U.S. Treasury’s Federal Insurance Office Releases Long-Awaited Report on the Insurance Industry

 

The U.S. Department of the Treasury’s Federal Insurance Office (“FIO”) released its long-awaited first Annual Report (“Report”) on the Insurance Industry to the President and Congress today, June 12, 2013.

A copy of the report is available by clicking here.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the FIO must report annually to the President and Congress on the state of the insurance industry and any other information deemed relevant or requested. 

The Report addresses the financial performance and condition of the principal sectors within the industry, and provides a review of recent insurer insolvencies, risk management and portfolio investment activities.  In addition, it reviews key legal and regulatory developments affecting the insurance industry in the United States and abroad, and discusses current and emerging trends that may have a significant impact on the industry and the stability of the U.S. financial system.

The Report was originally due in January 2012.

Below is a reprint of today’s U.S. Treasury interview with FIO Director Michael McRaith

 

Should you have any questions or comments, please contact Colodny Fass& Webb.

 

Five Questions with the Federal Insurance Office Director Michael McRaith

By Anthony Reyes

Published by the U.S. Treasury on June 12, 2013

The Federal Insurance Office (FIO) is required by statute to submit an annual report to the President and Congress on the state of the insurance industry.  FIO, established within Treasury by the Dodd-Frank Wall Street Reform and Consumer Protection Act, today released its first of these reports.  Following our initial sit down in September 2011, Treasury Notes took another opportunity to talk with FIO’s Director, Michael McRaith, to get an update on FIO and to discuss today’s report. 

Remind us, what is the Federal Insurance Office (FIO) and what authority does it have?
FIO advises the Secretary of the Treasury on insurance policy.  As provided by the Dodd-Frank Act, our office monitors all aspects of the insurance industry, ranging from financial stability issues to the availability of affordable insurance to traditionally underserved communities and consumers.  FIO also assists the Secretary in administering the Terrorism Risk Insurance Program, which helps to support the market for terrorism risk insurance products.

Further, FIO coordinates federal efforts and develops federal policy on prudential aspects of international insurance matters, including representing the United States at the International Association of Insurance Supervisors (IAIS).  In doing this, FIO works closely with other federal agencies and the state regulators.

As a non-voting member of the Financial Stability Oversight Council (Council), the FIO Director provides insurance expertise and has authority to recommend that an insurer or its affiliates be designated for supervision by the Board of Governors of the Federal Reserve.  Under the Orderly Liquidation Authority of the Dodd-Frank Act, the FIO Director, with the concurrence of two thirds of the Federal Reserve Board of Governors, may recommend that an insurance firm be subject to the resolution authority of the Federal Deposit Insurance Corporation if the failure of the company would pose a significant risk to the financial stability of the United States.   

What role does FIO have on the international level and what has it done so far?
FIO coordinates federal efforts and develops federal policy on prudential aspects of international insurance matters and represents the United States as these matters arise.

In recent years, the IAIS has been the primary forum through which international supervisors collaborate to establish international standards and to improve the oversight and stability of the insurance sector.  FIO became a full member of the IAIS in October 2011 and joined the IAIS Executive Committee in February 2012.  At the IAIS Annual Meeting in October 2012, in my capacity as Director of FIO, I was elected to serve as Chair of the Technical Committee.  The Committee directs the technical and substantive development of the supervisory standards, including development of the Common Framework (ComFrame) for the supervision of internationally active insurance groups (IAIGs).  The international standards are not regulations and, generally, allow for a range of approaches that pursue or achieve the same goal.  ComFrame will be an integrated, multilateral, and multidisciplinary framework for group-wide supervision of IAIGs.  While it will not impose a capital requirement or standard on an IAIG, ComFrame will allow for a commonly understood assessment of an IAIG’s financial condition.  In addition to its leadership of the Technical Committee, FIO is actively involved with the IAIS Financial Stability Committee (FSC), which is responsible for developing the process to identify global systemically important insurers (G-SIIs) and determine the enhanced supervisory measures to be applied to those firms.  FIO also participates in the work of the IAIS Macro-Prudential Surveillance Committee, which evaluates the potential impact of economic trends on the international insurance sector. 

In addition to its IAIS work and the ongoing development of bilateral relationships with other countries, FIO has supported the U.S. Department of Commerce and represented the United States in the Insurance and Private Pension Committee at the Organization for Economic Cooperation and Development.

In January 2012, FIO convened the European Union-United States insurance regulatory project leading to improved regulatory compatibility between two of the world’s leading insurance jurisdictions.  In September 2012, this project produced a consensus-driven report on commonalities and differences in the two supervisory approaches.  Following months of discussion between the EU insurance team, state regulators, and FIO, we1 released a statement in December 2012 outlining a strategy for improved convergence on important supervisory topics.  

What are some of the areas where the EU-U.S. project is focused?
At the December meeting of the project’s leadership committee, the project led to consensus identification of common objectives to be pursued in the next five years:

• promote the free flow of information between EU and U.S. supervisors under conditions of professional confidentiality;
• establish a robust regime for group supervision, which would include a clear allocation of tasks, responsibilities and authority amongst supervisors, a holistic approach to the determination of the solvency and financial condition of the group, greater cooperation and coordination of supervisors within colleges and efficient enforcement measures;
• further develop an approach to valuation that more accurately reflects the risk profile of companies and capital requirements that are fully risk-based;
• work to achieve a consistent approach for reinsurance oversight within each jurisdiction and examine the further reduction and possible removal of collateral requirements in order to ensure a risk-based determination for all reinsurers in relation to credit for reinsurance;
• pursue greater coordination in relation to the monitoring of the solvency and financial condition of solo entities and groups through the analysis of supervisory reporting;
• ensure consistency and effectiveness in the supervision of solo entities and groups; and
• ensure the consistent application of prudential requirements and commitment to supervisory best practices through different peer review processes that ensure an independent view of the jurisdiction being examined.

Domestically, what role does FIO play as part of the Financial Stability Oversight Council and what other initiatives is FIO pursuing?
As Director, I participate in and the FIO staff supports all of the Council’s activities.  For example, FIO participates extensively in the work of the Council’s Nonbank Designations Committee, which analyzes non-bank financial companies in support of the Council’s evaluation of those firms.  FIO is also actively engaged in the work of the Council’s Systemic Risk Committee, which monitors economic conditions and trends and provides analysis of emerging threats to financial stability.    

Since March 2012, FIO received advice and recommendations on the performance of its statutory mandate from the Federal Advisory Committee on Insurance (FACI), which is comprised of insurance sector leaders and state commissioners.  FIO welcomes the input of FACI members and meetings are scheduled throughout 2013. 

In 2012 and 2013, FIO has hosted Federal Government Insurance Forums, bringing together individuals from other federal agencies involved with administration of federal insurance programs or oversight of the U.S. insurance sector.  FIO works with and supports the efforts of other federal agencies directly or indirectly involved with the insurance sector. 

In evaluating the insurance sector, including industry, regulatory, and consumer matters, FIO consults with a range of stakeholders, including consumer advocates, industry, state legislators and regulators, economists, and academics.  Through this continuous outreach, FIO broadens its perspective on important issues.    

Finally, what can you tell us about the first Annual Report on the Insurance Industry that FIO has just released?
Under Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act, FIO must report annually to the President and Congress on the state of the insurance industry.  FIO has prepared this first Annual Report on the Insurance Industry with a view to its role as monitor of the insurance industry for trends that may have an impact on the stability of the U.S. financial system.

The report provides:

• a review of the financial performance and condition of the principal insurance sectors (i.e., life and property & casualty) including a discussion of recent insurer insolvencies, risk management, and portfolio investment activities;
• a review of the significant legal and regulatory developments affecting the insurance industry in the United States and internationally; and
• a discussion of the current and emerging trends that could have a significant impact on the industry. 

Link to previous “Five Questions” blog:

1 The EU-U.S. project consists of representatives from the European Insurance and Occupational Pensions Authority (EIOPA), U.S. State regulators, EU country regulators, the European Commission, the Financial Services Authority of the United Kingdom, and FIO.

 

 

 

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