The NPR would make captive insurance companies ineligible for FHLBank membership. Any captive that had become a member prior to the publication date of the NPR may remain a member of a FHLBank for five years. However, a FHLBank may not make or renew any advance to such a captive if after doing so the total advances to the captive would exceed forty percent of its assets. The NPR also prohibits a FHLBank from making or renewing any advance with a maturity date after the end of the five year transition period. If any captive insurer were to become a member of a FHLBank after the date of publication of the NPR, that entity would be ineligible to continue as a member of the FHLBank as of the effective date of the final rule, and all outstanding advances would have to be liquidated.
In addition, the NPR asks for comments on whether additional factors should be reviewed before advances are made to insurance companies in addition to State and NAIC capital standards.
Currently, FHFA regulations require that insurance company members meet applicable State regulatory capital requirements and in addition, meet capital standards established by the National Association of Insurance Commissioners (NAIC), even if those standards have not been adopted by the relevant State insurance regulator. FHLBanks are to determine capital adequacy based on the insurance company’s most recent regulatory filings. The NPR would require a FHLBank to make the required findings based on audited financial statements prepared in accordance with generally accepted accounting principles (GAAP), if available. If no such financial statements are available, the NPR would permit a FHLBank to use financial statements prepared in accordance with statutory accounting principles.