday, April 25, 2016)]
[Notices]
[Pages 24097-24100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-09456]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
Proposed Agency Information Collection Activities; Comment
Request
AGENCY: Board of Governors of the Federal Reserve System.
SUMMARY: The Board of Governors of the Federal Reserve System (Board or
Federal Reserve) invites comment on a proposal to collect financial
data on a consolidated basis from nonbank financial companies that the
Financial Stability Oversight Council (FSOC) has determined pursuant to
section 113 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), 12 U.S.C. 5323 should be supervised by
the Board and subject to enhanced prudential standards and that have
significant insurance activities, as outlined below. As of the date of
publication of this notice, American International Group, Inc., and
Prudential Financial, Inc., would be required to comply with the
proposed information collection, if adopted.
On June 15, 1984, the Office of Management and Budget (OMB)
delegated to the Board authority under the Paperwork Reduction Act
(PRA) to approve of and assign OMB control numbers to collection of
information requests and requirements conducted or sponsored by the
Board. In exercising this delegated authority, the Board is directed to
take every reasonable step to solicit comment. In determining whether
to approve a collection of information, the Board will consider all
comments received from the public and other agencies.
DATES: Comments must be submitted on or before June 24, 2016.
ADDRESSES: You may submit comments, identified by FR 2085, by any of
the following methods:
Agency Web site:http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include OMB
number in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Robert deV. Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/apps/foia/proposedregs.aspx as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room
3515, 1801 K Street (between 18th and 19th Streets NW) Washington, DC
20006 between 9:00 a.m. and 5:00 p.m. on weekdays.
Additionally, commenters may send a copy of their comments to the
OMB Desk Officer--Shagufta Ahmed--Office of Information and Regulatory
Affairs, Office of Management and Budget, New Executive Office
Building, Room 10235 725 17th Street NW., Washington, DC 20503 or by
fax to (202) 395-6974.
FOR FURTHER INFORMATION CONTACT: A copy of the PRA OMB submission,
including the proposed reporting form and instructions, supporting
statement, and other documentation will be placed into OMB's public
docket files, once approved. These documents will also be made
available on the Federal Reserve Board's public Web site at: http://www.federalreserve.gov/apps/reportforms/review.aspx or may be requested
from the agency clearance officer, whose name appears below.
Federal Reserve Board Clearance Officer--Nuha Elmaghrabi--Office of
[[Page 24098]]
the Chief Data Officer, Board of Governors of the Federal Reserve
System, Washington, DC 20551; or by telephone to (202) 452-3829.
Telecommunications Device for the Deaf (TDD) users may contact (202)
263-4869, Board of Governors of the Federal Reserve System, Washington,
DC 20551.
SUPPLEMENTARY INFORMATION:
Request for Comment on Information Collection Proposal
The Board invites public comment on the following information
collection, which is being reviewed under authority delegated by the
OMB under the PRA. Comments are invited on the following:
a. Whether the proposed collection of information is necessary for
the proper performance of the Federal Reserve's functions, including
whether the information has practical utility;
b. The accuracy of the Federal Reserve's estimate of the burden of
the proposed information collection, including the validity of the
methodology and assumptions used;
c. Ways to enhance the quality, utility, and clarity of the
information to be collected;
d. Ways to minimize the burden of information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
e. Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
Proposal To Approve Under OMB Delegated Authority the Implementation of
the Following Report
Report title: Consolidated Financial Statements for Insurance
Nonbank Financial Companies.
Agency form number: FR 2085.
OMB control number: 7100-to be assigned.
Frequency: Quarterly, beginning with the reporting period ending on
June 30, 2017.
Reporters: Nonbank financial companies (i) that the FSOC has
determined pursuant to section 113 of the Dodd-Frank Act should be
supervised by the Board and subject to enhanced prudential standards
and (ii) with at least 40 percent of total consolidated assets related
to insurance activities as of the end of either of the two most
recently completed fiscal years (insurance nonbank financial
companies), or as otherwise ordered by the Board.
Estimated annual reporting hours: One-Time Implementation: 7,200;
ongoing: 600 hours.
Estimated average hours per response: One-Time Implementation:
3,600 hours; ongoing: 75 hours.
Number of respondents: 2
General description of report: The proposed FR 2085 leverages the
existing framework of the Board's Consolidated Financial Statements for
Holding Companies (FR Y-9C) (OMB No. 7100-0128), which collects similar
information from bank holding companies, savings and loan holding
companies, and securities holding companies (collectively, holding
companies). However, the proposed FR 2085 is tailored to reduce the
burden on, and reflect the business and risks of, insurance nonbank
financial companies. Data items that are specific or unique to holding
companies were not included in the FR 2085. Data items that are either
more significant or unique to insurance were added. Where insurance
nonbank financial companies and holding companies hold similar assets
and liabilities, existing FR Y-9C data definitions and presentation
were included in the proposed FR 2085 to facilitate horizontal
comparisons.
The information collection is authorized under section 161 of the
Dodd-Frank Act.\1\ Confidential treatment would not be routinely given
to the financial data in this report. However, confidential treatment
for the reporting information, in whole or in part, can be requested in
accordance with the instructions to the form, pursuant to section
(b)(4) of the Freedom of Information Act.\2\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5361.
\2\ 5 U.S.C. 552(b)(4).
---------------------------------------------------------------------------
The FR 2085 would include a balance sheet, an income statement, a
statement of changes in equity, and detailed supporting schedules. The
data requested in the proposed FR 2085 is additional information that
is not publicly reported (e.g., insurance reserves roll-forward by line
of business) or is not reported in a standardized way or with the level
of detail necessary for Board supervision (e.g., detail concerning
fixed maturity securities and other invested assets).
The FR 2085's supporting schedules would provide additional
information needed to analyze certain financial statement line items
and can be broadly grouped as those related to (1) investments, (2)
insurance, and (3) other financial data. A summary of the proposed
information to be collected in the supporting schedules is set forth
below.
Investments-Related Supporting Schedules
Proposed supporting schedules related to investments include: IRC-B
Securities and Other Invested Assets; IRC-C Loans and Lease Financing
Receivables; IRI-B Charge-Offs, Recoveries and Changes in Allowance for
Loan and Lease Losses; IRC-D Trading Assets and Liabilities; and IRC-L
Derivatives and Off-Balance-Sheet Items.
Schedule IRC-B Securities and Other Invested Assets
This schedule collects consolidated information about fixed
maturity securities, equity securities and other ``invested assets''
grouped by classification as held-to-maturity, available-for-sale, or
fair value option. Fixed maturity and equity securities classified as
trading in accordance with ASC 320, Investments--debt and equity
securities, are reported in Schedule IRC-D Trading Assets and
Liabilities.
The FR 2085 leverages many of the data definitions from the FR Y-9C
because the types of investments of insurance nonbank financial
companies and holding companies are similar. Maintaining this
consistency would allow for aggregation of data across institutions.
The schedule was, however, tailored to gather additional detailed
balances for certain investment categories that are more significant or
unique to insurance companies. These categories include fixed maturity
securities issued by foreign governments, municipalities, and
corporations, as well as equity securities and other invested assets.
These data would be used to monitor exposures to these types of
investments over time at each insurance nonbank financial company as
well as across companies.
Given the significance of an insurance company's fixed maturity
portfolio in its investment program and ability to hold sub-investment
grade securities, it is important for the Board to understand the
underlying credit quality of insurance nonbank financial companies'
fixed maturity investments. Because section 939A of the Dodd-Frank Act
requires the Federal Reserve to remove references to credit ratings
from its regulations, fixed maturity securities are separately listed
as investment grade or sub-investment grade based on the firm's
internal credit rating system.
Schedule IRC-C Loans and Lease Financing Receivables
Because insurance nonbank financial companies participate and
provide
[[Page 24099]]
credit to the financial system, it is important to collect information
on their lending activities. The Federal Reserve believes it is
important to collect standardized loan information to allow for the
monitoring of exposures across the financial industry, at least with
respect to entities supervised by the Federal Reserve, to detect trends
in lending activities that may pose a threat to financial stability.
Specifically, these data would allow the Federal Reserve to analyze (i)
credit risk as it relates to real estate exposures, (ii)
interconnectedness of insurance nonbank financial companies and
depository institutions, (iii) credit availability to specific sectors
(e.g., agricultural, commercial, and industrial), (iv) unsecured
exposure to consumers, and (v) exposure to the sovereign risk of
certain countries.
In addition to the loans an insurance company has extended, high-
level indicators of credit quality are also necessary to understand the
content of insurance companies' loan portfolios. Specifically, data
concerning past due and nonaccrual loans are indicative of the rate of
improvement or deterioration of an insurance nonbank financial
company's loan portfolio; troubled debt restructurings data give a more
complete picture of the credit health of the loan portfolio; and loan-
to-value ratios provide a snapshot of underwriting decisions and the
riskiness of an insurance company's real estate loan portfolio compared
to peers and over time.
Schedule IRI-B Charge-Offs, Recoveries, and Changes in Allowance for
Loan and Lease Losses
This schedule collects charge-offs and recoveries by loan type as
well as a roll forward of the allowance for loan and lease losses.
Charge-offs and recoveries are a key input to credit and performance
metrics of the loan portfolio. Additionally, aggregation of these data
across the loan portfolios of all entities supervised by the Board can
provide information about credit performance of certain loan classes.
The allowance for loan and lease loss roll forward provides a basic
explanation of the movements of the allowance as well as data items
used to evaluate its adequacy.
Schedule IRC-D Trading Assets and Liabilities
This schedule collects total balances of an insurance company's
trading assets and liabilities consisting of long and short fixed
maturity securities and equities, derivatives, and other assets. Unlike
the corresponding schedules in the FR Y-9C, this schedule only captures
those instruments that are classified as trading and that are also held
with the intent to trade. It does not include securities that are
elected to be measured at fair value under the fair value option, which
are to be reported in Schedule IRC-B Securities and Other Invested
Assets.
For insurance companies, most instruments measured under the fair
value option are not held with the intent to trade. Therefore,
reporting these instruments separately from derivatives and other
instruments classified as trading provides better insight into the
business purpose for holding such instruments.
Schedule IRC-L Derivatives and Off-Balance-Sheet Items
This schedule collects data related to derivatives types and
exposures. This schedule is generally consistent with the corresponding
FR Y-9C schedule. The first section includes the gross notional and
fair value amounts for product types of free standing derivatives
(e.g., forwards, futures, options, swaps) by risk type (e.g., interest
rate contracts, foreign exchange contracts). In addition, the fair
value of collateral held by counterparty and contract type is requested
to provide additional detail supporting the ultimate risk exposure. The
schedule also includes a section to collect data related to credit
derivatives.
An embedded derivatives section is included to capture additional
detail on derivatives that represent liabilities for certain insurance
guarantees and contract options.
Together, these data would be used to monitor exposures at the
individual firm level over time as well as across firms.
Although information about instruments designated as accounting or
economic hedges would be pertinent, the collection of data on hedges
may be better served through specific supervisory requests or a more
detailed schedule that would be considered for a future revision to
this report.
Insurance-Related Schedules
Balancing regulatory cost and burden with the needs of the
supervisory teams for these data has been a fundamental consideration
in the development of the proposed insurance-related schedules. This
balance is important, as the proposed schedules may be expanded in the
future to support any regulatory capital requirements that the Federal
Reserve may propose for insurance nonbank financial companies. For
example, more granular data may be needed for insurance-related
liabilities.
Proposed supporting schedules related to insurance include: IRC-I
Section I Property and Casualty, IRI-C Property and Casualty
Underwriting, IRC-I Section II Life and Health, and IRC-I Section III
Reinsurance Assets.
Schedule IRC-I Section I Property and Casualty
This schedule collects property and casualty reserves in a
standardized way that allows for key risk exposures to be monitored
over time and potentially across other property and casualty insurance
companies. Three items related to property and casualty reserves are
reported by line of business: Gross reserves, reported gross reserves
(may be different due to discounted reserves), and reported net
reserves. These three items together provide an understanding of the
types of insurance exposure on an insurance nonbank financial company's
balance sheet. Both gross and net reserves are required to allow for a
high-level view of the impact of reinsurance and insight into the
volatility of reinsurance recoverables. In addition, data for
discounted and undiscounted reserves facilitates comparability of
insurance companies' reserve balances, as U.S. GAAP discounting
practices can vary.
This schedule also contains a roll forward of the total property
and casualty insurance reserves balance from the prior year, which is
necessary to understand the movement in the overall reserves balance.
The proposed lines of business are representative of the major
categories of property and casualty products written in the United
States and internationally. The lines of business defined by the
National Association of Insurance Commissioners (NAIC) were leveraged
where possible, but in some cases lines of business were combined to
reduce regulatory burden. In addition, NAIC lines of business do not
capture international business to the extent necessary for the Federal
Reserve's supervision of the insurance nonbank financial companies.
Therefore, proposed lines of business on this schedule differ from the
NAIC's lines of business.
Schedule IRI-C Section I Property and Casualty Underwriting
This schedule collects financial data to calculate the loss ratio,
expense ratio, and combined ratio. These ratios, of incurred losses,
underwriting expenses, and their sum relative to earned premium, are
the most widely used metrics for analyzing property and casualty
underwriting profitability.
[[Page 24100]]
Schedule IRI-C breaks out catastrophe losses to enable comparative
and trend analysis of loss ratios with and without volatile catastrophe
losses. Existing definitions of catastrophe losses can vary from firm
to firm or even year to year within the same firm. Thus, to facilitate
meaningful analysis, a consistent definition is needed. After
considering several alternate definitions, a definition based on
estimated industry losses of one billion dollars is proposed. This
proposed threshold would reduce distortive annual loss volatility from
low frequency/high severity events without having a large number of
events declared catastrophes, which could increase the burden of
reporting. Although events with industry losses approximately at the
cutoff are unlikely, insurance nonbank financial companies would have
the discretion to identify them in the Notes section of the report.
This schedule also separately covers current accident year losses
and prior year development to better understand how changing estimates
affect profitability.
The ratios are reported both gross and net of reinsurance. The
gross ratio is indicative of the overall book of business underwritten
by the firm while the net ratio reflects profits from its insurance
operations. Comparison of gross and net ratios measure the financial
and risk mitigating effect of the reporter's use of reinsurance.
In addition to the information needed to calculate the key ratios,
this schedule also collects written premium information. This
information would provide one indication of an insurance nonbank
financial company's growth. Significant growth or declines in business
can be important indicators of overall financial health and potential
threats to safety and soundness.
Schedule IRC-I Section II Life and Health
The proposed schedules capture data for insurance-related
liabilities and relevant balance sheet line items--such as Deferred
Acquisition Cost (DAC), Value of Business Acquired (VOBA) and balances
of Closed Block businesses \3\--to allow supervisory teams to monitor
financial activity at each firm in a standardized way over time and,
where relevant, across the insurance nonbank financial company
portfolio.
---------------------------------------------------------------------------
\3\ A group of participating or dividend-paying insurance
policies and contracts issued prior to the demutualization of an
insurance company. These insurance policies and annuities are
generally segregated from other assets and obligations of the
insurance company.
---------------------------------------------------------------------------
The proposed lines of business are representative of the major
categories of life insurance, annuity, and accident and health products
written in the United States and internationally. The existing NAIC
lines of business were not used because it was determined that they do
not align well with current product offerings or provide enough
granularity with respect to product risks. Instead, lines of business
were defined at a level to group products that share similar risk
characteristics.
Parts A and B--Roll Forwards of Future Policyholder Benefits and
Policyholder Account Balances
These schedules roll forward the insurance-related liability
balances of future policyholder benefits as well as policyholder
account balances by line of business. The schedules would provide
supervisors with the detail required to understand the drivers of
changes in liability balances and at a high level to gauge how business
lines are performing and how management estimates are evolving.
Part C--Variable Annuities
This schedule captures a breakdown of contract and guarantee rider
liability balances by guarantee type as well as a net amount at risk,
which is a basic measure of exposure for this type of liability.
Obtaining this information is important because the level, variability,
and drivers of risk differ significantly by guarantee type.
Part D--Closed Block
This schedule collects information related to policies and
contracts issued prior to the demutualization of an insurance company.
Collecting standardized data in the FR 2085 allows the Federal Reserve
to monitor closed blocks of business and their impact on the financial
flexibility and liquidity of insurance nonbank financial companies,
where applicable.
Part E--Roll Forward of Deferred Acquisition Costs and Value of
Business Acquired
This schedule is complementary to Parts A and B above and is
necessary to assess the activity and performance of lines of business,
including as an indicator of when and where negative experience may be
emerging and when a firm's expectation of future profitability has
changed. The lines of business proposed for the deferred acquisition
costs roll forward are consistent with the insurance-related liability
roll forwards.
Schedule IRC-I Section III Reinsurance Assets
This schedule captures material reinsurance counterparty credit
risk by individual exposure. This information is necessary to monitor
exposures to individual reinsurers.
Additional Financial Statement-Related Schedules
The proposed form would require a limited set of information to
support the financial statements outside of the areas of investments
and insurance. These supporting schedules are IRC-M Memoranda and IRC-V
Variable Interest Entities.
Schedule IRC-M Memoranda
This schedule provides additional breakdowns of certain balance
sheet items and general information that are not captured in other
proposed schedules, such as deferred taxes and borrowings. The
additional breakdowns allow for historical tracking to support trend
analysis as well as comparisons across firms.
Schedule IRC-V Variable Interest Entities
This schedule provides information concerning consolidated variable
interest entities. It is important to collect data on assets and
liabilities associated with variable interest entities because variable
interest entities can have different legal and risk characteristics
than other assets and liabilities of a firm.
Consultation Outside the Agency
The Federal Reserve sought and received informal feedback from the
insurance nonbank financial companies and two actuarial trade and
professional organizations (American Academy of Actuaries and Society
of Actuaries) in developing this proposed report. Several outreach
meetings to discuss the draft FR 2085 form and instructions took place
in October and November 2015 in an effort to refine the data items in
the proposed schedules and provide clear accompanying instructions.
Board of Governors of the Federal Reserve System, April 19,
2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-09456 Filed 4-22-16; 8:45 am]
BILLING CODE 6210-01-P