Proposed Agency Information Collection Activities; Comment Request, 24097-24100 [2016-09456]

Agencies

• FEDERAL RESERVE SYSTEM

[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]


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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:https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: regs.comments@federalreserve.gov. 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 
https://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: https://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\
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    \1\ 12 U.S.C. 5361.
    \2\ 5 U.S.C. 552(b)(4).
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    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.
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    \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.
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    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