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Captive Insurance Eligibility Excluded in Final FHFA Rule

Federal Home Loan Banks
January 13, 2016

The Federal Housing Finance Agency (FHFA) issued a final rule on January 12, 2016, that will prevent captive insurers from becoming members of the Federal Home Loan Bank (FHLBank). The final rule defines "insurance company" to exclude captive insurers. Since mid-2012 there have been 27 new captive insurers admitted to FHLBank membership. 

Captive insurer members that joined prior to FHFA's proposed rule will be given up to 5 years to terminate their membership, and those that joined after issuance of the proposed rule in 2014 will have 1 year to do so.

FHFA asserted in its press release announcing the final rule that it "… seeks to prevent entities that do not otherwise meet the statutory requirements from becoming FHLBank members by establishing and using captives as conduits to circumvent the membership eligibility requirements and gain access to low-cost FHLBank funding and other benefits of FHLBank membership."

According to Melvin L. Watt, FHFA director, as quoted in the FHFA press release, "FHFA has the authority and the duty to implement the statutory membership provisions of the Federal Home Loan Bank Act and by adopting the proposal to exclude captives from the definition of insurance company we are making sure that institutions can't frustrate the intent of Congress. Congress has amended the Federal Home Loan Bank Act in the past to allow additional entities to become members of a Federal Home Loan Bank and it can certainly do so again if it wants some of these entities to be eligible for membership."

A bipartisan group in Congress (US Reps. Blaine Luetkemeyer, R-Missouri; Denny Heck, D-Washington; Patrick McHenry, R-North Carolina; and John Carney, D-Delaware) introduced legislation in October 2015 to stop the FHFA from moving ahead on its plan to prevent captive membership in the FHLBank. The captive industry will have to double its efforts to secure the congressional legislation needed to allow captives to become members of the FHLBank.

See the final rule.

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