In this proposal, the Financial Stability Board (FSB) expands its “key attributes” for orderly resolution initially designed for banks to non-bank financial institutions that are either systemic or operationally critical. Covered entities include financial market infrastructure (FMI) firms that are dubbed financial market utilities in the U.S., insurance companies, and firms holding assets under management. Here, we assess the broad framework of the proposed approach and its impact on insurance companies; additional FedFin client reports will analyze the impact of this approach on other covered entities. Like the new standards for global systemically-important insurers (G-SIIs), these resolution protocols would dramatically rewrite the regulatory regime for affected firm as well as restructure relations with customers, counterparties, creditors and shareholders. In many cases, the proposed approach for insurers would, as in these other arenas, challenge national law, especially the state-domiciled regulatory framework now governing insurers in the U.S. Here, some types of insurance are covered by industry-funded guaranty associations, but the new framework would replace this for systemic/critical insurers with a policy-holder funded approach, one that might be particularly difficult to establish across the array of insurance activities given not just its likely higher cost, but also the proposed new approach to limiting policy-holder rights in systemic resolutions.
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