Washington-Sept. 24, 2014
In the U.S. Department of the Treasury’s Federal Insurance Office (FIO) newly-released second Annual Report on the Insurance Industry, there are a few glimpses into further action FIO might be considering beyond its standard “monitor and report on” response to state-by state variations and issues of concern.
For example, the FIO is concerned with consumers’ retirement needs in the form of insurance products like life insurance and annuities and the availability of products and access to them in a safe manner.
In light of the decrease in life insurance agents and policies sold to individuals while needs remains high, FIO is looking into ways to promote access to what it deems “essential insurance products.”
The report discusses going beyond efforts in addition to the already preemptive pending legislation known as the National Association of Registered Agents and Brokers Reform Act of 2013 (NARAB II.)
Additionally, the report also says that questions concerning reinsurance collateral should be uniformly addressed on the national level.
FIO has been monitoring measures state-by-state to reform the requirements relating to collateral for reinsurance for almost three couple years now (the NAIC model law passed November 2011) but has found that in the 23 states that have adopted some measures of reform, authorization to accept less than 100% collateral has not been uniform in structure or implementation.
Thus, FIO suggests in its report, it is time for it to step in perhaps or at least make sure the issue is tackled at the national level.
FIO also voices its continued concern with the use of captive reinsurance as a source of risk in the life sector. The report acknowledges state regulatory attempts to address the issue but follows up with continuing concern from various sectors. However, FIO is still at the “monitor and report” stage here.
Also, the approach to ensuring availability and affordability of personal auto insurance remains open, as FIO is till monitoring the issue after receiving requested comments this spring and summer from stakeholders on how to define affordable personal auto insurance, including possible metrics.
The FIO is also appears to be getting involved with the Death Master File data to help make sure beneficiaries receive death benefit payments on policies. FIO said in the report is working to support stakeholder efforts to identify suitable alternative data sources, while working with stakeholders (including the National Technical Information Service, which supervises public access to the DMF) to support appropriate access to the DMF.
The report is largely positive on market performance. It stated that bottom-line numbers in the insurance marketplace in 2013 were encouraging and that at U.S. insurers have continued to show resilience in the aftermath of the financial crisis. Gains in net income drove reported surplus of both the P/C and L/H sectors to record levels.
At year-end 2013, the L/H sector reported approximately $335 billion in capital and surplus, and the P/C sector reported approximately $665 billion in capital and surplus, although net written premiums for the L/H sector were down slightly, from records set in 2012.
FIO has pointed out before, and does so here again, that while the United States remains the world’s largest insurance market by premium volume, its share has declined both as a percentage of domestic GDP and as a percentage of worldwide market share. Emerging economies have seen dramatic increases in premium volume, the report graphs.
This segues into updates on international supervisory activities and progress, the Federal Reserve supervision of insurers and matters examined in the watershed FIO Modernization report, released last December.
FIO’s support of international prudential standard-setting activities spearheaded through the International Association of Insurance Supervisors (IAIS), and implementation of such standards by the “appropriate national authorities” is clear in the new report, which sites financial stability, enhanced understanding and consistency as guiding principles in global insurance supervisory efforts.
FIO, which was established within Treasury as part of the Dodd-Frank Act, has a statutory duty to monitor all aspects of the insurance sector, including identifying issues that could contribute to systemic risk in the insurance industry or the U.S. financial system, which is where captive reinsurance concerns could play out. FIO also is supposed to assess the availability and affordability of insurance to traditionally underserved populations, advise the Secretary of the Treasury on major domestic insurance policy issues, and represent the United States on prudential aspects of international insurance matters, a role which FIO Director Michael McRaith has, by all accounts, heartily undertaken.