FIO wants national approach in key areas, is watchful in others

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.

Sister Europe and U.S. insurance sector trade aspirations

June 30, 2014, Washington–The European Commission will host a sixth round of EU-US trade talks in Brussels from July 14th to July 18th and insurers are pushing for the inclusion of financial services in any final treaty or deal.

What happens there is anyone’s guess, but there is a lot of “happy talk” now about progress on pushing insurance into the mix.

Life and property casualty trade groups united to state that there should be a framework to enhance and support trans-Atlantic regulatory cooperation in financial services.

Insurance Europe, the American Insurance Association (AIA), and the American Council of Life Insurers (ACLI) stated they continue to support TTIP as a comprehensive agreement.

“We believe it is essential for financial services to be included fully in any final outcome, given the current size of our bilateral financial services trade and the opportunity that this would present to drive economic growth in both Europe and the United States,” they said jointly.

One of the most contentious issues in TTIP is inclusion or non-inclusion of financial services, including insurance,” notes the Property Casualty Association of America (PCI).

“Our greatest concern lies with the need for the U.S. to be found equivalent by the European Commission for group capital, group supervision and reinsurance supervision under Solvency II.  If that is not done (i.e. a finding of Solvency II equivalence for the U.S.), barriers to trade that do not exist will be created, inviting retaliation. Ironically, this would result in inhibiting the transatlantic insurance market, which is currently relatively open and well serves both individuals and businesses.  In the end, this would result in less competition and capacity on both sides of the Atlantic, thereby hurting consumers,” PCI has argued.

Indeed, the financial regulatory sector of the U.S. government and some consumer groups said to have  problems with opening up  the 2010 Dodd-Frank Act to possible weakening or dilution.

Presidents Obama  and European leaders European Council President Van Rompuy and European Commission President Barroso  a year ago June  announced that the United States and the European Union (EU) would launch negotiations on the Transatlantic Trade and Investment Partnership (TTIP) agreement. They have supported in general reducing regulatory barriers to trade by cutting regulatory red tape while still protecting consumers at the same level.

“TTIP will help unlock opportunity for American families, workers, businesses, farmers and ranchers through increased access to European markets for Made-in-America goods and services. This will help to promote U.S. international competitiveness, jobs and growth,” states the Office of the U.S. Trade Representative (USTR).

The United States is the largest services exporter in the world, and lowering barriers in the services sector will have a beneficial impact on the entire U.S. economy, states the USTR, mentioning as examples telecommunications and the shipping business

Ways forward on an agreement include equivalence –complying with one set of rules in order to sell in both markets, some international standards, and regulatory cooperation in the different sectors, which include auto, textiles and apparels, chemicals, architectural and structural codes and mechanical/transportation.

For insurance, for example, there could be a a framework for discussion that resolves reinsurance collateral equivalence issue through the U.S. states or covered agreements where the US is granted equivalence. Europeans might want a covered agreement from Treasury’s Federal Insurance Office (FIO.)

A covered agreement with Europe in part forged by Treasury (and under development now) and USTR and insurers is of higher importance to some now in the insurance sector, especially with resistance by state insurance regulators and Treasury to including insurance in TTIP.

“We do think that the trade agreement can stand for mutual recognition,” said PCI’s international executive, Dave Snyder.

Pre-emption, transparency and regulatory arbitrage vulnerability issues persist, however, on the U.S. side, for many parties.

Although officials weren’t readily available Monday–everyone is reading the Hobby Lobby Supreme Court decision anyway–states and consumer  advocates have noted, as Birny Birnbaum from the Center for Economic Justice (CEJ) has written, “compared to issues before the International Association of Insurance Supervisors (IAIS), the TPP (Trans Pacific Partnership ) and TTIP have potentially greater impact on pre-empting state regulation of insurance and are far less transparent with far less participation by state legislators and regulators.”

Let’s see them talk and see whether there is any progress made–depending on how one charts progress, of course.