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FHFA Pulls Captive Insurance Company FHLBank Eligibility

Tuesday, January 12, 2016

The final rule for membership in the Federal Home Loan Banking System (FHLBank) was announced on Tuesday by its regulator the Federal Home Finance Agency (FHFA).  The new rule will eliminate one class of membership while deleting another requirement from the proposed rules announced in 2014. 

The rule allowing insurers membership has been rewritten to define out those that meet the definition of "captive insurance companies."  A captive insurer is one for which the primary business is underwriting insurance for its parent company or for other affiliates rather than for the public at large.  FHFA said that such companies are generally easier and less expensive to charter, capitalize and operate and this type of entity is increasingly being used as a way to qualify otherwise ineligible companies from becoming FHLBank members.  The captive insurance in effect become conduits to get low-cost FHLBank funding for the ineligible parent company. Since mid-2012 there have been 27 new captive insurers admitted to FHLBank membership, 25 of which are owned by otherwise ineligible entities.  

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