Annual Report on the Insurance Industry

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY 

Completed pursuant to Title V of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act

SEPTEMBER 2019
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Table of Contents

I. INTRODUCTION..........................................................................................1

A. The Structure of this Report................................................................................................. 1

B. Federal Insurance Office...................................................................................................... 2

1. Insurance Regulation and the Federal Insurance Office .................................................. 2

2. FIO Activities................................................................................................................... 4

II. SYSTEMIC RISK AND SOLVENCY .........................................................9

A. Domestic Developments...................................................................................................... 9

1. NAIC Group Capital Calculation..................................................................................... 9

2. Federal Reserve Building Block Approach.................................................................... 11

3. NAIC Macro Prudential Initiative.................................................................................. 13

4. Financial Stability Oversight Council Designations...................................................... 14

B. International Developments............................................................................................... 16

1. Development of an International Insurance Capital Standard for Insurance Groups .... 16

2. Activities-Based Approach and the Holistic Framework For Systemic Risk in the 

Insurance Sector .................................................................................................................... 20

III. EFFICIENT REGULATION AND GOVERNMENT PROCESSES.....23

A. Role of State and Federal Regulation ................................................................................ 23

1. FIO Engagement with Federal Agencies and the States................................................ 23

2. Federal Agency Developments...................................................................................... 24

3. State Developments........................................................................................................ 30

4. Federal Advisory Committee on Insurance.................................................................... 33

B. Terrorism Risk Insurance Program.................................................................................... 34

1. Data Collection and the 2019 Data Call......................................................................... 35

2. Terrorism Risk Insurance Program Small Insurer Report.............................................. 36

3. Advisory Committee on Risk-Sharing Mechanisms...................................................... 37

4. TRIP Reauthorization..................................................................................................... 38

C. Cyber Insurance and Insurance Industry Cybersecurity .................................................... 39

1. The Cyber Insurance Market.......................................................................................... 39

2. Insurance Industry Cybersecurity................................................................................... 43

IV. INTERNATIONAL ENGAGEMENT .......................................................47

A. IAIS.................................................................................................................................... 47

1. Structural Changes at the IAIS and FIO’s Role ............................................................. 47

2. IAIS 2020-2024 Strategic Plan ...................................................................................... 49

3. Insurance Core Principles and ComFrame..................................................................... 50
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4. Financial Crime: FCTF and FATF................................................................................ 52

5. Increasing Transparency at the IAIS.............................................................................. 53

B. Covered Agreements with the European Union and with the United Kingdom................ 54

1. Background and Agreement with the European Union ................................................. 54

2. Agreement with the United Kingdom............................................................................ 56

3. Progress of the States ..................................................................................................... 58

4. The Path Forward on U.S. Implementation.................................................................... 61

5. Engagement with the European Union........................................................................... 62

6. Certain Jurisdictions that are not Party to a Covered Agreement .................................. 63

C. Insurance Dialogue Projects .............................................................................................. 65

1. EU-U.S. Insurance Project ............................................................................................. 65

2. U.S.-UK Insurance Project............................................................................................. 66

D. Financial Stability Board ................................................................................................... 66

E. OECD................................................................................................................................. 67

F. Bilateral Dialogue with India............................................................................................. 67

V. ECONOMIC GROWTH AND INFORMED CHOICES.........................68

A. Standards of Conduct......................................................................................................... 68

B. Retirement Income............................................................................................................. 70

C. Long-Term Care Insurance ................................................................................................ 71

D. InsurTech ........................................................................................................................... 75

1. Market Overview............................................................................................................ 76

2. Innovation and its Impact on the Insurance Industry ..................................................... 80

3. Regulatory Frameworks and Reforms............................................................................ 90

VI. INSURANCE INDUSTRY FINANCIAL OVERVIEW...........................99

A. Domestic Insurance Marketplace Overview...................................................................... 99

1. Financial Performance and Condition.......................................................................... 100

2. Life and Health Sector.................................................................................................. 104

3. Property and Casualty Sector....................................................................................... 119

4. Market Performance..................................................................................................... 132

B. Capital Markets Activity.................................................................................................. 135

1. Mergers & Acquisitions of U.S. Insurers..................................................................... 136

2. Alternative Risk Transfer Insurance Products ............................................................. 137

C. International Insurance Marketplace Overview............................................................... 138

D. Domestic Insurance Market Outlook............................................................................... 139
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Glossary

ABA .......... Activities-Based Approach

ACRSM .......... Advisory Committee on Risk-Sharing Mechanisms

A&H .......... Accident and Health

AI .......... Artificial Intelligence

AM .......... Aggregation Method 

API .......... Application Programming Interface

ART .......... Alternative Risk Transfer

CCPA .......... California Consumer Privacy Act

CDO .......... Collateralized Debt Obligations

CLO .......... Collateralized Loan Obligation

ComFrame .......... IAIS Common Framework for the Supervision of IAIGs

Council .......... Financial Stability Oversight Council

DG-FSMA .......... EU’s Directorate-General for Financial Stability, Financial 

Services and Capital Markets Union

Dodd-Frank Act .......... Dodd-Frank Wall Street Reform and Consumer Protection 

Act of 2010 

EIOPA .......... European Insurance and Occupational Pensions Authority

ERISA .......... Employee Retirement Income Security Act of 1974

EU .......... European Union

FACI .......... Federal Advisory Committee on Insurance

Fannie Mae .......... Federal National Mortgage Association

FATF .......... Financial Action Task Force

FCTF .......... IAIS Financial Crime Task Force

Federal Reserve .......... Board of Governors of the Federal Reserve System

FEMA .......... Federal Emergency Management Agency

Fintech EO Report .......... Treasury, A Financial System that Creates Economic 

Opportunities: Nonbank Financials, Fintech, and Innovation

FIO .......... Federal Insurance Office

FIO Act .......... Federal Insurance Office Act of 2010

Freddie Mac .......... Federal Home Loan Mortgage Corporation

FSAP .......... International Monetary Authority Financial Sector 

Assessment Program

FSB .......... Financial Stability Board

FSTF .......... NAIC Financial Stability Task Force

GAAP Plus .......... Generally Accepted Accounting Principles with adjustments

GCC .......... Group Capital Calculation
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GCCWG .......... NAIC Group Capital Calculation Working Group

GDPR .......... EU General Data Protection Regulation

Ginnie Mae .......... Government National Mortgage Association

G-SII .......... Global Systemically Important Insurer

Holistic Framework .......... IAIS Holistic Framework for Systemic Risk in the Insurance 

Sector

HUD .......... U.S. Department of Housing and Urban Development

IAIG .......... Internationally Active Insurance Group

IAIS .......... International Association of Insurance Supervisors

iCBCM .......... FSB Cross-Border Crisis Management Group for Insurers

ICP .......... IAIS Insurance Core Principle

ICS .......... IAIS Insurance Capital Standard

ILS .......... Insurance-Linked Securities

ILW .......... Industry Loss Warranty

Insurance EO Report .......... Treasury, A Financial System That Creates Economic 

Opportunities: Asset Management and Insurance

IoT .......... Internet of Things

IPO .......... Initial Public Offering

IPPC .......... OECD Insurance and Private Pensions Committee

IRDAI .......... Insurance Regulatory and Development Authority of India

L&H .......... Life and Health 

LTCI .......... Long-Term Care Insurance

M&A .......... Mergers and Acquisitions

MAV .......... Market-Adjusted Valuation

MBS .......... Mortgage-Backed Securities

MGA .......... Managing General Agent

MitFLG .......... Mitigation Framework Leadership Group

MOU .......... Memorandum of Understanding between FIO and IRDAI

NAIC .......... National Association of Insurance Commissioners

NBCR .......... Nuclear, Biological, Chemical, and Radiological

NCOIL .......... National Council of Insurance Legislators

NFIP .......... National Flood Insurance Program

NYDFS .......... New York Department of Financial Services

OECD .......... Organisation for Economic Co-operation and Development

P&C .......... Property and Casualty

PBR .......... Principle-Based Reserving

PII .......... Personally Identifiable Information
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RBC .......... Risk-Based Capital

Regulation BI .......... SEC Regulation Best Interest

Report .......... FIO, 2019 Annual Report on the Insurance Industry

RESA .......... Retirement Enhancement and Savings Act of 2019

S&P 500 .......... Standard and Poor’s 500 Index

S&P Global .......... S&P Global Market Intelligence

SEC .......... U.S. Securities and Exchange Commission

Secretary .......... Secretary of the Treasury

SECURE Act .......... The Setting Every Community Up for Retirement 

Enhancement Act of 2019 

SSAP .......... Statements of Statutory Accounting Principles

Team USA .......... FIO, Federal Reserve, NAIC, and state insurance regulators

Treasury .......... U.S. Department of the Treasury

Transparency Report .......... Treasury and Federal Reserve, Efforts to Increase 

Transparency at Meetings of the International Association of 

insurance Supervisors

TRIA .......... Terrorism Risk Insurance Act of 2002, as amended

TRIP .......... Terrorism Risk Insurance Program

TRIP Reauthorization 

Act

.......... Terrorism Risk Insurance Program Reauthorization Act of 

2015 

TSP .......... Technology Service Provider

UK .......... United Kingdom

U.S.-EU Covered 

Agreement 

.......... Bilateral Agreement between the United States of America 

and the European Union on Prudential Measures Regarding 

Insurance and Reinsurance

U.S.-UK Covered 

Agreement

.......... Bilateral Agreement between the United States of America 

and the United Kingdom on Prudential Measures Regarding 

Insurance and Reinsurance

USTR .......... Office of the United States Trade Representative
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Table of Figures

Figure 1: NFIP 2017-2019 Reinsurance Program ........................................................................29

Figure 2: U.S. Cyber Direct Premiums Written ($ millions)........................................................40

Figure 3: IAIS Organizational Structure.......................................................................................48

Figure 4: Insurance Value Chain ..................................................................................................77

Figure 5: Global InsurTech Investments ($ billions)....................................................................78

Figure 6: InsurTech Transactions by Investment Stage................................................................78

Figure 7: Technology Investments by Insurers and Reinsurers (Number of Deals).....................79

Figure 8: Emerging Technologies.................................................................................................88

Figure 9: Total Direct Premiums Written for L&H and P&C Sectors ($ trillions) ...................100

Figure 10: L&H Insurance Groups by 2018 U.S. Life Insurance Lines Direct Premiums 

Written ($ thousands).................................................................................................101

Figure 11: L&H Insurance Groups by 2018 U.S. A&H Lines Direct Premiums Written ($ 

thousands) ..................................................................................................................102

Figure 12: P&C Insurance Groups by 2018 U.S. Combined Lines Direct Premiums 

Written ($ thousands).................................................................................................103

Figure 13: Health Insurance Groups by 2018 U.S. Health Lines Direct Premiums Written 

($ thousands)..............................................................................................................104

Figure 14: L&H Sector Net Premiums Written ($ billions) .......................................................105

Figure 15: L&H Sector Net Premiums, Considerations, and Deposits ($ thousands)................106

Figure 16: L&H Sector Expenses ($ billions).............................................................................107

Figure 17: L&H Sector Expenses ($ thousands).........................................................................107

Figure 18: L&H Sector Annual Net Investment Income ($ billions) and Net Yield on 

Invested Assets (%)....................................................................................................108

Figure 19: L&H Sector Annual Net Investment Income ($ thousands) and Net Yield on 

Invested Assets (%)....................................................................................................108

Figure 20: Percentage Yield on 10-Year Treasury Bonds..........................................................109

Figure 21: L&H Sector Net Income ($ thousands).....................................................................110

Figure 22: L&H Sector Operating Ratios...................................................................................110

Figure 23: L&H Capital and Surplus Position ($ thousands) .....................................................111

Figure 24: Key Contributors to L&H Sector Capital and Surplus..............................................112

Figure 25: On-Balance Sheet General Account Leverage for the L&H Sector..........................113

Figure 26: Composition of L&H Sector General Account Asset and Investment 

Portfolio .....................................................................................................................115

Figure 27: Cash Flows from Operations for the L&H Sector.....................................................116

Figure 28: A View of L&H Sector Liquidity..............................................................................117

Figure 29: P&C Sector Direct Premiums Written ($ billions)....................................................120

Figure 30: P&C Sector Direct Premiums Written ($ thousands)................................................120
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Figure 31: P&C Sector Combined Operating Ratios..................................................................121

Figure 32: P&C Sector Annual Net Investment Income ($ billions) and Net Yield on 

Invested Assets (%)....................................................................................................122

Figure 33: P&C Sector Annual Net Investment Income ($ thousands) and Net Yield on 

Invested Assets (%)....................................................................................................122

Figure 34: P&C Sector Net Income ($ billions) .........................................................................123

Figure 35: P&C Sector Summary Income Statement ($ thousands) ..........................................123

Figure 36: P&C Sector Operating Ratios (%).............................................................................124

Figure 37: Stable Leverage Ratio Improving Financial Flexibility of P&C Sector ...................125

Figure 38: 2018 Composition of Asset Portfolio for P&C Sector..............................................127

Figure 39: Composition of Investment Portfolio for P&C Sector..............................................127

Figure 40: P&C Sector Cash Flows from Operations.................................................................129

Figure 41: P&C Sector's Affiliated Investments.........................................................................131

Figure 42: Insurance Sector Stock Price vs. S&P 500................................................................132

Figure 43: Insurer Price/Book Value Ratios...............................................................................133

Figure 44: Gross Premiums Written and Market Share by Country, 2013 vs. 2018 ..................139
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I. INTRODUCTION

This Report is submitted by the Federal Insurance Office (FIO) of the U.S. Department of the 

Treasury (Treasury) pursuant to Section 502(a) of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (Dodd-Frank Act), which requires the annual submission of a 

report to the President, the Committee on Financial Services of the House of Representatives, 

and the Committee on Banking, Housing, and Urban Affairs of the Senate “on the insurance 

industry and any other information as deemed relevant by the Director [of the Federal Insurance 

Office] or requested by such Committees.”1

A. The Structure of this Report

This Report begins with an overview of FIO’s statutory responsibilities, then summarizes FIO’s 

key activities since those described in its 2018 Annual Report on the Insurance Industry.

2

 

Sections II through V of this Report are organized around the four key themes from the Treasury 

report, A Financial System That Creates Economic Opportunities: Asset Management and 

Insurance (the Insurance EO Report):

1) the proper evaluation of systemic risk; 

2) ensuring effective regulation and government processes;

3) rationalizing international engagement; and 

4) promoting economic growth and informed choices.3

Each section presents developments in domestic and international insurance policy, regulation,

and markets corresponding to that section’s theme. This Report concludes with a discussion and

analysis of the insurance industry’s financial performance in calendar year 2018, its financial 

condition as of December 31, 2018, and the domestic insurance market outlook for 2019.

 

1 Federal Insurance Office Act of 2010 (FIO Act), 31 U.S.C. § 313(n)(2).

2 FIO, Annual Report on the Insurance Industry (2018), https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2018_FIO_Annual_Report.pdf (2018 Annual Report).

3 Treasury, A Financial System That Creates Economic Opportunities: Asset Management and Insurance (2017), 

https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-That-Creates-EconomicOpportunities-Asset_Management-Insurance.pdf. Treasury issued the Insurance EO Report in response to 

Executive Order No. 13772. Treasury issued three additional reports in response to this Executive Order, including 

Treasury, A Financial System that Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation

(2018), https://home.treasury.gov/sites/default/files/2018-08/A-Financial-System-that-Creates-EconomicOpportunities---Nonbank-Financials-Fintech-and-Innovation.pdf. See also FIO, 2018 Annual Report (summarizing 

the Executive Order, its Core Principles for Financial Regulation, and the Insurance EO Report recommendations 

relating to insurance).
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B. Federal Insurance Office

1. Insurance Regulation and the Federal Insurance Office

In the United States, the primary regulators of the business of insurance are the fifty states, the 

District of Columbia, and the five U.S. territories.4

The federal government also plays an important role in the insurance sector.

5

 Title V of the 

Dodd-Frank Act established FIO within Treasury.6 In addition to advising the Secretary on 

major domestic and prudential international insurance policy issues and having its Director serve 

as a non-voting member of the Financial Stability Oversight Council (Council), FIO is 

authorized to:

• monitor all aspects of the insurance industry, including identifying issues or gaps in 

the regulation of insurers that could contribute to a systemic crisis in the insurance 

industry or the U.S. financial system;

• monitor the extent to which traditionally-underserved communities and consumers, 

minorities, and low- and moderate-income persons have access to affordable 

insurance products regarding all lines of insurance, except health insurance;

• recommend to the Council that it designate an insurer, including the affiliates of such 

insurer, as an entity subject to regulation as a nonbank financial company supervised 

by the Board of Governors of the Federal Reserve System (Federal Reserve);

• assist the Secretary in the administration of the Terrorism Risk Insurance Program 

(TRIP), as established in Treasury under the Terrorism Risk Insurance Act of 2002, 

as amended (TRIA);

• coordinate federal efforts and develop federal policy on prudential aspects of 

international insurance matters, including representing the United States, as 

appropriate, in the International Association of Insurance Supervisors (IAIS) and 

assisting the Secretary in negotiating covered agreements;

• determine whether state insurance measures are preempted by covered agreements;

 

4 State regulation of the insurance industry is coordinated through the National Association of Insurance 

Commissioners (NAIC), a voluntary organization whose membership consists of the chief insurance regulatory 

officials of the 50 states, the District of Columbia, and the five U.S. territories.

5 See Treasury, Insurance EO Report, 82-90.

6 FIO Act, 31 U.S.C. § 313(a). Title V also designates the Secretary of the Treasury (Secretary) as advisor to the 

President on “major domestic and international prudential policy issues in connection with all lines of insurance 

except health insurance.” Id. at § 321(a)(9).
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• consult with the states (including state insurance regulators) regarding insurance 

matters of national importance and prudential insurance matters of international 

importance; and

• perform such other related duties and authorities as may be assigned to FIO by the 

Secretary.7

In addition, before the Secretary may make a determination as to whether to seek the 

appointment of the Federal Deposit Insurance Corporation as receiver of an insurer under Title II 

of the Dodd-Frank Act, the Secretary must first receive a written recommendation from the FIO 

Director and the Federal Reserve.8 Additionally, FIO and the Federal Reserve coordinate on the 

performance of annual analyses of nonbank financial companies supervised by the Federal 

Reserve, particularly with respect to stress testing, to evaluate whether such companies have the 

capital, on a consolidated basis, necessary to absorb losses as a result of adverse economic 

conditions.9

The Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law on 

May 24, 2018, directs the Secretary of the Treasury and the Federal Reserve Chairman (or their 

designees) to submit an annual report to Congress on their efforts with respect to global 

insurance regulatory or supervisory forums.10 The Act also requires the Secretary and Federal 

Reserve Chairman (or their designees) to report to Congress on their efforts to increase 

transparency at IAIS meetings.

11 In addition, the Act requires that, before supporting or 

consenting to the adoption of any final international insurance capital standard, the Secretary, the 

Federal Reserve Chairman, and the FIO Director also must complete a study and submit a report 

to Congress on the impact of any such standard on consumers and U.S. markets.12

 

7 FIO Act, 31 U.S.C. § 313(c)(1).

8 Dodd-Frank Act, 12 U.S.C. § 5383(a)(1)(C).

9 12 U.S.C. § 5365(i)(1)(A).

10 Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. No. 115-174, § 211(c)(1)(A), 132 

Stat. 1296 (2018).

11 Economic Growth, Regulatory Relief, and Consumer Protection Act, § 211(c)(4). The Act also establishes an 

Insurance Policy Advisory Committee at the Federal Reserve. See id. at § 211(b).

12 Economic Growth, Regulatory Relief, and Consumer Protection Act, § 211(c)(3)(A). The Act further includes a

Congressional finding that before taking a position on any global insurance regulatory or supervisory proposal, the 

Secretary, the Federal Reserve, and the FIO Director shall “achieve consensus positions with State insurance 

regulators through the” NAIC. Id. at § 211(a)(2). When signing the Act into law, the President issued a statement 

noting: “These directives contravene my exclusive constitutional authority to determine the time, scope, and 

objectives of international negotiations. My Administration will give careful and respectful consideration to the 

preferences expressed by the Congress in section 211(a) and will consult with State officials as appropriate, but will 

implement this section in a manner consistent with my constitutional authority to conduct foreign relations.” 

President Donald J. Trump, Statement by President Donald J. Trump on S. 2155 (May 24, 2018), 

https://www.whitehouse.gov/briefings-statements/statement-president-donald-j-trump-s-2155/.
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2. FIO Activities

A summary of FIO activities during the period covered by this Report (some of which are further 

detailed later in this Report) is provided below.

On July 31, 2018, the U.S. Department of the Treasury issued a report, A Financial System That 

Creates Economic Opportunities: Nonbank Financials, Fintech, and Innovation (the Fintech EO 

Report). FIO contributed to the Fintech EO Report, which identified improvements to the 

regulatory landscape that will better support nonbank financial institutions, embrace financial 

technology, and foster innovation.13 Among other recommendations, the Fintech EO Report 

charged FIO to work closely with state insurance regulators, the NAIC, and federal agencies on 

InsurTech issues.

14 The Fintech EO Report and FIO’s work on InsurTech-related issues are 

discussed in Section V.D of this Report.

On August 1, 2018, the Federal Emergency Management Agency (FEMA) expanded its 

reinsurance program by transferring $500 million in flood risk through reinsurance secured 

through the capital markets.15 FIO assisted FEMA on both this transaction and other reinsurance 

placements in connection with the National Flood Insurance Program (NFIP). FEMA’s 

reinsurance transactions are discussed in Section III.A.2.d of this Report.

On August 16, 2018, Treasury hosted a cybersecurity tabletop exercise with large insurers on 

cybersecurity, with a focus on third-party risk. FIO also participated in a subsequent joint 

Treasury and NAIC regional cybersecurity exercise on February 27, 2019, in Columbia, South 

Carolina. Insurance industry cybersecurity, and related FIO activities, are discussed in Section 

III.C.2 of this Report.

On September 12, 2018, FIO participated in the U.S.-UK financial regulatory dialogue, which 

discussed insurance regulatory issues, including issues related to the withdrawal of the United 

Kingdom (UK) from the European Union (EU). Further information regarding FIO’s work with 

the United Kingdom, including the U.S.-UK Insurance Project, is available in Section IV.C.2 of 

this Report. The U.S.-UK Covered Agreement is discussed below and in Section IV.B.2 of this 

Report.

The Federal Advisory Committee on Insurance (FACI), which provides advice and 

recommendations to FIO in performing its duties and authorities, convened on September 18, 

2018, April 18, 2019, and June 18, 2019. These meetings addressed a variety of topics, 

 

13 See, e.g., Treasury, “Treasury Releases Report on Nonbank Financials, Fintech, and Innovation,” news release, 

July 31, 2018, https://home.treasury.gov/news/press-releases/sm447.

14 See Treasury, Fintech EO Report, 144.

15 See, e.g., FEMA, “FEMA Expands its Reinsurance Program by Transferring $500 Million in Flood Risk to 

Capital Markets,” news release, July 31, 2018, https://www.fema.gov/news-release/2018/07/31/fema-expands-itsreinsurance-program-transferring-500-million-flood-risk.
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including re-establishment of the FACI subcommittees and setting FACI’s priorities for 2019.16 

The FACI and the re-establishment of its subcommittees is further discussed in Section III.A.4 of 

this Report.

On September 25 and 26, 2018, FIO attended the Insurance Forum 2018, in the framework of the 

G-20, in San Carlos de Bariloche, Argentina. The Superintedencia de Seguros de la Nación 

organized the Insurance Forum in order to discuss the importance of insurance and the protection 

of policyholders given emerging risks throughout the world.17

On November 8, 2018, at the IAIS Annual General Meeting in Luxembourg, the IAIS approved 

FIO having a permanent membership on its Executive Committee. FIO’s work at the IAIS is 

discussed in more detail in Section II.B and Section IV.A of this Report.

FIO also has continued its work with the EU-U.S. Insurance Project. On November 10, 2018, 

the Steering Committee of the EU-U.S. Insurance Project hosted a public event in Luxembourg. 

The public event discussed challenges and opportunities for the insurance sector in the United 

States and EU related to cybersecurity risks and the cyber insurance market, the use of big data, 

and intra-group transactions. The EU-U.S. Insurance Project is further discussed in Section 

IV.C.1 of this Report.

On November 19, 2018, Treasury and the Federal Reserve issued a joint report, Efforts to 

Increase Transparency at Meetings of the International Association of Insurance Supervisors

(Transparency Report), as required by the Economic Growth, Regulatory Relief, and Consumer 

Protection Act.18 The Transparency Report is discussed in Section IV.A.5 of this Report.

On December 11, 2018, Treasury and the Office of the U.S. Trade Representative (USTR) 

announced the intention of the United States to sign the Bilateral Agreement between the United 

States of America and the United Kingdom on Prudential Measures Regarding Insurance and 

Reinsurance (U.S.-UK Covered Agreement). The United States and the UK signed the 

agreement on December 18, 2018. Treasury and USTR also issued a U.S. policy statement 

regarding the agreement’s implementation. Developments concerning the U.S.-UK Covered 

Agreement are discussed in Section IV.B of this Report.

 

16 More information on FACI—including its meeting agendas, minutes, and presentations—is available on FIO’s 

website. See “Initiatives: Federal Advisory Committee on Insurance (FACI),” Treasury, last updated August 28, 

2019, https://www.treasury.gov/initiatives/fio/Pages/faci.aspx.

17 See also Superintendencia de Seguros de la Nación, The Insurance Regulators Forum in Bariloche—2018

(September 25, 2018), 

https://naic.org/documents/index_181002_regulators_forum_short_statement_for_g20_finance_ministers.pdf.

18 Treasury and Federal Reserve, Efforts to Increase Transparency at Meetings of the International Association of 

Insurance Supervisors (2018), https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2018_IAIS_Transparency_Report.pdf.
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FIO staff continued to participate in the quarterly meetings of the Mitigation Framework 

Leadership Group (MitFLG), including the meetings on July 26, 2018, October 19, 2018, and 

May 17, 2019.

19 MitFLG and the National Mitigation Investment Strategy are discussed in 

Section III.A.2.c of this Report.

On April 2, 2019, Treasury and USTR held the second Joint Committee Meeting for the Bilateral 

Agreement between the United States of America and the European Union on Prudential 

Measures Regarding Insurance and Reinsurance (U.S.-EU Covered Agreement).20 At this

meeting, participants on both sides provided updates regarding the implementation of the 

agreement on reinsurance, group supervision and exchange of information, and discussed 

procedural aspects of the Joint Committee. Developments concerning the U.S.-EU Covered 

Agreement are discussed in Section IV.B of this Report.

As part of its ongoing commitment to improve coordination with the U.S. members of the IAIS, 

on May 1, 2019, FIO hosted a stakeholder session on IAIS work at Treasury with representatives 

from the members of “Team USA”: FIO; state insurance regulators; the NAIC; and the Federal 

Reserve. The topics addressed included the development of the Insurance Capital Standard 

(ICS), and the development of the IAIS’s Holistic Framework for Systemic Risk in the Insurance 

Sector (Holistic Framework; also referred to as the activities-based approach (ABA)). 

Throughout 2018 and 2019, FIO has continued to coordinate efforts on international insurance 

matters to ensure that U.S. stakeholders have regular opportunities to meet and work with all of 

Team USA. FIO’s and the Federal Reserve’s efforts to increase transparency at the IAIS are 

discussed in Section IV.A.5 of this Report.

On May 13, 2019, Secretary Steven T. Mnuchin gave remarks at the NAIC International 

Forum.21 Secretary Mnuchin discussed Treasury’s international work and other important global 

issues facing the insurance sector including the international standard-setting work at the IAIS, 

its development of an ICS, and its proposed holistic framework for assessing and mitigating 

systemic risk in the insurance sector. He also discussed Treasury’s work with USTR on the 

Covered Agreements with the European Union and the United Kingdom.

On June 28, 2019, FIO issued its study of Small Insurer Competitiveness in the Terrorism Risk 

Insurance Marketplace, as required by the Terrorism Risk Insurance Program Reauthorization 

 

19 There was no MitFLG meeting in the first quarter of 2019 due to the partial shutdown of the federal government.

20 Treasury, “Second Joint Committee Meeting under the Bilateral Agreement between the United States of America 

and the European Union on Prudential Measures Regarding Insurance and Reinsurance,” news release, April 12, 

2019, https://home.treasury.gov/news/press-releases/sm652.

21 Treasury, “Remarks by Treasury Secretary Steven T. Mnuchin at the National Association of Insurance 

Commissioners International Forum,” news release, May 13, 2019, https://home.treasury.gov/news/pressreleases/sm688 (Secretary Mnuchin International Forum Remarks).
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Act of 2015 (TRIP Reauthorization Act).

22 On August 12, 2019, the Advisory Committee on 

Risk-Sharing Mechanisms (ACRSM) held a meeting that discussed future ACRSM activities and 

provided an update on the insurance, reinsurance and capital markets involvement in terrorism 

risk insurance. TRIP and the ACRSM also are discussed in Section III.B of this Report.23

FIO participated in the U.S.-India Financial Regulatory Dialogue in Washington, D.C. on August 

26-27, 2019. The Dialogue is an annual meeting between U.S. financial services regulators and 

their Indian counterparts to share information and perspectives on key regulatory issues. At this 

meeting, FIO and the Insurance Regulatory and Development Authority of India (IRDAI) signed 

a memorandum of understanding (MOU). The MOU provides a framework for cooperation and 

coordination, including for the exchange, handling, protection and return of information, and, 

when appropriate, investigative assistance with respect to FIO and IRDAI responsibilities. The 

MOU is discussed in more detail in Section IV.F of this Report.

Throughout 2018 and 2019, FIO continued to provide expertise to other Treasury offices and 

other federal agencies, as discussed in Section III.A.1 of this Report. For example, FIO assisted 

FEMA on reinsurance and alternative risk instruments in connection with the NFIP, as noted 

above and discussed in further detail in Section III.A.2.d of this Report. FIO also participated in 

the federal inter-agency task force on long-term care insurance (LTCI), which is discussed in 

more detail in Section V.C of this Report.

FIO also regularly interacted with stakeholders on a variety of issues throughout 2018 and 2019. 

Section V.D of this Report describes FIO’s stakeholder outreach on InsurTech, for example.

In addition, throughout 2018 and 2019, FIO has continued to fulfill its statutory role representing 

the United States in the IAIS and elsewhere on prudential international insurance measures. FIO 

was actively involved on IAIS work in developing the Common Framework for the Supervision 

of Internationally Active Insurance Groups (ComFrame), an ICS (as discussed in more detail in 

Section II.B.1 of this Report), and the Holistic Framework. FIO also continued its involvement 

and leadership roles with working groups and task forces at the IAIS on a variety of issues, 

including matters relating to resolution of insurers, financial crimes, cybersecurity, and 

advancing effective corporate governance in the insurance sector, as described in more detail in 

Section IV.A of this Report.

Internationally, FIO also remains engaged in the Insurance and Private Pensions Committee 

(IPPC) at the Organisation for Economic Co-operation and Development (OECD). The OECD 

 

22 FIO, Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (2019), 

https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2019_TRIP_SmallInsurer_Report.pdf (2019 

TRIP Small Insurer Report).

23 More information on the ACRSM—including its meeting agendas, minutes, and presentations—is available on 

FIO’s website. See “Advisory Committee on Risk-Sharing Mechanisms (ACRSM),” Treasury, last updated 

September 17, 2019, https://www.treasury.gov/initiatives/fio/acrsm/Pages/default.aspx.
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serves as a source of advice for the G-20 and the public on various policymaking and 

implementation matters, and collects and publishes statistical data and analyses on various

topics.24 FIO’s work in the OECD is discussed in more detail in Section IV.E of this Report.

 

24 See OECD, Secretary-General’s Report to Ministers 2018 (2018), 16, http://www.oecd.org/publications/secretarygeneral-s-report-to-ministers-22223843.htm.
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II. SYSTEMIC RISK AND SOLVENCY

Section II of this Report describes selected domestic developments relating to systemic risk and 

solvency, including updates on the NAIC Group Capital Calculation, the Federal Reserve’s 

Building Block Approach, the NAIC Macro Prudential Initiative, and Council designations and 

interpretive guidance. The Section then discusses international developments, including the 

IAIS’s development of an ICS and the Holistic Framework. FIO’s other international 

engagement is discussed in Section IV of this Report. As detailed below, Treasury is committed 

to continued engagement in international forums to ensure the U.S. regulatory framework is 

appropriately reflected and that U.S. interests are appropriately advanced in these forums.

A. Domestic Developments

1. NAIC Group Capital Calculation

In April 2016, the NAIC Executive Committee and Plenary adopted as a charge to the Financial 

Condition Committee that it (1) construct a group capital calculation (GCC) using a Risk-Based 

Capital (RBC) aggregation methodology, and (2) liaise with the NAIC’s ComFrame 

Development and Analysis Working Group on international capital developments and consider 

group capital developments by the Federal Reserve to help inform its construction of a U.S. 

group capital calculation.25 The Group Capital Calculation Working Group (GCCWG) was 

formed and charged with constructing a GCC, using a RBC aggregation methodology, as an 

assessment tool for state regulators in providing a baseline quantitative measure for group 

risks.

26

The NAIC has stated that it intends for the GCC to be an analytical tool to provide a baseline 

quantitative measure for group risks.27 As such, it is to be one of many tools available to 

regulators to employ in understanding risks. The NAIC has also stated that an objective of the 

GCC is to provide a coherent, analytical framework of the financial position of affiliated 

business entities. By delivering a holistic, transparent view of the interconnectedness, business 

activities, and capital support surrounding the insurance group, the NAIC intends for the GCC to

 

25 See NAIC, Spring Volume I 2016 Proceedings of the National Association of Insurance Commissioners (April 

2016), 2-21, 2-32, https://www.naic.org/prod_serv/PRC-ZS-2016_combined.pdf. The NAIC’s ComFrame 

Development and Analysis Working Group proposed this charge in October 2015. See NAIC, NAIC Group Capital 

Calculation Recommendation: Adopted by the ComFrame Development and Analysis (G) Working Group Oct. 30, 

2015, Adopted by the International Insurance Relations (G) Committee – Nov. 19, 2015 (2015), 

https://www.naic.org/documents/committees_e_grp_capital_wg_related_cap_calc_reccomendation.pdf.

26 See NAIC, 2016 Proceedings of the NAIC, 2-21, 2-32.

27 NAIC, “Field Testing for NAIC Group Capital Calculation Underway,” news release, June 18, 2019, 

https://www.naic.org/Releases/2019_docs/field_testing_for_naic_group_capital_calcuation_underway.htm.
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assist regulators with taking informed and appropriate action in response to potential risks arising 

from other parts of the holding company system.28

The NAIC’s field testing of the GCC started in May 2019 with 33 U.S.-based volunteer firms

across 15 states participating, including property and casualty (P&C), life, and health insurers. 

Volunteer firms received a data template and technical specifications, requesting data as of yearend 2018, to be submitted by August 2019. The analysis of field testing submissions is targeted 

for completion in early to mid-October 2019. Field testing results will inform the final 

calculation, which the NAIC has stated it expects to adopt in 2020.29

For the 2019 field testing, the NAIC incorporated revisions to the GCC template in order to 

address specific issues that continue to remain under discussion in the GCC’s development. This 

includes: the treatment of non-admitted entities; the additional allowance for senior debt as a 

capital resource; the treatment of XXX/AXXX captives; materiality thresholds including which

entities to exclude from the scope of application; the treatment of subordinated debt including the 

testing of options that recognize various levels of capital instruments as available capital; the 

selection of scalars for non-U.S. insurers; and the calibration level of the inputs to the GCC 

including the use of scalars.

30

The NAIC first introduced the concept of scalars in an attempt to address the issue of 

comparability of accounting systems and capital requirements across various insurance 

regulatory jurisdictions. These scalars aim to scale capital requirements imposed on non-U.S. 

insurers as a basis for comparison to the RBC-based requirement used in the United States. The 

NAIC is currently reviewing two scalar approaches for non-U.S. insurers. The first method, 

referred to as the Relative Ratio Approach, adjusts the capital requirement of a non-U.S. insurer 

in the group by applying a scalar to the non-U.S. insurance entity’s capital requirement as 

determined by local regulatory authorities. It compares the average capital ratios of non-U.S. 

insurers to capital required at the first intervention level under the RBC system.

31 The second 

approach, referred to as the Excess Capital Ratio, adjusts both available capital and required 

capital. This approach evaluates the ratio of excess capital carried over the first intervention 

level requirement. Volunteer groups field tested both of these scalar approaches in 2019.

32

Stakeholders have also raised other issues with the GCC, including the complexity of the

de-stacking of financial entities required in the calculation, as well as the confidentiality 

 

28 NAIC, “Field Testing for NAIC Group Capital Calculation Underway.”

29 NAIC, “Field Testing for NAIC Group Capital Calculation Underway.”

30 NAIC, “GCCWG—Field Testing Kick-Off Presentation” (presentation, NAIC, May 9, 2019 et seq.), https://naiccms.org/sites/default/files/inline-files/cmte_e_grp_capital_wg_field_testing_2019_kickoff.pdf.

31 Scalars will be applied using the RBC Trend Test threshold 300% x Authorized Control Level RBC as the first 

intervention level.

32 NAIC, NAIC Group Capital Calculation Field Testing Instructions (June 2019), 

https://www.naic.org/documents/cmte_e_grp_capital_wg_field_testing_2019_instructions_clean.pdf.
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protections during the development of the GCC.

33 In August 2019, the GCCWG discussed the 

need for appropriate confidentiality protections for the GCC after its potential adoption by the 

NAIC.

34 Stakeholders have voiced concerns about voluntary disclosure of GCC results to third 

parties, such as rating agencies and underwriters.

2. Federal Reserve Building Block Approach

In June 2016, the Federal Reserve published an advance notice of proposed rulemaking (ANPR) 

on Capital Requirements for Supervised Institutions Significantly Engaged in Insurance 

Activities.35 The ANPR invited comment on two approaches to group capital requirements: (1) a 

“building block approach” (BBA) that uses existing legal entity capital requirements as the basis 

for measuring insurance depository institution holding companies (e.g., savings and loans 

holding companies); and (2) a “consolidated approach” for insurance companies designated by 

the Council. There are currently no Council-designated insurers, but the insurance thrift holding 

companies supervised by the Federal Reserve represent approximately 10 percent of U.S. 

insurance industry assets.36

Since the issuance of the ANPR in 2016, the Federal Reserve has continued to work on the BBA. 

In January 2019, Federal Reserve Vice Chairman for Supervision Randal Quarles delivered a 

speech on insurance supervision and international engagement that included comments on the 

Federal Reserve’s work on its domestic capital rules for Federal Reserve-supervised U.S. 

insurers, as well as the international standard setting process. While the Federal Reserve’s 

proposed BBA is conceptually similar to the aggregation approach, or GCC, being developed by 

the NAIC and state regulators (discussed in Section II.A.1 of this Report), it was noted that the 

BBA will not make adjustments for permitted and/or prescribed accounting practices granted to 

individual insurers by their respective regulators.37

 

33 NAIC, Draft Minutes of the Financial Condition (E) Committee (August 5, 2019), 

https://naic.org/meetings1908/e_cmte.pdf.

34 NAIC, Draft Minutes of the NAIC Group Capital Calculation (E) Working Group (August 2, 2019), 

https://naic.org/meetings1908/e_cmte.pdf (attachment two).

35 Capital Requirements for Supervised Institutions Significantly Engaged in Insurance Activities, 81 Fed. Reg. 

38631 (June 14, 2016), https://www.federalregister.gov/documents/2016/06/14/2016-14004/capital-requirementsfor-supervised-institutions-significantly-engaged-in-insurance-activities.

36 See Randal K. Quarles, “Insurance Supervision and International Engagement” (speech, American Council of Life 

Insurers Executive Roundtable, Naples, FL, January 9, 2019), 3, 

https://www.federalreserve.gov/newsevents/speech/files/quarles20190109a.pdf (Quarles ACLI Speech).

37 Quarles ACLI Speech, 4. Permitted and/or prescribed accounting practices are accounting adjustments that 

deviate from NAIC Statutory Accounting Principles that state regulators grant on a case-by-case basis for insurers 

domiciled within the granting state.
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On September 6, 2019, the Federal Reserve announced that it was inviting public comment on its 

proposed BBA.

38 In its September notice, the Federal Reserve builds on the BBA discussion in 

its June 2016 ANPR to establish an enterprise-wide capital requirement for depository institution 

holding companies with significant insurance activities.39 The proposed BBA would group 

entities by their respective capital frameworks, creating building blocks within a corporate 

structure. By reflecting the legal entity capital positions within the building blocks, the proposed 

BBA would then translate the building blocks into a common standard with the use of scalars 

before stacking them to arrive at an aggregated enterprise level of available capital and required 

capital.40 The resulting BBA ratio of available to required capital would be based on equivalent 

values because the scalars would adjust for variations between different state-based insurance 

capital requirements and bank capital requirements. The BBA ratio would be subject to a 

required minimum of 250 percent and a capital buffer of 235 percent, resulting in a proposed 

total requirement of 485 percent. Finally, the September notice indicates that the Federal 

Reserve intends to conduct a quantitative impact study of the BBA to inform and shape the final 

framework.

In its October 2017 Insurance EO Report, Treasury recommended that the group capital 

initiatives by the NAIC, the states, and the Federal Reserve should be harmonized, to the extent 

possible, to mitigate duplicative and unnecessary regulatory burdens for U.S. insurers.41 Vice 

Chairman Quarles noted that Federal Reserve staff has been working closely with state 

regulators and the NAIC to help achieve consistency between the two approaches. Given the 

more limited number of firms currently under Federal Reserve supervision than those supervised 

by the U.S. states, any final BBA capital standard will likely not have to address some of the 

issues currently being considered by the U.S. states, e.g., international scalars, scope and purpose 

of the standard, and reinsurance captives.

 

38 Federal Reserve, “Federal Reserve Board Invites Public Comment on Proposal to Establish Capital Requirements 

for Certain Insurance Companies Supervised by the Board,” news release, September 6, 2019, 

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190906a.htm.

39 Depository institution holding companies that are significantly engaged in insurance activities under the Federal 

Reserve’s supervision currently consists of savings and loan holding companies only. The Federal Reserve intends 

to address the application of this approach to bank holding companies in the final rule.

40 Because the Federal Reserve’s current population of supervised insurance groups has no material international 

insurance operations, scalars have only been developed for domestic application. Federal Reserve, Comparing 

Capital Requirements in Different Regulatory Frameworks (2019), 1, 

https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20190906a1.pdf.

41 Treasury, Insurance EO Report, 100.
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3. NAIC Macro Prudential Initiative

In August 2017, the NAIC launched its Macro Prudential Initiative as part of the work of its 

Financial Stability Task Force (FSTF).

42 Under the Macro Prudential Initiative, the NAIC is 

undertaking a comprehensive review of state insurance regulators’ “toolbox,” assessing what 

existing data, metrics, and analyses are available to support macroprudential monitoring, and 

what enhancements or additions might be needed to serve this purpose.43 

The FSTF established the Liquidity Assessment Subgroup in September 2017. After identifying

existing data related to liquidity risk, the Subgroup published proposals to modify NAIC 

financial statement reporting forms (also known as blanks) to address data gaps and concerns.44 

Effective with the 2019 statutory life annual statements (to be filed in March 2020), state 

insurance regulators, through the NAIC, adopted a number of reporting changes requesting data

that provide additional detail in product category reporting.45 The new data include additional 

details on annuity reserves and deposit type liabilities, withdrawal amounts and characteristics, 

as well as additional granularity on L&H operations by lines of business. State insurance 

regulators performed a data call in 2019 to obtain such information based on the 2018 filings. 

The Subgroup formed an informal study group of state regulators, five insurance groups, and 

NAIC staff, which met for the first time in March 2019. This study group is exploring: (1) 

questions that the stress test should answer; (2) initial thoughts on liquidity stress test scenarios; 

(3) the time horizons for the liquidity stress test; and (4) which entities within the group should 

be included in the liquidity stress test.46

The FSTF referred to the Receivership and Insolvency Task Force certain requests for analysis of 

resolution and recovery concerns important to financial stability as part of the Macro Prudential 

Initiative.47 The Receivership and Insolvency Task Force continues to work to address the issues 

identified by the FSTF. In an April 2019 update to the FSTF, the Receivership and Insolvency 

Task Force reported that current laws, regulations and guidance cover the recommendations of 

the Financial Stability Board’s (FSB) “Key Attributes of Effective Resolution Regimes for 

 

42 NAIC, NAIC Financial Stability (EX) Task Force Macro Prudential Initiative (MPI): A Proposed Framework

(August 1, 2017), 2, 

https://www.naic.org/documents/cmte_ex_financial_stability_tf_macro_prudential_initiatives.pdf.

43 For more discussion of the formation and goals of the Macro Prudential Initiative, see FIO, 2018 Annual Report, 

16-17.

44 NAIC, 2017 Proceedings of the National Association of Insurance Commissioners: 2017 Fall National Meeting

(December 2-4, 2017), 4-21, https://www.naic.org/prod_serv/PRC-ZS-17-03_Combined.pdf.

45 “Key Initiative: Macroprudential Initiative (MPI),” NAIC, last updated September 9, 2019, 

https://www.naic.org/cipr_topics/topic_macro.htm.

46 NAIC, Draft Minutes of the Financial Stability (EX) Task Force (April 8, 2019), 1-2, https://naiccms.org/sites/default/files/national_meeting/Materials.pdf.

47 NAIC, Draft Minutes of Financial Stability Task Force, 2. See also NAIC, 2017 Proceedings, 4-22; FIO, 2018 

Annual Report, 16-17.
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Financial Institutions” and the IAIS’s Insurance Core Principles (ICPs) and ComFrame. 

However, “few states have adopted the latest receivership laws, and several issues were 

identified: 1) the Receiver’s Handbook for Insurance Company Insolvencies may need to be 

amended for circumstances where a bridge institution is needed; 2) continuity of essential 

services of non-regulated entities; and 3) variance of state receivership laws.”48

4. Financial Stability Oversight Council Designations

The Dodd-Frank Act established the Council and charged it, among other functions, with: (1) 

identifying risks to the financial stability of the United States; (2) promoting market discipline; 

and (3) responding to emerging threats to the stability of the United States financial system.49

On October 17, 2018, the Council announced that it had unanimously approved the rescission of 

its previous determination that material financial distress at Prudential Financial, Inc. could pose 

a threat to U.S. financial stability and that Prudential shall be subject to supervision by the 

Federal Reserve and enhanced prudential standards.50 The Council reevaluated the extent to 

which material financial distress at Prudential could be transmitted to other financial firms and 

markets and thereby pose a threat to U.S. financial stability through “three transmission 

channels: (1) the exposures of creditors, counterparties, investors, and other market participants 

to Prudential; (2) the liquidation of assets by Prudential, which could trigger a fall in asset price 

and thereby could significantly disrupt trading or funding in key markets or cause significant 

losses or funding problems for other firms with similar holdings; and (3) the inability or 

unwillingness of Prudential to provide a critical function or service relied upon by market 

participants and for which there are no ready substitutes.”51 In its reevaluation, the Council 

identified several factors in connection with each of the three transmission channels that 

“materially affect the Council’s conclusions with respect to the extent to which Prudential’s 

material financial distress could pose a threat to U.S. financial stability.”52

On March 6, 2019, the Council unanimously voted to propose changes to its interpretive 

guidance regarding nonbank financial company designations.53 Under the proposed guidance,

the Council would prioritize an activities-based approach —rather than an entity-based 

approach—to identifying, assessing and mitigating potential risks to U.S. financial stability while 

 

48 NAIC, Draft Minutes of Financial Stability Task Force, 2.

49 12 U.S.C. § 5322(a)(1).

50 Treasury, “Financial Stability Oversight Council Announces Rescission of Nonbank Financial Company 

Designation,” news release, October 17, 2018, https://home.treasury.gov/news/press-releases/sm525.

51 Treasury, Notice and Explanation of the Basis for the Financial Stability Oversight Council’s Rescission of Its 

Determination Regarding Prudential Financial, Inc. (Prudential) (October 16, 2018), 3-4, 

https://home.treasury.gov/system/files/261/Prudential-Financial-Inc-Rescission.pdf (Prudential Rescission Notice).

52 Treasury, Prudential Rescission Notice, 7.

53 Treasury, “Financial Stability Oversight Council Proposes Changes to Nonbank Designations Guidance,” news 

release, March 6, 2019, https://home.treasury.gov/news/press-releases/sm621.
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also enhancing the analytical rigor and transparency of the Council’s process to determine 

whether to designate a nonbank financial company for supervision by the Federal Reserve.

The proposed guidance reflects two priorities: (1) identifying and addressing, in consultation 

with relevant financial regulatory authorities, potential risks and emerging threats on a 

system-wide basis, thereby reducing the potential for competitive distortions among companies 

and in markets that arise from entity-specific regulation and supervision, and (2) allowing 

relevant financial regulatory agencies, which generally possess greater information and expertise 

with respect to company, product, and market risks, to address potential risks, rather than 

subjecting the companies to new regulatory authorities. The Council would pursue an 

entity-specific determination only if a potential risk or threat cannot be addressed through an 

activities-based approach.

In addition, the proposed guidance would substantially transform the Council’s existing nonbank 

financial company designation procedures.54 The following are high-level descriptions of 

several of the proposed changes:

• In the event the Council considers a nonbank financial company for a potential 

determination that it will be subject to supervision by the Federal Reserve and prudential 

standards under section 113 of the Dodd-Frank Act, the proposed guidance includes a 

new proposal that the Council perform a cost-benefit analysis before making a 

determination.

• The proposed guidance provides that the Council will assess the likelihood of a nonbank 

financial company’s material financial distress when evaluating the firm for a potential 

designation.

• The proposed guidance condenses the current three-stage process for a determination 

under section 113 into two stages, by eliminating the current stage 1.

55

• The proposed guidance further enhances the new, two-stage determination process by 

making numerous procedural improvements, including several which are intended to 

facilitate the Council’s transparency and engagement with companies and their primary 

regulators. Among other things, by making a company aware early in the review process 

of potential risks the Council has identified, the Council seeks to give the company more 

information and tools to mitigate those risks prior to any Council designation, thus 

providing a potential pre-designation “off-ramp.”

 

54 Authority to Require Supervision and Regulation of Certain Nonbank Financial Companies, 84 Fed. Reg. 9028 

(March 13, 2019), https://home.treasury.gov/system/files/261/Notice-of-Proposed-Interpretive-Guidance.pdf.

55 The current stage 1 applies a set of uniform quantitative metrics to a broad group of nonbank financial companies 

in order to identify nonbank financial companies for further evaluation and to provide clarity for other nonbank 

financial companies that will likely will not be subject to evaluation for a potential designation.
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• The proposed guidance includes procedures intended to clarify the post-designation 

“off-ramp.” The proposed guidance indicates that, except where new material risks arise 

over time, if a company adequately addresses the potential risks identified in writing by 

the Council at the time of the final determination and in subsequent reevaluations, the 

Council should generally be expected to rescind the determination.56

The proposed guidance is designed to “enhance the Council’s engagement with companies, 

regulators, and other stakeholders. By issuing clear and transparent guidance, the Council seeks 

to provide the public with sufficient information to understand the Council’s concerns regarding 

risks to financial stability, while appropriately protection information submitted by companies 

and regulators to the Council.”57 The 60-day public comment period for the proposed guidance 

concluded on May 13, 2019.

B. International Developments

1. Development of an International Insurance Capital Standard for Insurance 

Groups

a) ICS Background

As insurance markets become increasingly global, it becomes more important for regulators 

across jurisdictions to find a common foundation that can assist with assessing the financial 

safety and soundness of insurance groups with cross-border operations. As U.S. insurance 

companies compete globally and increasingly look overseas for growth opportunities, the federal 

government’s participation in various international forums is crucial to ensuring the U.S. 

insurance sector and U.S. companies remain internationally competitive, while ensuring that 

international standards do not inappropriately affect U.S. insurance companies or the domestic 

insurance market. It is important that the United States speak with the authority of the national 

government when addressing key international insurance matters during any international 

engagement.

It is important to note that international standards are not, in and of themselves, binding in the 

United States unless they are adopted as law through domestic processes at the state or federal 

level. It is critical that the United States engage with its counterparts through international 

forums. If standards developed in these forums are adopted by non-U.S. jurisdictions, they could 

have significant implications for U.S. insurers operating abroad and potentially for the domestic 

insurance regulatory regime. As U.S. insurers expand into foreign markets, they will have to 

 

56 84 Fed. Reg. at 9029-9030.

57 84 Fed. Reg. at 9029.
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navigate the supervisory regimes of other jurisdictions that may be influenced by international 

standards.58

In October 2013, the IAIS announced its plan to develop a risk-based global ICS, in response to 

a request by the FSB for the IAIS to create a comprehensive, group-wide supervisory and 

regulatory framework for Internationally Active Insurance Groups (IAIGs).59 In 2014, the IAIS 

began to design this new regulatory framework, known as ComFrame, which would consist of 

both qualitative and quantitative supervisory requirements tailored to the complexity and 

international scope of IAIGs. As the quantitative component of ComFrame, the ICS in its final 

form will become a group-wide prescribed capital requirement that supervisors can leverage to 

assess an insurance group’s financial health.

To date, there have been several significant milestones for the ICS project. First, the IAIS 

adopted ICS Version 1.0 for extended field testing in July 2017. ICS Version 1.0 identified two 

valuation approaches—the market-adjusted valuation (MAV) and Generally Accepted 

Accounting Principles with adjustments (GAAP Plus); established a standard method for 

calculating the ICS capital requirement; and indicated that other methods would be considered 

including the use of internal models in calculating the ICS capital requirement.60

Second, in November 2017, the IAIS announced that the next steps for the ICS project would 

have two phases: (1) a five-year monitoring phase beginning in 2020, followed by (2) an 

implementation phase.61 During the first phase, the monitoring period, the ICS would not be 

used as a prescribed capital requirement, i.e., the ICS results would not be used as a basis for 

triggering supervisory action. Rather, the five-year monitoring period would be used for 

confidential reporting to group-wide supervisors and discussion in supervisory colleges. The 

IAIS stated that confidential reporting would be mandatory for all IAIGs during this period, and 

would involve the reporting of a reference ICS based on MAV with a single discounting 

approach, the standard method for calculating capital requirements, and converged criteria for 

qualifying capital resources.62 A reference ICS solvency ratio would provide a basis for 

 

58 See Secretary Mnuchin International Forum Remarks.

59 FSB, Global Systemically Important Insurers (G-SIIs) and the Policy Measures that Will Apply to Them (July 18, 

2013), https://www.fsb.org/wp-content/uploads/r_130718.pdf.

60 IAIS, Risk-Based Global Insurance Capital Standard Version 1.0 for Extended Field Testing (July 21, 2017), 

https://www.iaisweb.org/page/supervisory-material/insurance-capital-standard/file/67651/ics-version-10-forextended-field-testing. See also FIO, 2018 Annual Report, 20.

61 IAIS, Risk-Based Global Insurance Capital Standard Version 2.0: Public Consultation Document (July 31, 

2018), 16 (section 2.5), https://www.iaisweb.org/page/supervisory-material/insurance-capitalstandard/file/76133/ics-version-20-public-consultation-document (ICS Version 2.0 Consultation).

62 See IAIS, Implementation of ICS Version 2.0 (November 2, 2017), 1. 

https://www.iaisweb.org/file/69796/implementation-of-ics-version-20. It is important to note that IAIS standards 

are not self-executing in the United States. The IAIS’s use of the term “mandatory” applies only within the context 
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comparison across IAIGs and with GAAP Plus reported results and outcomes generated from 

internal models. The monitoring period would allow group-wide supervisors and host 

supervisors to discuss and assess the ICS as a capital benchmark, as well as to compare ICS 

results against existing group capital standards and calculations, or those under development. 

Finally, additional reporting of the ICS based on GAAP Plus valuation and internal model-based 

capital requirement calculations would be permitted at the option of the group-wide supervisor. 

In the second phase of implementation, the IAIS envisions the use of the ICS as a group-wide 

prescribed capital requirement in 2025.

As the third milestone, the IAIS agreed that it would assist in the collection and analysis of data 

toward the development of the Aggregation Method (AM), a methodology that leverages the 

domestic work being done in the United States, that is, the GCC by state regulators and the 

NAIC and the building block approach by the Federal Reserve. The AM presents an alternative 

approach to the ICS standard method for determining capital resources and capital 

requirements.63 With completion of the second round of the AM data collection exercise in July 

2019, recent discussions at the IAIS of the comparability assessment of AM against the ICS 

have moved forward. The IAIS intends to propose a definition of outcome equivalence as well 

as present an updated timeline and governance process for members to review at the next round 

of parent committee meetings in September 2019.

ICS Version 2.0, planned for adoption in November 2019, is intended to attain an improved level 

of comparability in comparison to ICS Version 1.0.64 The IAIS’s ultimate goal is a single ICS 

that includes a common valuation methodology by which one ICS achieves comparable, or 

substantially the same, outcomes across jurisdictions.65 Because GAAP Plus will continue to be 

field tested for an additional two years through 2021, ICS Version 2.0 will still include two 

valuation approaches. Once field testing for GAAP Plus has been completed, it is expected that 

the differences between the two valuation methodologies will narrow significantly—in 

particular, with the implementation of certain accounting changes that will impact financial 

reporting based on either GAAP or International Financial Reporting Standards.

b) ICS Status

The IAIS has been undertaking a multi-year quantitative field-testing process with volunteer 

insurance groups. Five field-testing exercises have been conducted to date, in 2015 through 

2019, with the final round completed in July 2019. Each quantitative ICS field-testing exercise 

 

of IAIS member commitments, and not the U.S. insurance regulatory regime. See also FIO, 2018 Annual Report, 

20.

63 IAIS, Implementation of ICS Version 2.0.

64 See “Insurance Capital Standard (ICS),” IAIS, https://www.iaisweb.org/page/supervisory-material/insurancecapital-standard.

65 IAIS, ICS Version 2.0 Consultation.
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has built upon the previous year’s analyses (conducted by the IAIS) of data and feedback 

submitted by volunteer groups, including comments from IAIS public consultations. In 2019, 48

volunteer groups participated in the ICS field-testing exercise, including seven U.S. firms.

In addition to voluntary field-testing exercises, the IAIS has conducted three public ICS 

consultations, including one released on July 31, 2018, which solicited feedback on ICS Version 

2.0.66 Treasury encourages the IAIS to continue seeking public feedback on the development of 

the ICS. The comments received in the public consultations have been helpful for Team USA’s 

efforts at the IAIS to develop positions that support an ICS that is more appropriate for the 

United States.

Aspects of the ICS that remain under development include the current construct and calibration 

of certain risks to be reflected in the ICS. In addition, IAIS members continue to negotiate the 

process and timing to assess whether the various approaches under consideration (including the 

use of internal models, GAAP Plus, and AM) produce outcomes equivalent to the ICS. The IAIS 

intends to make decisions concerning comparability and outcome equivalence by the end of the 

monitoring period.67

As a first step towards developing criteria for assessing comparability, the IAIS issued a survey 

to its members in late 2018, asking for their views on what constituted appropriate criteria for 

evaluating the various proposed appproaches against the ICS. However, significant work still 

remains ahead at the IAIS to address issues regarding comparability. Prior to the planned 

adoption in November 2019 of the ICS 2.0 for the monitoring period, IAIS members will 

continue to work on: (1) defining the meaning of “outcomes-equivalent”; (2) establishing the 

criteria and processes to evaluate comparability; (3) determining the expectations and use of the 

ICS by supervisors during the monitoring period; and (4) resolving significant technical design 

issues regarding the reference ICS.

While design issues and policy concerns are ongoing, recent IAIS work introduced geographical 

calibrations for several material risks within the ICS framework. Team USA aims to continue to 

move these efforts forward across other ICS risks. As part of the ICS work, FIO continues to 

advocate that the IAIS address the following issues:

• First, the IAIS should improve the design of the ICS so that it more appropriately 

reflects the unique business model of insurers as compared to other financial service 

providers. In particular, one area that has been identified is the ICS’s market 

valuation approach and the negative effects it could have on the ability of insurance 

companies to provide long-term savings products, which are important to insurers and 

policyholders in the United States.

• Second, it is important that the IAIS create a defined structure and process for further 

work and revisions to the ICS during the monitoring period from 2020 to 2024. After 

it is adopted in 2019, the reference ICS will most likely need further development and 

 

66 See, e.g., IAIS, ICS Version 2.0 Consultation.

67 IAIS, ICS Version 2.0 Consultation.
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revision, and the IAIS needs to develop and then implement a process that ensures 

appropriate confidentiality while allowing the IAIS, its members, and other important 

stakeholders to continue evaluating, revising, and improving the ICS over the next 

five years.

• Third, it is fundamentally important that the IAIS strengthen its efforts to develop a 

final ICS that is implementable in the United States. FIO is focused on working with 

other Team USA members, and the broader membership of the IAIS, to develop the 

criteria and the process by which the U.S. approach to group capital may be deemed 

“outcome equivalent” to the ICS, and pressing to have agreement at the IAIS, before 

the November 2019 adoption of the ICS, on a process for addressing outcome 

equivalence.

• Finally, getting the ICS right at the IAIS is more important than meeting any fixed 

schedule that mandates completion of the ICS at a specific point in time.

2. Activities-Based Approach and the Holistic Framework For Systemic Risk in 

the Insurance Sector

In November 2017, the FSB, in consultation with the IAIS and national authorities, welcomed 

and encouraged the IAIS to work on an activities-based approach, or ABA, to systemic risk in 

the insurance sector and noted that, once developed, the ABA may have significant implications 

not only for the assessment of systemic risk, but also for the identification of Global 

Systemically Important Insurers (G-SIIs) and G-SII policy measures.68 In December 2017, the 

IAIS released its interim consultation paper on an activities-based approach to systemic risk.

69

Building on this work, the IAIS released a second consultation paper in November 2018, Holistic 

Framework for Systemic Risk in the Insurance Sector.

70 The proposed framework for assessing 

and mitigating systemic risk in the insurance sector includes the following elements:

• An enhanced set of supervisory policy measures to help prevent insurance sector 

vulnerabilities from developing;

 

68 FSB, Review of the List of Global Systemically Important Insurers (G-SIIs) (November 21, 2017), 

http://www.fsb.org/wp-content/uploads/P211117-2.pdf.

69 IAIS, “IAIS Releases Interim Consultation Paper on an Activities-Based Approach to Systemic Risk,” news 

release, December 8, 2017, https://www.iaisweb.org/page/news/press-releases//file/70446/iais-press-release-interimpublic-consultation-on-an-activities-based-approach. See also FIO, 2018 Annual Report, 18-19.

70 IAIS, Holistic Framework for Systemic Risk in the Insurance Sector: Public Consultation Document (November 

14, 2018), https://www.iaisweb.org/page/consultations/closed-consultations/2019/holistic-framework-for-systemicrisk-in-the-insurance-sector/file/77862/holistic-framework-for-systemic-risk-consultation-document (Holistic 

Framework Public Consultation Document).
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• A global monitoring exercise to detect the possible build-up of systemic risk, 

including an annual global monitoring exercise to assess individual insurers and 

sector-wide trends with regard to specific activities and exposures;

• Supervisory powers of intervention that enable a prompt and appropriate response

if a potential systemic risk is detected;

• Mechanisms that help ensure the global consistent application of the proposed 

framework, including a collective discussion at the IAIS on potential systemic risks 

and communication to the FSB on the outcome of the assessment; and

• An assessment by the IAIS of the consistent implementation of enhanced on-going 

supervisory policy measures.71

As part of the Holistic Framework, the IAIS released a short discussion of the proposed way in 

which the IAIS would develop a liquidity planning framework, with a longer-term initiative to 

explore developing a quantitative metric that supervisors can use to monitor liquidity risk.72 In 

its discussion, the IAIS noted, among other things, the difference between liquidity and capital, 

the importance of liquidity planning and a contingency funding plan, considerations that should 

be taken into account when developing liquidity stress testing, and appropriate governance and 

reporting practices.73 The IAIS noted that it proposed to develop an Application Paper on 

Liquidity Risk Management for consultation to complement development of the Holistic 

Framework.

74

The IAIS also indicated that the potential implementation of the Holistic Framework should 

remove the need for an annual identification of G-SIIs by the FSB. The FSB has stated that, in 

November 2022, it will consider whether to discontinue or re-establish an annual identification 

of G-SIIs by the FSB in consultation with the IAIS and national authorities.

The IAIS published the proposed Holistic Framework for a two-month public comment period

that ended on January 25, 2019.75 The IAIS received 832 comments from interested parties, to 

which it responded in a 264-page compilation of comments.

76 The IAIS is scheduled to adopt 

the framework in November 2019.

 

71 IAIS, Holistic Framework Public Consultation Document, 5-6.

72 IAIS, Holistic Framework Public Consultation Document, 62. 

73 IAIS, Holistic Framework Public Consultation Document, 62-72.

74 IAIS, Holistic Framework Public Consultation Document, 28-29.

75 “Public Consultation: Holistic Framework for Systemic Risk in the Insurance Sector,” IAIS, last updated June 14, 

2019, https://www.iaisweb.org/page/consultations/closed-consultations/2019/holistic-framework-for-systemic-riskin-the-insurance-sector.

76 IAIS, Compiled Comments on Holistic Framework for Systemic Risk in the Insurance Sector 14-Nov-18 to 30-

Jan-19 (June 2019), https://www.iaisweb.org/page/consultations/closed-consultations/2019/holistic-framework-for-
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As part of the proposed Holistic Framework, the IAIS also published revisions to certain ICPs 

and ComFrame on June 14, 2019.77 The IAIS proposed these ICP revisions in light of the 

comments received during the public consultation on the Holistic Framework. The changes to 

the ICPs cover the following thematic areas:

Enhancing the link of macroprudential monitoring to the supervisory framework:

• ICP 9 (Supervisory Review and Reporting) and ComFrame in ICP 9; and

• ICP 24 (Macroprudential Supervision).

Supervisory requirements on insurers:

• ICP 16 (Enterprise Risk Management for Solvency Purposes) and ComFrame in ICP 16; 

and

• ICP 20 (Public Disclosure).

Supervisory powers of intervention:

• ICP 10 (Preventive Measures, Corrective Measures and Sanctions).

78

The consultation noted that materials on a fourth related thematic area—crisis management and 

planning—already had been subject to public consultation in July 2018 and were presented for 

information only.79 The public consultation on these ICP revisions closed on August 15, 2019.

 

systemic-risk-in-the-insurance-sector/file/82537/public-consultation-comments-received-on-the-november-2018-

holistic-framework-document. 

77 “Public Consultation: Revisions Related to the Holistic Framework for Systemic Risk in the Insurance Sector,” 

IAIS, last updated June 15, 2019, https://www.iaisweb.org/page/consultations/closed-consultations/2019/revisionsrelated-to-holistic-framework-for-systemic-risk-in-the-insurance-sector.

78 IAIS, Cover Note for the Public Consultation on Supervisory Material Related to the Holistic Framework for 

Systemic Risk in the Insurance Sector (June 14, 2019), 2, http://www.iaisweb.org/page/consultations/closedconsultations/2019/revisions-related-to-holistic-framework-for-systemic-risk-in-the-insurancesector//file/82545/cover-note-on-the-public-consultation-related-to-holistic-framework (Cover Note).

79 IAIS, Cover Note, 2 fn. 1.
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III. EFFICIENT REGULATION AND GOVERNMENT PROCESSES

Section III addresses FIO’s efforts to advance efficient regulation and government processes 

through coordination on insurance matters at the state and federal levels. It also discusses certain

developments at two federal agencies: the U.S. Department of Housing and Urban Development 

(HUD) and the U.S. Securities and Exchange Commission (SEC). The section then turns to 

terrorism risk insurance, cyber insurance and cybersecurity, and concludes with discussions of 

the role of insurance in mitigating natural hazards and reinsurance for the NFIP.

A. Role of State and Federal Regulation

1. FIO Engagement with Federal Agencies and the States

FIO serves as a source of insurance expertise in the federal government, and as such continues to 

regularly consult with and advise multiple federal agencies and entities on insurance-related 

matters. For example, FIO has participated in the Treasury-led Federal Interagency Task Force 

on Long-Term Care Insurance, which also includes members from the Department of Health and 

Human Services, the Centers for Medicare & Medicaid Services, the Internal Revenue Service, 

the Office of Management and Budget, the Department of Labor, and Treasury’s Office of Tax 

Policy.80 FIO also has worked with the U.S. Department of Veterans Affairs on issues arising 

under the Servicemembers’ Group Life Insurance Program and other life insurance programs for 

the benefit of servicemembers, veterans, and their families. Additionally, FIO has had 

discussions with the Federal Reserve about its stress testing of nonbank financial companies, as 

required by the Dodd-Frank Act.81

In addition, FIO participates in the MitFLG, a national coordinating structure to organize 

mitigation efforts across the federal government. FIO provided feedback on the MitFLG’s 

National Mitigation Investment Strategy, a national strategy for advancing mitigation investment 

to reduce risks posed by natural hazards and increase the nation’s resilience to natural hazards, as 

discussed further in Section III.A.2.c of this Report. FIO has also assisted FEMA on reinsurance 

and alternative risk transfer instruments in connection with the NFIP, as discussed below in 

Section III.A.2.d.

FIO has sought to lead regulatory coordination between the states and the federal government 

with respect to insurance regulation and the development of policy on insurance-related issues. 

For example, FIO regularly interacts with the states and the NAIC, through direct

communications with state commissioners and their staff, and through participation at NAIC 

 

80 See “Federal Interagency Task Force on Long-Term Care Insurance,” Treasury, https://home.treasury.gov/policyissues/economic-policy/economic-policy-reports-and-notices/federal-interagency-task-force-on-long-term-careinsurance. See also Section V.C of this Report.

81 12 U.S.C. § 5365(i)(1)(A).
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meetings. FIO also coordinated closely with the NAIC in 2017, 2018, and 2019 to avoid 

duplicative federal-state data calls on terrorism risk insurance, as described in Section III.B of 

this Report.

In 2019, FIO began coordinating with other Treasury offices, the Federal Reserve, and the NAIC 

to prepare for the International Monetary Fund’s Financial Sector Assessment Program (FSAP), 

which will be completed in the first half of 2020.82 More generally, FIO continues to invite 

stakeholder input on federal-state coordination and other issues through FACI meetings, the 

ACSRM, and other stakeholder sessions.

2. Federal Agency Developments

a) HUD and the Disparate Impact Rule

In 2018, HUD issued an advance notice of public rulemaking seeking comment on possible 

amendments to the Fair Housing Act’s disparate impact standard.83 HUD subsequently 

published, on August 19, 2019, a proposed rule to “amend HUD’s interpretation of the Fair 

Housing Act’s disparate impact standard to better reflect” a 2015 U.S. Supreme Court ruling and 

“to provide clarification regarding the application of the standard to state laws governing the 

business of insurance.” 84 In response to comments received on the advance notice of proposed 

rulemaking, in the proposed rule HUD emphasized that the “rule is not intended to infringe upon 

any [s]tate law for the purposes of regulating the business of insurance.” 85 HUD therefore 

proposed to create a new paragraph in the rule to directly address application of the rule to the 

business of insurance, which would confirm that the “reverse preemption” provisions of the 

McCarran-Ferguson Act apply to the Fair Housing Act, and state insurance law would govern 

where the Fair Housing Act “invalidate[s], impair[s], or supersede[s]” the state law.86 The 

preamble to the proposed rule stated that the new paragraph would not provide a “safe harbor” 

for insurance, but was intended to ensure that parties would not be put into a “‘double bind of 

liability’ where they could be subject to suit under disparate impact for actions” undertaken to 

maintain “good faith compliance” with another law.87

 

82 See “Financial Sector Assessment Program (FSAP),” International Monetary Fund, last updated July 24, 2019, 

https://www.imf.org/external/np/fsap/fssa.aspx.

83 See FIO, 2018 Annual Report, 24 (discussing Reconsideration of HUD’s Implementation of the Fair Housing 

Act’s Disparate Impact Standard, 83 Fed. Reg. 28560 (June 20, 2018), https://www.gpo.gov/fdsys/pkg/FR-2018-06-

20/pdf/2018-13340.pdf).

84 HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard, 84 Fed. Reg. 42854 (August 19, 

2019), https://www.govinfo.gov/content/pkg/FR-2019-08-19/pdf/2019-17542.pdf.

85 84 Fed. Reg. at 42857.

86 84 Fed. Reg at 42863 (proposed new paragraph 24 CFR 100.500(e)).

87 84 Fed. Reg. at 42860.
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b) SEC Regulation of Insurance Products

Variable annuities are complex products that generally must be registered with the SEC and are 

sold with lengthy prospectuses containing dense language not readily understood by retail 

investors.88 The insurance industry has long advocated for both a user-friendly summary annuity 

prospectus, similar to the summary prospectus allowed for mutual funds, and a streamlined 

annual annuity report accessible online to new and existing annuity investors. In the Insurance 

EO Report, Treasury recommended that the SEC prioritize annuity-related disclosure reform by 

adopting a rule permitting a variable annuity summary prospectus and a streamlined prospectus 

update, while continuing to provide appropriate disclosure to investors.89

On October 30, 2018, the SEC proposed a comprehensive, modernized disclosure framework for 

variable annuity contracts and variable life insurance policies that would permit the use of 

summary prospectuses for variable contracts, while making additional information available to 

investors online.90 In its proposal, the SEC explained that the variable contract summary 

prospectus is designed to be a succinct summary of the contract’s key terms and benefits and 

most significant risks, making it easier to read and more understandable for investors. The SEC 

described the summary prospectus as the cornerstone of a “layered disclosure framework” 

tailored to the unique features of the product sold and alerting investors to the availability of 

more detailed information in the statutory prospectus and other locations.91

FIO commends the SEC for the quality and scope of its recent focus on insurance products, and 

encourages adoption of the new disclosure framework as soon as practicable.

c) Addressing Severe Weather and Other Natural Hazards: MitFLG and the 

National Mitigation Investment Strategy

Severe weather events are dangerous and costly. Millions of Americans were affected by 

wildfires, Hurricane Florence, Hurricane Michael, and other severe weather events in 2018.92 In 

 

88 See Treasury, Insurance EO Report, 111-112.

89 Treasury, Insurance EO Report, 111-112. Treasury also recommended that the SEC adopt Rule 30e-3, which 

would allow mutual funds (including funds that underlie variable annuity and insurance products) to deliver 

shareholder reports on the Internet. The SEC adopted Rule 30e-3 on June 5, 2018. Optional Internet Availability of 

Investment Company Shareholder Reports, 83 Fed. Reg. 29158 (June 22, 2018), 

https://www.gpo.gov/fdsys/pkg/FR-2018-06-22/pdf/2018-12423.pdf.

90 Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance 

Contracts, 83 Fed. Reg. 61730 (November 30, 2018), https://www.federalregister.gov/documents/2018/11/30/2018-

24376/updated-disclosure-requirements-and-summary-prospectus-for-variable-annuity-and-variable-life. Comments 

on the proposed rules were due March 15, 2019.

91 83 Fed. Reg. at 61736.

92 See, e.g., Corelogic, 2018 Natural Hazard Report (2019), available through 

https://www.corelogic.com/insights/natural-hazard-risk-summary-and-analysis.aspx.
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2018 alone, in the United States, 14 separate weather events cost over $1 billion each, led to 247 

known fatalities, and cumulatively cost approximately $91 billion.93 Some argue the economic 

costs are even higher since rebuilding and recovery costs crowd out other productive 

investments.94 Globally, insured losses from weather events in 2018 were the fourth highest for 

a single year.95 Insurance is a critical financial resource for recovery from severe weather, 

providing direct benefits to policyholders.

The insurance industry also plays a key role in mitigation, that is, reducing the risk from severe 

weather and other natural hazards, while helping to improve resilience for more efficient, 

effective, and rapid recovery. 

FIO has and will continue to emphasize the importance of insurance, both before and after 

disasters. FIO continues to support ongoing federal mitigation efforts, as well as efforts to 

improve the availability of insurance (which is a growing concern with respect to wildfires, for 

example)96 and take-up of insurance.97

Treasury, through FIO, participates in the MitFLG, a national structure to coordinate mitigation 

efforts across the federal government and with state, local, tribal, and territorial representatives. 

The MitFLG focuses on integrating federal efforts to deliver the National Mitigation 

Framework’s mitigation core capabilities and assess the effectiveness of mitigation capabilities 

 

93 Adam B. Smith, “2018’s Billion Dollar Disasters in Context,” NOAA Climate.gov, February 7, 2019, 

https://www.climate.gov/news-features/blogs/beyond-data/2018s-billion-dollar-disasters-context. See also “BillionDollar Weather and Climate Disasters: Overview,” NOAA National Centers for Environmental Information, 

https://www.ncdc.noaa.gov/billions/ (webpage tracking weather and climate events with the greatest economic 

impact between 1980 and 2019).

94 Gary W. Yohe, “A $1 Trillion Economic Blow? The Cost of Extreme Weather in the U.S. is Worse Than We 

Thought,” Washington Post, June 7, 2019, https://www.washingtonpost.com/weather/2019/06/07/trillion-economicblow-cost-extreme-weather-us-is-worse-than-we-thought/.

95 Swiss Re Institute, sigma: Natural Catastrophes and Man-Made Disasters in 2018: “Secondary” Perils on the 

Frontline (2019), 2, https://www.swissre.com/dam/jcr:c37eb0e4-c0b9-4a9f-9954-

3d0bb4339bfd/sigma2_2019_en.pdf.

96 See, e.g., California Department of Insurance, “New Data Shows Insurance Is Becoming Harder to Find as a 

Result of Wildfires,” news release, August 20, 2019, http://www.insurance.ca.gov/0400-news/0100-pressreleases/2019/release063-2019.cfm. See also Marisa Lagos, “‘Increasingly Unavailable and Unaffordable’: Home 

Insurance Threatened Amid Wildfire Crisis,” KQED, June 11, 2019, 

https://www.kqed.org/science/1943180/increasingly-unavailable-and-unaffordable-home-insurance-threatenedamid-wildfire-crisis.

97 Homeowners’ failure to obtain any insurance, or not enough insurance, remains an ongoing concern with respect 

to natural hazards from earthquakes to floods. See, e.g., Missouri Department of Insurance, “New Report Shows the 

New Madrid Fault Area of the State on the Verge of an Earthquake Insurance Market Collapse,” news release, July 

8, 2019, https://insurance.mo.gov/news/newsitem/uuid/d6c5a8ec-8da9-40f9-9885-9b43ec94c38c; Matt Sheehan, 

“‘Vast Majority’ of Midwest Flood Damage to Go Uninsured: A.M. Best,” Reinsurance News, April 5, 2019, 

https://www.reinsurancene.ws/vast-majority-of-midwest-flood-damage-to-go-uninsured-a-m-best/.
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as they are developed and deployed across the nation.98 Among other initiatives, MitFLG has 

developed a National Mitigation Investment Strategy.99

The National Mitigation Investment Strategy is a single national strategy for advancing 

mitigation investment to reduce risks posed by severe weather and natural hazards such as 

floods, hurricanes, tornados, wildfires, and earthquakes. The strategy provides an “opportunity 

for national scale coordination around mitigation investment and disaster resilience priorities.”100 

To that end, the strategy outlines a series of high-level recommendations centered on three goals:

• Show how mitigation investments reduce risk; 

• Coordinate mitigation investments to reduce risk, and 

• Make mitigation investment standard practice. 

The strategy’s recommendations include “Use and Expand Financial Products and Approaches to 

Reduce and Transfer Risk,” including incentives to encourage those in hazard-prone areas to 

purchase insurance.101

FIO plans to continue to work with MitFLG to implement the National Mitigation Investment 

Strategy, and to continue to coordinate with state insurance regulators and legislators in their 

efforts to improve national resilience to catastrophes,

102 including seeking input through FACI. 

(For more on FACI, see Section III.A.4 of this Report.)

d) Reinsurance for the National Flood Insurance Program

The NFIP is a federal flood insurance and risk management program managed by FEMA.

103 For 

several years, FEMA has used reinsurance to manage NFIP exposure through risk transfer to 

private reinsurers and the capital markets, and to promote private sector participation in 

 

98 “National Mitigation Framework,” FEMA, last updated August 2, 2019, https://www.fema.gov/nationalmitigation-framework.

99 MitFLG, National Mitigation Investment Strategy (2019), https://www.fema.gov/media-librarydata/1565706308412-19739d7deeca639415cc76c681cee531/NationalMitigationInvestmentStrategy.pdf.

100 “National Mitigation Investment Strategy,” FEMA, last updated August 13, 2019, 

https://www.fema.gov/national-mitigation-investment-strategy.

101 MitFLG, National Mitigation Investment Strategy, 20-21.

102 Alabama, for example, enacted a law in 2019 requiring homeowners’ insurers to offer an endorsement to upgrade 

roofs to an IBHS FORTIFIED standard if the policyholder incurs damage covered by the policy requiring the roof to 

be replaced. Ala. Code § 27-31D-2.1 (Act 2019-240, HB 283, 2019 Regular Session). In addition, the NAIC has a 

working group focused on catastrophe insurance-related issues. See “Catastrophe Insurance (C) Working Group: 

2019 Charges,” NAIC, https://naic-cms.org/cmte_c_catastrophe.htm.

103 See “The National Flood Insurance Program,” FEMA, last updated July 26, 2019, 

https://www.fema.gov/national-flood-insurance-program.
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flood-risk management.104 FIO has provided FEMA with technical insurance expertise about 

reinsurance and alternative risk instruments, beginning with FEMA’s pilot reinsurance program 

in 2016 and continuing through its April 2019 capital markets placement.105 Figure 1

summarizes the NFIP’s reinsurance program since its 2016 pilot program.

As in prior years, the 2019 traditional reinsurance agreement for the NFIP covers a proportional 

or “pro rata” share of losses in excess of $4 billion, with the proportionate share varying by 

tranche (layer). The coverage is provided on a per occurrence, or event, basis (rather than an 

annual aggregate basis), meaning that one flood must cause at least $4 billion in losses to trigger 

reinsurance coverage; losses from multiple smaller floods cannot be added together to reach the 

$4 billion threshold. A panel (group) of 28 reinsurers provides the 2019 traditional reinsurance 

coverage.

In 2019, FEMA also transferred a portion of its risk to the capital markets, as it had in 2018, 

through catastrophe bonds, a form of alternative risk transfer. (For more on alternative risk 

transfer, see Section VI.B.2 of this Report.)

 

104 “National Flood Insurance Program’s (NFIP) Reinsurance Program,” FEMA, last updated July 11, 2019, 

https://www.fema.gov/nfip-reinsurance-program.

105 See, e.g., FIO, 2018 Annual Report, 6.
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Figure 1: NFIP 2017-2019 Reinsurance Program

2017 2018 2019

Traditional 

Reinsurance

• $1.042 billion 

• 25 reinsurers

• Premium: $150 million

• Reinsurers cover 

proportionate share of losses 

above $4 billion:

o 26% of losses 

between $4B-$8B

o No coverage for losses 

above $8B

• Reinsurers paid $1.042 billion 

to cover losses from Hurricane 

Harvey

• $1.46 billion 

• 28 reinsurers

• Premium: $235 million

• Reinsurers cover proportionate 

share of losses above $4 billion:

o 18.6% of losses between $4B-

$6B

o 54.3% of losses between $6B-

$8B

o No coverage for losses above 

$8B

• No reinsurance recoveries

• $1.32 billion

• 28 reinsurers

• Premium: $186 million

• Reinsurers cover 

proportionate share of 

losses above $4 billion: 

o 14.0% of losses 

between $4B-$6B

o 25.6% of losses 

between $6B-$8B

o 26.6% of losses 

between $8B-$10B

o No coverage for 

losses above $10B

• No reinsurance recoveries 

as of July 31, 2019

Catastrophe 

Bonds

None • $500 million 

• 3 year indemnification of losses

• Premium: $62 million for first year

• Agreement structured to cover:

o 3.5% of losses 

between $5B-$10B

o 13% of losses between $7.5B-

$10B

• $300 million

• 3 year indemnification of 

losses 

• Premium: $32 million for 

first year

• Agreement structured to 

cover:

o 2.5% of losses 

between $6B-$8B

o 12.5% of losses 

between $8B-$10B

Source: “National Flood Insurance Program’s (NFIP) Reinsurance Program,” FEMA

The NFIP is subject to reauthorization by Congress, and has received several short-term 

extensions over the past two years. As of July 31, 2019, the next statutory deadline for 

reauthorization was September 30, 2019.106

 

106 See National Flood Insurance Program Extension Act, Pub. L. No. 116-19 (2019) (reauthorizing the NFIP 

through September 30, 2019). See also “National Flood Insurance Program: Reauthorization,” FEMA, last updated 

June 11, 2019, https://www.fema.gov/national-flood-insurance-program/national-flood-insurance-programreauthorization-guidance. 
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3. State Developments

a) Insurer Investments in Affiliates

Given that an insurer’s investment portfolio funds its ability to meet policyholder obligations, 

those investments are regulated by the state insurance regulators to ensure solvency. There are 

two NAIC model laws that provide guidance for the oversight of insurer investments—a Defined 

Limits model, and a Defined Standards model.107 The Defined Limits model imposes certain 

limits on amounts or relative proportions of various assets in which insurers may invest to ensure 

adequate diversification and risk mitigation. The Defined Standards model is more 

principles-based, applying a “prudent person” rule approach that allows for a certain amount of 

discretion among investments, provided that an insurer can demonstrate adherence to a sound 

investment policy. There is little difference between the guidance for life & health (L&H) 

insurer laws versus P&C insurer laws in both models. The NAIC also has mechanisms in place 

for evaluating credit risk of investment vehicles.

All states have some form of investment laws in place; there are, however, variances in the 

specific content of those laws. Specifically, limits on certain investments may be present in 

some states’ laws, and lacking in other states, or one state’s laws may be vaguer in some respects 

than another state’s laws.

There is also a considerable body of work in statutory accounting principles regarding the 

accounting treatment for various types of investments, including their classification as affiliated 

investments. States generally incorporate statutory accounting principles by reference in their 

insurance laws, causing insurers to adhere to them. Changes in statutory accounting principles 

may then be more effective than amendments to model laws.

In April 2019, Greg Lindberg—the owner of Eli Global LLC, which in turn owns Southland 

National Insurance Company, Colorado Bankers Life Insurance Company, and Bankers Life 

Insurance Company—was charged with bribery.108 The charges followed allegations in 

February 2019 that Lindberg took advantage of perceived loopholes in state laws on investments 

in affiliated entities to fund his other ventures.109 According to the Wall Street Journal, 

 

107 See Investments of Insurers Model Act (Defined Limits Version) (NAIC 2017), 

https://www.naic.org/store/free/MDL-280.pdf?17; Investments of Insurers Model Act (Defined Standards Version) 

(NAIC 2001), https://www.naic.org/store/free/MDL-283.pdf.

108 U.S. Department of Justice, “The Founder and Chairman of a Multinational Investment Company, a Company 

Consultant, and Two North Carolina Political Figures are Charged with Public Corruption and Bribery,” news 

release, April 2, 2019, https://www.justice.gov/opa/pr/founder-and-chairman-multinational-investment-companycompany-consultant-and-two-north.

109 Mark Maremont and Leslie Scism, “Financier Who Amassed Insurance Firms Diverted $2 Billion Into His 

Private Empire,” The Wall Street Journal, February 28, 2019, https://www.wsj.com/articles/financier-who-amassedinsurance-firms-diverted-2-billion-into-his-private-empire-11551367856.
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Lindberg allegedly used some $2 billion of his insurance companies’ assets to fund acquisitions 

of other companies and personal assets through complex investment vehicles that purportedly 

were not affiliated with his other ventures.110 The Wall Street Journal’s investigation concluded 

that many of these investments were among affiliated entities. In June 2019, the North Carolina 

insurance regulator took control of the insurers with the consent of Lindberg and the insurers’ 

boards of directors to commence an orderly rehabilitation process.111

In response to the issues raised by Lindberg’s dealings, in March 2019, the NAIC proposed 

numerous changes to statutory accounting principles to address perceived regulatory loopholes, 

and following its April 2019 Spring National Meeting released them for public consultation. 

Among other things, the proposals would require regulators to consider “the substance of the 

agreement and the parties whose actions or performance materially impact the insurance 

reporting entity under the transaction” in determining if a transaction involves related parties.112 

The proposal also states that “the mere inclusion of a non-related intermediary” should not be 

used as the basis for concluding that a transaction need not be identified and reported under 

related-party disclosure rules.113 Specifically, changes were made to Statements of Statutory 

Accounting Principles (SSAP) 25, 26R, 32, and 43R, with the majority of them made to SSAP 

25—Affiliates and Other Related Parties. As noted above, changes in statutory accounting 

principles may be a more effective mechanism than amendments to model laws.

b) Changes in NAIC Accreditation Requirements 

The NAIC Accreditation Program was established to develop and maintain uniform baseline 

standards in all states for the purpose of promoting effective insurance company financial 

solvency regulation.

114 Standards listed as accreditation requirements are more likely to be 

adopted in all fifty states and the U.S. territories. Thus, the Accreditation Program is the primary 

tool through which the NAIC can achieve (not just encourage) uniformity in insurance state 

regulation.

 

110 Maremont and Scism, “Financier Who Amassed Insurance Firms Diverted $2 Billion Into His Private Empire.”

111 Leslie Scism and Mark Maremont, “North Carolina Regulators Seize Control of Life Insurers Owned by Greg

Lindberg,” The Wall Street Journal, June 27, 2019, https://www.wsj.com/articles/north-carolina-regulators-seizecontrol-of-life-insurers-owned-by-greg-lindberg-11561661303.

112 See NAIC Statutory Accounting Principles Working Group, August 2019 Meeting Materials, 13, https://naiccms.org/sites/default/files/national_meeting/0%20-%20Combined%20Hearing%208-19%20SAPWG.pdf.

113 NAIC Statutory Accounting Principles Working Group, August 2019 Meeting Materials, 13.

114 “Accreditation,” NAIC, last updated December 7, 2018, 

https://www.naic.org/cipr_topics/topic_accreditation.htm.
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The standard by which the NAIC reviews whether an individual state meets the accreditation 

standard is that the state pass the NAIC model law or a law that is “substantively similar,”

meaning that it includes the significant elements identified by the NAIC.115

The NAIC regularly evaluates the “adequacy and appropriateness of accreditation standards,” 

and introduces new requirements as needed—usually introducing updates every year, with 

changes effective on January 1 of a future year.

116 State legislatures routinely introduce and 

enact new insurance laws in order to meet NAIC accreditation requirements.

NAIC accreditation requirements effective January 1, 2019 include:117

• 2011 Revisions to the Credit for Reinsurance Model Law (Model 785) and Credit 

for Reinsurance Model Regulation (Model 786). Relates to certified reinsurer 

provisions, including updating three significant elements: (1) concentration risk, (2) 

catastrophe recoverables deferral, and (3) passporting. The NAIC subsequently 

adopted additional revisions to the model law to conform to the terms of the covered 

agreements, as discussed in Section IV.B of this Report. The NAIC reports that all 

states, and most territories, had adopted a version of the model prior to the current 

2019 version, but does not specify which states have adopted the 2011 revisions.118

New NAIC accreditation requirements effective January 1, 2020 include:

• Corporate Governance Annual Disclosure Model Act (Model 305) and 

Corporate Governance Annual Disclosure Model Regulation (Model 306). 

Requires an insurer or group of insurers to provide an annual confidential disclosure 

of its corporate governance practices to its domestic regulator and/or lead state. To 

date, at least 27 states and territories have enacted this model law (or a substantially 

similar law).119

• 2014 Revisions to the Insurance Holding Company System Regulatory Act 

(Model 440). Provides authority to a designated state to act as a group-wide 

supervisor for an IAIG and for risk retention groups in a holding company that meets 

the definition of an IAIG. Also includes provisions that may impact any state with a 

domestic insurer within an IAIG. To date, at least 32 states and territories have 

 

115 See NAIC, Financial Regulation Standards and Accreditation Program (2019), 19, 

https://www.naic.org/documents/cmte_f_frsa_pamphlet.pdf.

116 “Accreditation,” NAIC.

117 “Financial Regulation Standards and Accreditation (F) Committee,” NAIC, https://naic-cms.org/cmte_f.htm. 

118 See Credit for Reinsurance Model Law (NAIC 2019), https://www.naic.org/store/free/MDL-785.pdf; Credit for 

Reinsurance Model Regulation (NAIC 2019), https://www.naic.org/store/free/MDL-786.pdf.

119 See Corporate Governance Annual Disclosure Model Act (NAIC 2014), https://www.naic.org/store/free/MDL305.pdf; Corporate Governance Annual Disclosure Model Regulation (NAIC 2014), 

https://www.naic.org/store/free/MDL-306.pdf.
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enacted the current version of the model (or a substantially similar law), including the 

2014 revisions.120

• 2014 Revisions to Annual Financial Reporting Regulation (Model 205). 

Incorporates an internal audit function requirement for large insurers. International 

standards recognize the importance of an internal audit function in ICP 8 (Risk 

Management and Internal Controls). To date, at least 26 states and territories have 

enacted the current version of the model (or a substantially similar law), including the 

2014 revisions.121

• 2009 Revisions to the Standard Valuation Law (Model 820). Authorizes a 

principle-based reserving (PBR) methodology for life, annuity, and accident and 

health contracts. To date, at least 50 states and territories have enacted the current 

version of the model (or a substantially similar law), including the 2009 revisions.122

4. Federal Advisory Committee on Insurance

FACI was established in 2011 to provide FIO with non-binding advice and recommendations 

and otherwise assist FIO in carrying out its duties and authorities. FACI includes a cross-section 

of members who represent the views of state and non-government persons having an interest in 

FIO’s duties and authorities, including state insurance regulators, industry experts, and consumer 

advocates.123

FACI held five public meetings in 2018 and the first half of 2019. Meetings in 2018 primarily 

focused on information sharing on items such as LTCI, cyber risk, natural catastrophes and 

mitigation, InsurTech, and public sector risk and risk transfer.124

In 2019, FACI agreed to re-establish subcommittees to facilitate the committee’s work, with the 

goal of facilitating FACI’s ability to better provide advice and recommendations to FIO on 

insurance issues that FACI deems most important to FIO’s activities and mandate. FACI created 

the following three subcommittees, each of which then selected discrete topics of focus related to 

FIO’s current priorities:

• Availability of Insurance Products Subcommittee focuses on the availability of 

insurance products from a consumer perspective. In 2019, the subcommittee began 

 

120 See Insurance Holding Company System Regulatory Act (NAIC 2015), https://www.naic.org/store/free/MDL440.pdf.

121 See Annual Financial Reporting Model Regulation (NAIC 2015), https://www.naic.org/store/free/MDL-205.pdf.

122 See Standard Valuation Law (NAIC 2010), https://www.naic.org/store/free/MDL-820.pdf.

123 “FACI Members,” Treasury, last updated September 11, 2019, 

https://www.treasury.gov/initiatives/fio/Pages/faci_members.aspx. See also Charter: Federal Advisory Committee 

on Insurance, § 12 (June 11, 2019), https://www.treasury.gov/initiatives/fio/Documents/2019FACI_Charter.pdf.

124 Webcasts, minutes, and presentation materials from all FACI meetings are available on the FACI website. 

“Initiatives: Federal Advisory Committee on Insurance (FACI),” Treasury, last updated August 28, 2019, 

https://www.treasury.gov/initiatives/fio/Pages/faci.aspx.
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work on two workstreams: (1) InsurTech and big data issues, and (2) retirement 

security and LTCI products.

• FIO’s International Work Subcommittee focuses on: (1) the development of the 

ICS and its impact on U.S. insurers, as well as the ICS monitoring process, (2) 

strengthening U.S. access to international markets and ensuring a level playing field

for U.S. companies to compete internationally, and (3) the IAIS Holistic Framework 

and the Council’s activities-based approach.

• Addressing the Protection Gap Through Public-Private Partnerships and Other 

Mechanisms Subcommittee intends to examine a variety of P&C protection gaps. 

The subcommittee’s 2019 work involved defining and setting parameters to define

the protection gap, and estimate the size of the overall protection gap in the United 

States. The subcommittee also sought to understand why protection gaps exist and 

determine how the government and industry can best address protection gaps. 

Following this level-setting exercise, the subcommittee plans to examine specific 

risks more closely to develop its recommendations.

The three subcommittees plan to publicly summarize their work, beginning with the September 

2019 public meeting. As the subcommittees complete their work on the 2019 workstreams and 

move into their 2020 projects, FACI is also expected to provide FIO with its non-binding advice 

and recommendations on those topics.

B. Terrorism Risk Insurance Program 

The September 11, 2001 terrorist attacks resulted in an insurance industry loss of about $46

billion (in 2018 dollars),125 which at the time was the largest insurance industry loss in history. 

Following those attacks, insurers and reinsurers largely withdrew from the terrorism risk 

insurance market, threatening planned construction, property acquisition, business projects, and 

other economic activity.126 In response, TRIA was enacted,127 which created TRIP within 

Treasury.128 TRIP was established primarily to incentivize the private market to offer insurance 

for terrorism risk, while providing a transitional period for the private market to resume pricing 

 

125 See FIO, 2019 TRIP Small Insurer Report, 4.

126 TRIA § 101(a)(5). Because the provisions of TRIA appear in a note (15 U.S.C. § 6701 note), instead of 

references to sections of the U.S. Code, this Report identifies TRIA references by the sections of the Act.

127 Terrorism Risk Insurance Act of 2002, Pub. L. No. 107-297, 116 Stat. 2322 (2002).

128 For purposes of this Report, TRIP refers to the program as it is administered through current Treasury 

regulations. See Terrorism Risk Insurance Program, 31 CFR pt. 50 (2019).
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terrorism risk and build capacity to absorb future insurance losses.129 Under the TRIP 

Reauthorization Act, TRIP has been extended through December 31, 2020.130

1. Data Collection and the 2019 Data Call

Under the TRIP Reauthorization Act, Treasury is required to collect terrorism risk insurance 

information annually from insurers in order to analyze the overall effectiveness of TRIP.131 

Beginning with the 2018 data call, Treasury coordinated with state insurance regulators and the 

NAIC to develop a consolidated data call (with the same information reported to Treasury as 

well as to state regulators), in order to reduce the burden on participating insurers.132

FIO conducted a voluntary TRIP data call in 2016. The 2017, 2018, and 2019 data calls were 

mandatory, subject to a number of limited reporting exemptions for certain insurers: (1) on the 

basis of their small volume of TRIP-eligible lines premium writings; or (2) because they were 

classified as captive insurers that wrote policies in TRIP-eligible lines of insurance, but did not 

provide any terrorism risk insurance subject to TRIP.133 FIO collects certain data elements 

through third-party workers’ compensation rating bureaus to minimize the burden on reporting 

insurers, and uses multiple reporting templates based on classification of the insurer’s size and 

operations.134

Through its coordination with state regulators and the NAIC, FIO has developed a consolidated 

data collection approach that relies in substantial part upon the data templates originally 

developed by Treasury, with further revisions based upon the experience from prior data 

collection and the input of state regulators. FIO estimates that an extremely high proportion of 

insurers required to participate in the 2017, 2018, and 2019 TRIP data calls provided the 

requested data.135

 

129 TRIA § 101(b).

130 Terrorism Risk Insurance Program Reauthorization Act, Pub. L. No. 114-1, 129 Stat. 3 (2015).

131 TRIP Reauthorization Act § 111 (TRIA § 104(h)).

132 Terrorism Risk Insurance Program 2018 Data Call, 82 Fed. Reg. 56328 (November 28, 2017),

https://www.gpo.gov/fdsys/pkg/FR-2017-11-28/pdf/2017-25402.pdf.

133 See Terrorism Risk Insurance Program 2019 Data Call, 83 Fed. Reg. 56152 (November 9, 2018), 

https://www.govinfo.gov/content/pkg/FR-2018-11-09/pdf/2018-24546.pdf.

134 FIO, 2019 TRIP Small Insurer Report, 12.

135 For example, the non-small insurer response rate in the 2019 TRIP data call was at least 99.8 percent, and the 

small insurer response rate was at least 87.3 percent. See FIO, 2019 TRIP Small Insurer Report, 14.
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2. Terrorism Risk Insurance Program Small Insurer Report

The TRIP Reauthorization Act requires Treasury to submit reports in 2017 and 2019 to Congress 

concerning the competitiveness of small insurers in the terrorism risk insurance marketplace.136 

FIO relied upon information from the 2017, 2018, and 2019 TRIP data calls, as well as 

comments and information submitted by interested parties, to produce the required report on the

competitiveness of small insurers in the terrorism risk insurance marketplace, which Treasury 

submitted to Congress on June 28, 2019.

137

In the 2019 TRIP Small Insurer Report, FIO concluded that small insurers are significant 

participants in the market for terrorism risk insurance in the United States. FIO found that 

although the premiums received by small insurers in the TRIP-eligible lines of insurance, and 

their policyholders’ surplus, have been relatively consistent over the past decade, their share of 

the terrorism risk insurance market has slightly declined over the past decade compared to larger 

insurers. FIO also examined differences between small insurers and other market participants. 

Small insurers charge less, on a percentage basis, than larger insurers for terrorism risk 

insurance, and small insurers are more likely to charge no premium for such coverage. 

Terrorism risk insurance take-up rates by the policyholders of small insurers are lower than the 

take-up rate by policyholders of non-small insurers. Small insurers participate in the market for 

cyber insurance (including cyber terrorism insurance that is included in TRIP-eligible lines). 

Small insurers also have smaller, but still significant exposure to nuclear, biological, chemical, 

and radiological (NBCR) terrorism risk in the property and liability lines as compared to other 

categories of insurers that participate in TRIP.

FIO also examined in the 2019 TRIP Small Insurer Report the program’s mandatory availability 

requirement, and determined that it potentially causes small insurers, in some instances, to offer 

and write terrorism risk insurance where they might not do so otherwise. The financial backstop 

provided by TRIP mitigates the economic impact of this requirement. If the federal backstop 

becomes insufficient because of changes in market conditions or TRIP mechanics, however, it is 

possible that the mandatory availability requirement could cause small insurers to withdraw from 

certain markets, which could reduce the overall availability of insurance in the TRIP-eligible 

lines of insurance in such areas. Information to date, however, does not indicate that reductions 

in TRIP support since 2015 have led to such withdrawals.

FIO found that, in some circumstances, the Program Trigger requirement could prevent small 

insurers who have met their individual insurer deductibles from receiving the federal share of 

compensation.138 Treasury’s data calls indicate that some small insurers do not purchase 

sufficient private reinsurance to address this issue completely, even though small insurers as a 

 

136 TRIP Reauthorization Act § 112 (TRIA § 108(h)). The TRIP Reauthorization Act also requires Treasury to 

submit to Congress a report on the effectiveness of TRIP in 2016, 2018, and 2020, which will be discussed in greater 

detail in next year’s annual report. TRIP Reauthorization Act § 111 (TRIA § 104(h)(2)).

137 FIO, 2019 TRIP Small Insurer Report.

138 The Program Trigger is the minimum amount of insurance industry aggregate insured losses resulting from 

certified act(s) of terrorism that must occur in a calendar year before any federal payments can be made under TRIP. 

See FIO, 2019 Small Insurer Report.
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class proportionally cede more of their premium for the purchase of reinsurance than larger 

insurers.

FIO also observed that the potential risk faced by small insurers of unreimbursed losses is most

significant in connection with the workers’ compensation line of insurance. Small insurers have 

a larger share of this market than other insurance lines, which is not subject to limits of liability

and poses significant aggregation risks. Because the price that can be charged by insurers for 

this line is highly regulated by the U.S. states, insurers writing workers’ compensation insurance 

may find it difficult to afford reinsurance that will cover their underwritten risks, particularly for 

NBCR-related losses. Although small insurers have increased their reinsurance purchases 

covering terrorism over the years covered by Treasury’s data, their reinsurance protection for 

terrorism-related risks arising from NBCR events is much more limited than for conventional 

acts of terrorism.

3. Advisory Committee on Risk-Sharing Mechanisms

The ACRSM is a federal advisory committee established by the TRIP Reauthorization Act. It is 

statutorily required to provide FIO with advice, recommendations, and encouragement with 

respect to the creation and development of nongovernmental risk-sharing mechanisms to protect 

against losses arising from acts of terrorism.139 The ACRSM is comprised of nine members who 

serve as representatives of insurers, reinsurers, and capital markets participants. To facilitate its 

exploration of the potential for increasing private participation in the terrorism risk insurance 

market, the ACRSM created five subcommittees: Direct Insurance, Reinsurance, Capital 

Markets, Exploration of Catastrophic Risks in Other Markets, and Consumer Interests.140

Since its formation in 2015, the Committee has held three public meetings to gather information 

from industry participants, focusing on the direct insurance market, the insurance of catastrophic 

risks in other (non-terrorism) markets, and capital markets. Each session also addressed 

consumer interests relevant to the meeting’s core topic.141 In August 2019, the Committee held a 

meeting to address its priorities for 2019 respecting the role of nongovernmental mechanisms in 

supporting the terrorism risk insurance market. The Committee determined, consistent with the 

statements of the Secretary respecting its mandate,142 to hold additional meetings in Fall 2019 to 

 

139 TRIP Reauthorization Act § 110.

140 ACRSM, Summary of Public Meeting (March 31, 2017), 14-15, 

https://www.treasury.gov/initiatives/fio/acrsm/Documents/Minutes_March_2017_ACRSM.pdf.

141 Meeting agendas and minutes are available through the ACRSM website. “Advisory Committee on Risk-Sharing 

Mechanisms (ACRSM),” Treasury, last updated September 17, 2019, 

https://www.treasury.gov/initiatives/fio/acrsm/Pages/default.aspx.

142 In the Insurance EO Report, the Secretary encouraged the ACRSM, in light of the importance of TRIP, and the 

upcoming consideration of any further TRIP reauthorization, “to continue its efforts and develop recommendations 

for FIO,” which “should focus on how to increase private market participation in the terrorism insurance 

marketplace, with the goal of providing enhanced taxpayer protection in a way that does not result in market 

dislocations for the consumers and providers of terrorism risk insurance.” Treasury, Insurance EO Report, 115.
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discuss the format and content of potential recommendations to FIO, with the goal of developing 

written recommendations to FIO by Spring 2020.

4. TRIP Reauthorization

TRIP is currently scheduled to expire on December 31, 2020. In anticipation of efforts to 

reauthorize TRIP and to conduct meaningful engagement on the subject, at the end of last year, 

Treasury identified six issues and topic areas that would likely be of interest to stakeholders in 

the reauthorization discussions:

• The length of any reauthorization;

• Potential changes in the mechanics of TRIP (that is, the various sharing percentages 

between the private and public sectors);

• Any changes to the Program Trigger (which will be $200 million per calendar year as 

of 2020);

• Changes to TRIP relating to terrorism risk insurance for NBCR exposures;

• Changes to TRIP relating to cyber coverage (in 2016, Treasury generally advised in 

guidance that cyber terrorism coverage can be within the scope of TRIP, assuming it 

is written in lines of insurance subject to TRIP, although no specific provisions in 

either TRIA or the TRIP regulations currently address cyber coverage subject to 

TRIP); and 

• Whether any changes to TRIP toward some type of pre-funded mechanism should be 

considered.

FIO and Treasury leadership met with a large number of stakeholders and interested parties in 

2018 and 2019, including representatives from policyholder interests, direct insurers 

participating in TRIP, commercial reinsurers that support direct insurance exposure to terrorism 

risk, state insurance regulators and the NAIC, insurance brokers, capital markets participants, 

insurance rating agencies, and think tanks or public policy associations. Treasury has evaluated 

the views and analysis expressed during these meetings, which have been very helpful in the 

development of its views on TRIP reauthorization, which process is ongoing.

The Senate Banking Committee held a hearing on TRIP reauthorization on June 18, 2019.

143 As 

of July 31, 2019, no legislation seeking to reauthorize TRIP has been considered by Congress.

 

143 The Reauthorization of the Terrorism Risk Insurance Program, Before the Senate Committee on Banking, 

Housing, and Urban Affairs, 116th Cong. (June 18, 2019), https://www.banking.senate.gov/hearings/thereauthorization-of-the-terrorism-risk-insurance-program.
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C. Cyber Insurance and Insurance Industry Cybersecurity

FIO continues to monitor developments related to the cyber insurance market and insurance 

industry cybersecurity, as discussed below.

144 The separate but related topic of data privacy is 

addressed in the discussion of InsurTech in Section V.D of this Report.

1. The Cyber Insurance Market

Cyber risks are evolving rapidly and are an increasingly costly threat to businesses. A growing 

reliance on technology—including Internet of Things (IoT) devices, cloud computing, artificial 

intelligence (AI), and big data—increases both cyber risks and costs. Responding to and 

recovering from a cyber incident involves a variety of costs, including outlays for detection, 

remediation, business interruption, and notification. In 2019, the average cost of a data breach 

was projected to be $8.19 million, a 130 percent increase in the past 14 years.145

Cyber insurance typically takes one of three forms: (1) “package” coverage where cyber risk 

coverage is provided within a policy that also covers non-cyber losses, such as a cyber coverage 

endorsement on a general liability policy; (2) “stand-alone” cyber insurance products which only 

provide coverage for specified cyber risks; and (3) “non-affirmative” or “silent” cyber risk 

coverage where the policy does not expressly grant or exclude cyber coverage.

The market for standard cyber coverage, i.e., package and stand-alone policies combined, is 

growing. U.S. direct premiums written for cyber risk coverage were approximately $2.03 billion 

in 2018, a 10 percent increase over 2017’s $1.84 billion, as shown in Figure 2.

146 This 

year-over-year growth rate is lower than in previous years, and cyber premiums still account for 

less than one percent of total U.S. premiums.147 Globally, insurers wrote under $4 billion in 

 

144 See, e.g., FIO, 2018 Annual Report, 28-32.

145 IBM Security and Ponemon Institute, 2019 Cost of a Data Breach Study: Global Overview (2019), 10, 

https://www.ibm.com/security/data-breach.

146 See Aon, US Cyber Market Update: 2018 US Cyber Insurance Profits and Performance (June 2019), 3, 

http://thoughtleadership.aon.com/Documents/201906-us-cyber-market-update.pdf; A.M. Best, Best’s Market 

Segment Report: Cyber Insurers are Profitable Today, but Wary of Tomorrow’s Risks (2019), 5, 

http://www3.ambest.com/bestweekpdfs/sr507453119175full.pdf (citing data from NAIC’s Cybersecurity and 

Identity Theft Coverage Supplement). Since 2018, Treasury has collected data on cyber premiums in TRIP-eligible 

lines of insurance. Figure 2 is based on data from state regulators. Insurers have reported larger cyber premiums to 

Treasury than they have to state regulators, possibly because they include premiums from affiliated surplus lines 

insurers that are not included in state data. See FIO, Report on the Effectiveness of the Terrorism Risk Insurance 

Program (2018), 54-55, https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2018_TRIP_Effectiveness_Report.pdf. See also, FIO, 2019 TRIP Small Insurer Report, 31-33. 

For more on TRIP, see Section III.B of this Report.

147 Judy Greenwald, “Cyber Insurance Growing, Still Fraction of Industry Revenue,” Business Insurance, July 25, 

2019, https://www.businessinsurance.com/article/20190725/NEWS06/912329806/Cyber-insurance-growing-stillfraction-of-industry-revenue.
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commercial cyber insurance premiums in 2018, accounting for 0.5 percent of total direct 

premiums written.

148

Figure 2: U.S. Cyber Direct Premiums Written ($ millions)

Source: S&P Global Market Intelligence (S&P Global)

Cyber insurance is one tool available for policyholders to manage their cyber risk by transferring 

some of it to insurers. Insurers also may offer cyber risk management or other services to their 

policyholders that may help them reduce their risks.149 For example, a broker has partnered with 

multiple insurers to evaluate and identify effective cyber risk solutions, noting that cyber insurers 

“have responded to the most costly, catastrophic cyber events of the past decade, and have 

extensive experience engaging with cybersecurity vendors and products.”150

The amount of potential “non-affirmative coverage” currently is not readily quantifiable, but is 

of significant concern to insurers, reinsurers, and policymakers alike.151 The Bank of England’s 

 

148 Premium includes affirmative cyber policies written on a stand-alone or package basis, and exclude so-called 

“silent” or non-affirmative policies providing cyber risk coverage. See The Geneva Association, Advancing 

Accumulation Risk Management in Cyber Insurance (2018), 8, 

https://www.genevaassociation.org/sites/default/files/research-topics-documenttype/pdf_public/report_advancing_accumulation_risk_management_in_cyber_insurance_0.pdf.

149 See, e.g., FIO, 2018 Annual Report, 29.

150 “Cyber Catalyst by Marsh,” Marsh, https://www.marsh.com/us/campaigns/cyber-catalyst-by-marsh.html. See 

also Leslie Scism, “Insurers Creating a Consumer Ratings Service for Cybersecurity Industry,” The Wall Street 

Journal, March 26, 2019, http://webreprints.djreprints.com/4556681505978.html.

151 See, e.g., Judy Greenwald, “Threat of Silent Cyber Grows Significantly: Willis Re,” Business Insurance, 

September 17, 2018, https://www.businessinsurance.com/article/20180917/NEWS06/912324037/Threat-of-silentcyber-grows-significantly-Willis-Re-survey- (citing survey of insurers reflecting growing concern about losses 

affecting policies not specifically designed to cover cyber risk).

$481 

$921 $990 $1,108 

$515 

$433 

$813 

$922 

$0

$500

$1,000

$1,500

$2,000

$2,500

2015 2016 2017 2018

Direct Premiums Written

($millions)

Year

Stand-alone Package
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Prudential Regulatory Authority addressed the issue of non-affirmative cyber risk in January 

2019 by requiring insurers in the United Kingdom to develop action plans to address 

non-affirmative cyber risk.152 In response, Lloyd’s of London announced that all Lloyd’s 

underwriters would be required to affirmatively state whether first-party property damage 

policies include or exclude cyber coverage.153 AIG and Allianz announced in November 2018 a 

similar goal of making all of their cyber insurance coverage explicit.154 Modeling firms also are 

attempting to enhance industry modeling of “silent” cyber incidents.155

As the cyber insurance market grows, its shape has evolved. In 2018, 528 U.S. insurers reported 

writing cyber insurance, an increase of 12 percent from 2017 (471 insurers), and an increase of

71 percent from 2015 (309 insurers).156 However, the stand-alone U.S. cyber insurance market 

is growing increasingly concentrated, with the top 10 cyber writers holding a combined market 

share of 69.5 percent in 2018 (up from 68.2 percent in 2017).157 Approximately 40 percent of 

direct premiums written are ceded to reinsurers.158 Captive insurers are also playing a growing 

role in cyber risk transfer.159 While there reportedly is interest in cyber insurance-linked 

securities (ILS), a cyber ILS market has yet to develop.160

 

152 Letter from Anna Sweeney, Director, Insurance Supervision, Bank of England Prudential Regulation Authority, 

to Chief Executives of specialist general insurance firms regulated by the PRA (January 30, 2019), 

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/letter/2019/cyber-underwriting-riskfollow-up-survey-results.

153 Matt Sheehan, “New Lloyd’s Mandate to Require Clarity on Silent Cyber Coverage,” Reinsurance News, July 4, 

2019, https://www.reinsurancene.ws/new-lloyds-mandate-to-require-clarity-on-silent-cyber-coverage/.

154 Ben Dyson, “AIG Aiming to Eradicate ‘Silent’ Cyberrisk From Its Books,” S&P Global Market Intelligence, 

November 21, 2018, https://platform.mi.spglobal.com/web/client?auth=inherit#news/article?id=48335463; Charlie 

Wood, “Allianz to Address Silent Cyber with Updated Policy Wordings,” Reinsurance News, November 30, 2018, 

https://www.reinsurancene.ws/allianz-to-address-silent-cyber-with-updated-policy-wordings/.

155 See “AIR Worldwide and Capsicum Re Collaborate to Enhance Silent Cyber Models,” Insurance Journal, 

September 4, 2018, https://www.insurancejournal.com/news/international/2018/09/04/500037.htm. 

156 A.M. Best, Cyber Insurers are Profitable, 5.

157 A.M. Best, Cyber Insurers are Profitable, 11.

158 A.M. Best, Cyber Insurers are Profitable, 7.

159 See, e.g., Matthew Lerner, “Captives Gain Traction as Cyber Cover Option,” Business Insurance, August 5, 

2018, https://www.businessinsurance.com/article/20180805/NEWS06/912323129/Captive-insurers-gain-traction-ascyber-coverage-option; Luke Gallin, “”Continued, Accelerated Cyber Risk Growth Expected in the Captive Market: 

Aon,” Reinsurance News, July 3, 2019, https://www.reinsurancene.ws/continued-accelerated-cyber-risk-growthexpected-in-the-captive-market-aon/ (“It’s estimated that more than a third of all captives will be underwriting cyber 

risk in five years’ time.”)

160 Kate Smith, “Stumbling Blocks: What’s Stopping the Development of a Cyber ILS Market?” Best’s Review, 

June 2019, http://news.ambest.com/articlecontent.aspx?refnum=285597. For more on ILS and other forms of 

alternative risk transfer, see Section VI.B.2 of this Report. 
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Several factors affect cyber insurance take-up rates.161 Publicity about prominent cyber 

incidents, and the adoption of data protection laws and regulations within the United States and 

the EU, can be incentives to purchase cyber insurance. More conservative underwriting 

practices, cyber policy exclusions, and improvements in policy standardization have likely 

encouraged insurers’ participation in the market. On the other hand, small and medium-sized 

enterprises, and individual consumers, are more likely to not have as much (or any) cyber 

coverage for a variety of reasons, including: they find premiums too expensive, believe they are 

not at risk, or have determined their cyber risk is manageable without insurance.162 In the longer 

term, coverage disputes currently in court also may affect perceptions of cyber insurance’s 

value.

163

The average cyber policy limit reportedly decreased from $3.2 million in the middle of 2018 to 

$2.8 million at the end of 2018.164 The causes of this decrease are unclear. Policyholders may 

be attempting to limit premium costs by purchasing smaller limits. Insurers may be reacting to 

loss ratios, which deteriorated in 2018 as compared to 2017.165 Alternatively, insurers may be 

writing lower limits because of concerns about the limitations in existing cyber risk models or 

concerns about the potential accumulation or aggregation risk from a large-scale or systemic 

cyber event.166

In 2018 and 2019, FIO participated in several efforts to better understand the cyber insurance 

market and address ongoing concerns about cyber risk. For example, in 2018, FIO staff led the 

cyber insurance workstream of the EU-U.S. Insurance Project, which, in October 2018, released 

a paper outlining market developments and challenges and highlighting current supervisory 

practices for assessing cyber underwriting, as discussed further in Section IV.C.1 of this Report.

 

161 See, e.g., Marsh, More Cyber Insurance Buyers as Awareness Grows (2019), 1, 

https://www.marsh.com/us/insights/research/cyber-insurance-trends-report-2018.html (reporting that the number of 

Marsh U.S. clients buying cyber insurance doubled from 19 percent in 2014 to 38 percent in 2018).

162 See Insurance Information Institute and J.D. Power, Small Business Big Risk: Lack of Cyber Insurance is a 

Serious Threat (2018), 4, https://www.iii.org/sites/default/files/docs/pdf/small_business_big_risk_101218.pdf; The 

Council of Insurance Agents & Brokers, Cyber Insurance Market Watch Survey (2019), 6, 

https://www.ciab.com/download/16876/. See also “Businesses Believe Cyber Insurance Covers More Than it Does: 

Survey,” Insurance Journal, July 31, 2019, 

https://www.insurancejournal.com/news/national/2019/07/31/534394.htm.

163 See Adam Satariano and Nicole Perlroth, “Big Companies Thought Insurance Covered a Cyberattack. They May 

Be Wrong,” The New York Times, April 15, 2019, https://www.nytimes.com/2019/04/15/technology/cyberinsurancenotpetya-attack.html.

164 The Council of Insurance Agents & Brokers, Cyber Insurance Market Watch Survey, 4.

165 Aon, US Cyber Market Update 5, 7. Individual insurer loss ratios varied significantly (from 4.8 percent to 184.4 

percent), likely due to the wide variety in policy terms and limits across the industry.

166 See generally Elizabeth Blosfield, “Data Deficit Remains Key Challenge for Cyber Insurance Underwriters,” 

Insurance Journal, June 18, 2019, https://www.insurancejournal.com/news/national/2019/06/18/529663.htm; The 

Geneva Association, Advancing Accumulation Risk Management.
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2. Insurance Industry Cybersecurity

As is generally the case for financial institutions, insurers are potential targets for cyber 

incidents.167 In July 2019, for example, an insurance and financial company notified customers 

that several employees had fallen victim to a phishing scheme earlier in the summer that may 

have exposed customers’ personal information.168 According to one study, even though cyber 

breach levels are “close to or lower than the cross-industry average,” the financial services sector 

has among the highest cyber crime costs.169

Not all cyber incidents are due to criminal activity, however. For example, one of the largest 

U.S. title insurers inadvertently exposed millions of sensitive records through a website 

vulnerability, although its internal investigation subsequently showed that unauthorized access 

was limited.

170

Cybersecurity risks can also arise through third-party vendors. According to one study, 61 

percent of U.S. survey respondents in 2018 experienced a data breach caused by one of their 

vendors or other third parties, an increase from 56 percent in 2017.171 Some state insurance 

regulators expressly require insurers to review their cybersecurity risk from third-party 

vendors.172

The insurance industry generally has recognized its cybersecurity vulnerabilities and has taken 

steps to improve its defenses. One study found that, between 2017 and 2018, the number of 

 

167 See, e.g., Accenture, “Cost of Cybercrime Continues to Rise for Financial Services Firms, According to Report 

from Accenture and Ponemon Institute,” news release, July 16, 2019, https://newsroom.accenture.com/news/cost-ofcybercrime-continues-to-rise-for-financial-services-firms-according-to-report-from-accenture-and-ponemoninstitute.htm. See also FIO, 2018 Annual Report, 30 (describing why financial firms are attractive targets).

168 Matt Olberding, “Lincoln-Based Ameritas Discloses Data Breach,” Lincoln Journal Star, July 31, 2019, 

https://journalstar.com/business/local/lincoln-based-ameritas-discloses-data-breach/article_d0ac4d30-7e26-59ad8fed-7ffebb2d0835.html.

169 Accenture, “Cost of Cybercrime Continues to Rise.”

170 First American Title Insurance Company, “First American Reports Completion of Investigation into Customer 

Impact of Information Security Incident,” news release, July 16, 2019, 

https://www.firstam.com/incidentupdate/update20190716.html.

171 Ponemon Institute LLC, Data Risk in the Third-Party Ecosystem (November 2018), 3. See also Ponemon 

Institute and Opus, “Opus & Ponemon Institute Announce Results of 2018 Third-Party Data Risk Study: 59% of 

Companies Experienced a Third-Party Data Breach, Yet Only 16% Say They Effectively Mitigate Third-Party 

Risks,” news release, November 15, 2018, https://www.marketwatch.com/press-release/opus-ponemon-instituteannounce-results-of-2018-third-party-data-risk-study-59-of-companies-experienced-a-third-party-data-breach-yetonly-16-say-they-effectively-mitigate-third-party-risks-2018-11-15.

172 NYDFS, 23 N.Y. Comp. Codes R. & Regs. Tit 23 § 500.11 (March 1, 2017), 

https://www.dfs.ny.gov/docs/legal/regulations/adoptions/dfsrf500txt.pdf (describing the requirement for a “Third 

Party Service Provider Security Policy”); Insurance Data Security Model Law (NAIC 2017), 

https://www.naic.org/store/free/MDL-668.pdf (including numerous provisions related to Third-Party Service 

Providers).
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cyber capabilities mastered by insurers almost doubled, and successful breaches of insurers 

declined from 30 percent in 2017 to 22 percent in 2018.173 Insurers also continue to share 

cybersecurity information through a variety of formal and informal mechanisms.174

Federal Cybersecurity Efforts: At the federal level, Treasury serves as the interface for 

matters involving cyber threats and cybersecurity for organizations in the financial services 

sector, including insurers.175 Treasury works with numerous organizations within the public and 

private sectors to protect the nation’s critical financial services infrastructure. Treasury is also 

expanding its ability to provide cybersecurity resources to small financial institutions around the 

country. In February 2019, in partnership with the NAIC and the South Carolina Department of 

Insurance, Treasury successfully held the first of several planned cyber tabletop exercises for 

small and regional insurers. A second exercise was held in September 2019 in partnership with 

the NAIC and the Missouri and Kansas Departments of Insurance. Through this initiative, 

Treasury has leveraged its expertise in conducting cyber tabletop exercises to provide small and 

regional insurers with access to a crucial cybersecurity resource. Treasury is training NAIC and 

state insurance regulatory staff on how to conduct such exercises, which could result in 

numerous small and regional insurers participating in a cyber tabletop exercise in the future.

Some federal efforts, which do not specifically target the insurance industry, may also provide 

incentives for cybersecurity improvements within the industry. For example, the SEC has stated 

that all public companies should consider cyber threats when implementing internal accounting 

controls.176

State Cybersecurity Efforts: Insurance regulators and legislators also continue to act at the 

state level on insurance industry cybersecurity. As of July 31, 2019, seven states—Alabama, 

Connecticut, Delaware, Michigan, Mississippi, Ohio, and South Carolina—had adopted the 

NAIC’s Insurance Data Security Model Law or a similar law.177 The NAIC model law was 

 

173 Accenture, “Seizing Cyber Resilience Mastery in Financial Services,” news release, September 11, 2018, 

https://www.accenture.com/us-en/insights/financial-services/2018-state-of-cyber-resilience.

174 See, e.g., FIO, 2018 Annual Report, 30-31 (discussing, among other things, the Financial Services-Information 

Sharing and Analysis Center and the Insurance Risk Council).

175 FIO, 2018 Annual Report, 31.

176 SEC, “SEC Investigative Report: Public Companies Should Consider Cyber Threats When Implementing 

Internal Controls,” news release, October 16, 2018, https://www.sec.gov/news/press-release/2018-236.

177 See Insurance Data Security Model Law (NAIC 2017); Alabama Insurance Data Security Law, Ala. St. §§ 10A20-6.16, 27-21A-23 (as amended by Alabama Senate Bill 54); Connecticut Public Act No. 19-117, § 230 (2019); 18 

Del. Code § 8601 et seq.; Michigan Public Act 690 of 2018; Mississippi Laws 2019, S.B. No. 2831; Ohio Rev. Code 

§ 3965.01 et seq.; 2018 S.C. Act No. 171.
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based on New York’s cybersecurity regulation. The New York regulation became fully effective 

on March 1, 2019, after a two-year implementation period.178

Treasury encouraged the prompt adoption of the NAIC model law by the states, but noted that if 

the adoption and implementation of the model law by the states does not result in uniform data 

security regulations, Congress may need to act.179 Already there are indications of variations. 

For example, the NAIC Model Law requires notification of a breach within 72 hours, but the 

Ohio and Delaware versions of the law have changed this requirement to three business days 

while Michigan allows for 10 days. Michigan and Connecticut also have changed the threshold 

for certain exemptions under the NAIC Model Law, which exempts those with fewer than 10 

employees from the information security program requirement. Michigan raises the threshold to 

25 employees while Connecticut has raised it to 20 employees (until 2021, when the threshold 

lowers to 10 employees). Commentators have varying views about the significance of these 

variations, particularly given the relatively small number of states that have enacted the law.

180 

FIO will continue to monitor the states’ adoption of the model law and its implementation.

International Cybersecurity Efforts: At the international level, FIO has worked with 

regulators and policymakers to draw attention to cybersecurity for the insurance industry, and to 

the financial sector more broadly.

FIO staff led the insurer cybersecurity workstream of the EU-U.S. Insurance Project in 2018

(discussed in Section IV.C.1 of this Report), which published a paper in 2018 outlining 

legislative and supervisory frameworks in the EU and the United States, and describing “selected 

initiatives and resources addressing insurance industry cybersecurity risk.”181

FIO staff also participated in the development of the IAIS’s Application Paper on Supervision of 

Insurer Cybersecurity, published in November 2018.182 This application paper is intended to 

 

178 23 NYCRR § 500.11. See also “Cybersecurity Resource Center,” New York State Department of Financial 

Services, https://www.dfs.ny.gov/industry_guidance/cybersecurity.

179 Treasury, Insurance EO Report, 117.

180 See, e.g., Harriet Pearson, Timothy Tobin & Morgan Perna, “Cybersecurity Standards for the Insurance Sector—

A New Patchwork Quilt in the US?” LexBlog, May 13, 2019, https://www.lexblog.com/2019/05/13/cybersecuritystandards-for-the-insurance-sector-a-new-patchwork-quilt-in-the-us/; Joseph J. Lazzarotti, “Licensed by Your 

State’s Insurance Commissioner? Comprehensive Data Security Requirements Are Headed Your Way,” 

JacksonLewis, August 9, 2019, https://www.workplaceprivacyreport.com/2019/08/articles/consumerprivacy/licensed-by-your-states-insurance-commissioner-comprehensive-data-security-requirements-are-headedyour-way/.

181 EU-U.S. Insurance Dialogue Project, Insurance Industry Cybersecurity Issues Paper (2018), 1, 

https://eiopa.europa.eu/Publications/Other%20Documents/181031%20EUUS%20Project%20Cybersecurity%20Paper_publication.pdf.

182 IAIS, Application Paper on Supervision of Insurer Cybersecurity (2018), 

https://www.iaisweb.org/page/supervisory-material/application-papers//file/77763/application-paper-on-supervisionof-insurer-cybersecurity.
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“provide further guidance to supervisors seeking to develop or enhance their approach to 

supervising the cyber risk, cybersecurity, and cyber resilience of insurers”183 and builds on work 

of other international bodies, including the G7 Fundamental Elements for Cyber Security for the 

Financial Sector,

184 the G7 Fundamental Elements for Effective Assessment of Cybersecurity for 

the Financial Sector,

185 and the CPMI-IOSCO’s Guidance on Cyber Resilience for Financial 

Market Infrastructures.

186 The application paper is principles-based and encourages supervisors 

to consider steps to develop and implement standards, tools, and metrics for protecting the 

confidentiality, integrity, and accessibility of systems and customer data of insurers under their 

jurisdiction. The paper also recognizes stakeholders’ shared interest “in protecting the financial 

system, individual institutions, and policyholders from cybersecurity risks, while avoiding 

regulatory fragmentation and overlap.”187

In addition, FIO staff participated in the multinational working group that drafted the FSB’s 

Cyber Lexicon.

188 Published in November 2018, the Cyber Lexicon is intended to improve

standardization with respect to cyber risk terminology, by defining approximately 50 core terms 

relating to cybersecurity and cyber resilience in the financial sector.189 The Lexicon is intended 

to support the financial sector cyber resilience work of the FSB, standard-setting bodies, other 

authorities, and private sector participants, such as financial institutions and international 

standards organizations.190

With respect to the financial sector more broadly, in May 2019, the FSB published a progress 

report on its “work on developing effective practices for financial institutions’ response to, and 

recovery from, a cyber incident.”191

 

183 IAIS, Application Paper on Supervision of Insurer Cybersecurity, 4-5.

184 G7 Fundamental Elements of Cybersecurity for the Financial Sector (October 2016), 

https://www.ecb.europa.eu/paym/pol/shared/pdf/G7_Fundamental_Elements_Oct_2016.pdf?69e99441d6f2f131719a

9cada3ca56a5.

185 G7 Fundamental Elements for Effective Assessment of Cybersecurity in the Financial Sector (October 2017), 

http://www.mef.gov.it/inevidenza/documenti/PRA_BCV_4728453_v_1_G7_Fundamental.pdf.

186 Committee on Payments and Market Infrastructures and Board of the International Organization of Securities 

Commissions, Guidance on Cyber Resilience for Financial Market Infrastructures (2016), 

https://www.bis.org/cpmi/publ/d146.pdf.

187 IAIS, Application Paper on Supervision of Insurer Cybersecurity, 57.

188 A Federal Reserve official chaired the FSB working group for this project. See FIO, 2018 Annual Report, 56. In 

addition to FIO’s participation through the IAIS’s Financial Crime Task Force, Treasury served on the working 

group through staff from its Office of Cybersecurity and Critical Infrastructure Protection and Homeland Security. 

For more on the FSB, see Section IV.D of this Report.

189 FSB, Cyber Lexicon (2018), https://www.fsb.org/wp-content/uploads/P121118-1. See also FIO, 2018 Annual 

Report, 30, 56.

190 FSB, “FSB Publishes Cyber Lexicon,” news release, November 12, 2018, https://www.fsb.org/2018/11/fsbpublishes-cyber-lexicon/.

191 FSB, Cyber Incident Response and Recovery: Progress Report to the G20 Finance Ministers and Central Bank 

Governors Meeting in Fukuoka, 8-9 June 2019 (2019), https://www.fsb.org/wp-content/uploads/P280519-1.pdf.
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IV. INTERNATIONAL ENGAGEMENT

Section IV addresses structural changes at the IAIS, describes the 2020-2024 Strategic Plan for 

the IAIS, outlines the progress on development of ICPs and ComFrame, and notes other 

reporting by FIO on its work to increase transparency at the IAIS. The section then highlights 

other international work, focused on financial crime. Next, it discusses the U.S.-EU and U.S.-

UK covered agreements, presenting background information before outlining progress by the 

states and others towards their implementation. The section proceeds to outline the work of two 

insurance dialogue projects: the EU-U.S. Insurance Project and the U.S.-UK Insurance Project. 

It briefly summarizes insurance-related work at the FSB and OECD. The section concludes by 

describing the United States’ bilateral dialogue with India on insurance issues.

A. IAIS

1. Structural Changes at the IAIS and FIO’s Role

FIO represents the United States at the IAIS.192 The U.S. members of the IAIS are FIO, the 

Federal Reserve, the NAIC, and the state and territory insurance regulators who represent the 

individual sovereign jurisdictions within the United States. The U.S. members of the IAIS are 

informally known, collectively, as Team USA (as noted above).

The IAIS is a voluntary, member-driven non-profit organization of insurance supervisors. With

over 210 Members accounting for 97 percent of worldwide premium volume, the IAIS is the 

international standard-setting body responsible for developing and supporting the 

implementation of principles, standards, and guidance for the supervision of the insurance 

sector.193 The IAIS’s mission is “to promote effective and globally consistent supervision of the 

insurance industry in order to develop and maintain fair, safe and stable insurance markets for 

the benefit and protection of policyholders and to contribute to global financial stability.”194

In November 2018, the General Meeting of Members, which governs the IAIS, approved 

changes to the composition of the Executive Committee in support of the IAIS five-year strategic

plan (discussed in Section IV.A.2 of this Report). The Executive Committee continues to 

provide strategic direction, appoint the Secretary General, manage the IAIS consistent with 

 

192 31 U.S.C. § 313(c)(1)(E).

193 IAIS, IAIS Annual Report 2017 (2018), 8, https://www.iaisweb.org/page/about-the-iais/annualreport/file/77857/iais-ar-2017-digital-pdf-def-dp. See also IAIS, IAIS Organisation Members (September 20, 2019),

https://www.iaisweb.org/list/iaismembers.

194 IAIS, IAIS Annual Report 2017, 10.
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specific duties in the bylaws, and make decisions necessary to achieve the IAIS mission.195 The 

General Meeting amended the by-laws in 2018 to change the Executive Committee by:

• Introducing voting members that represent Standing Jurisdictions, which ensures 

representation from the major insurance markets;

• Increasing the number of seats for some regions based on the market size and number 

of members in the region to maintain geographic diversity;

• Including non-supervisory members; and

• Increasing central bank members of the IAIS, recognizing the technical expertise that 

central bank members bring to the IAIS deliberations.196

As a result of these changes, FIO became a permanent member of the IAIS Executive 

Committee, an important step towards ensuring that the U.S. insurance regulatory system, which 

oversees the largest single-country insurance market in the world, is appropriately represented at 

the IAIS. As Secretary Mnuchin observed: “This governance change should help us advance the 

best interests of the U.S. insurance sector, as all members of Team USA will now have a voice at 

the most senior levels of the IAIS. Treasury will continue to work with the IAIS on these 

governance issues and appropriate geographic representation for the United States at the 

IAIS.”197 Figure 3 shows the current IAIS structure, as modified in 2018.

Figure 3: IAIS Organizational Structure

General Meeting

Executive Committee

(ExCo)

Coordination Group

Systemic Risk 

Assessment Working 

Group (SRADG)

Budget Committee Macroprudential 

Committee (MPC)

Policy Development 

Committee

Implementation and 

Assessment 

Committee (IAC)

Chairs of Working 

Parties of the PDC

Capital, Solvency, and 

Field Testing Working 

Group (CSFWG)

Governance Working 

Group (GWG)

*IAC*

Insurance Groups 

Working Group 

(IGWG)

Market Conduct 

Working Group 

(MCWG)

Resolution Working 

Group (ReWG)

Supervisory Material 

Review Task Force 

(SMRTF)

Financial Crime Task 

Force (FCTF)

*IAC*

G-SII Analysts Working 

Group (G-AWG)

Macroprudential 

Policy and Surveillance 

Working Group

Accounting and 

Auditing Working 

Group (AAWG)

Task Force on 

Systemically Important 

Banks and Insurers 

(TFBI)

FinTech Forum Supervisory Forum

Financial Inclusion 

Working Group

Strategic Plan and 

Financial Outlook Task 

Force (SPFO TF)

Insurance Capital 

Standard Task Force 

(ICS TF)

Signatories Working 

Group

Standards Assessment 

Working Group 

(SAWG)

G-SII Implementation 

Monitoring Expert 

Team

Member Assessment 

Process (MAP) Expert 

Team (2019, Q3)

Core Curriculum Task 

Force (CCTF)

Committees

Working Groups

Task Forces

Forums

Expert Teams

Source: FIO. See also “IAIS Organisational Structure,” https://www.iaisweb.org/page/about-theiais/organisational-structure

 

195 IAIS, IAIS Annual Report 2017, 8.

196 IAIS, Newsletter (November/December 2018), 9-10, https://www.iaisweb.org/page/news/newsletterarchive/file/78223/iais-newsletter-november-december-2018.

197 Secretary Mnuchin International Forum Remarks.
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Throughout 2018 and 2019, FIO has continued to fulfill its statutory role representing the United 

States in the IAIS in various IAIS committees, subcommittees, working groups, and task forces. 

FIO continues to be engaged in the development of ICS Version 2.0 through the Insurance 

Capital Standard Task Force and the Capital, Solvency & Field Testing Working Group, as 

discussed in Section II.B.1 of this Report. In addition, a FIO staff member chairs the IAIS 

Resolution Working Group, and represents the IAIS at relevant FSB bodies such as the 

Resolution Steering Group and the FSB Cross-Border Crisis Management Group for Insurers 

(iCBCM). Another member of FIO’s staff chairs the IAIS Financial Crime Task Force (FCTF) 

and, in that capacity, chairs the IAIS delegation to the Financial Action Task Force (FATF), as 

discussed further in Section IV.A.4 of this Report. In addition, a FIO staff member chairs the 

Systemically Important Banks and Insurers Task Force, and is vice chair of the Systemic Risk 

Assessment Drafting Group. FIO staff also participate in the IAIS’s: Policy Development 

Committee; Macroprudential Committee; Coordination Group; and Implementation and 

Assessment Committee, as well as Governance Working Group; G-SII Analysts Working Group; 

Insurance Groups Working Group; Macroprudential Policy & Surveillance Working Group; 

Strategic Plan and Financial Outlook Task Force; Standards Assessment Working Group; and 

Supervisory Materials Review Task Force.

In all of its IAIS-related (and other international) work, FIO advocates for U.S. interests and for 

the United States’ state-based system of insurance regulation. FIO will also continue to 

prioritize close coordination and collaboration with the other members of Team USA, as well as 

facilitating formal and informal opportunities for U.S. stakeholders to engage with FIO about 

matters before the IAIS and other international forums.

2. IAIS 2020-2024 Strategic Plan

In June 2019, the IAIS announced its new strategic direction through its 2020-2024 Strategic 

Plan.

198 The 2020-2024 Strategic Plan recognizes that the IAIS will be moving toward different 

priorities in the next five years as it largely completes its package of post–financial crisis 

reforms.199 The Strategic Plan sets out High Level Goals and Strategies to respond to trends and 

developments that have “the potential to reshape the business of insurance in the coming 

years.”200 The IAIS condensed and reframed its prior High Level Goals so that the IAIS core 

 

198 IAIS, “IAIS Embarks on a New Strategic Direction: Global Standard-Setting Body Approves Its 2020-2024 

Strategic Plan and Financial Outlook,” news release, June 14, 2019, https://www.iaisweb.org/page/news/pressreleases/file/82553/press-release-iais-embarks-on-new-strategic-direction. 

199 IAIS, The IAIS Strategic Plan 2020-2024 (June 2019), 3, https://www.iaisweb.org/page/about-the-iais/strategicplan/file/82533/2020-2024-strategic-plan.

200 IAIS, Strategic Plan, 3, 5.
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functions can evolve to respond to these trends and developments.

201 The 2020-2024 Strategic 

Plan sets out five new High Level Goals:

• Assessing and Responding to Market Developments: “The IAIS assesses global 

market trends and developments in, or relevant to, the insurance sector and responds 

to issues that present opportunities, challenges, and risks relevant to our Mission.”

• Standard Setting: “The IAIS sets and maintains globally recognized standards for 

insurance supervision that are effective and proportionate.”

• Supporting Supervisory Practices: “The IAIS supports its Members by sharing 

good supervisory practices and facilitating understanding of supervisory issues.”

• Supporting Observance of Standards: “The IAIS assesses and promotes 

observance of its supervisory material.” 

• Effective Operations and Transparency: “The IAIS operates effectively, 

efficiently and transparently in delivering its Mission and in communicating with 

stakeholders.”202

The Strategic Plan also notes that it “does not set out a significant increase in the scale of IAIS 

activities but rather a shift in focus in line with the” High Level Goals and new strategic 

themes.203 It also explains that the governance structure changes to the Committee structure and 

composition (discussed in Section IV.A.1 of this Report) “were introduced in anticipation of the 

strategic direction” in the Strategic Plan, and in support of the High Level Goals.204 FIO will 

continue to engage with the IAIS and advocate for U.S. interests as the IAIS begins its efforts to 

implement the Strategic Plan.

3. Insurance Core Principles and ComFrame

In 2018, the IAIS released for public consultations revisions to the ICPs and ComFrame as part 

of its ongoing development of supervisory materials by theme across the three tiers of standard 

 

201 Compare IAIS, IAIS Mission and 2015-2019 Strategic Goals, https://www.iaisweb.org/file/62748/iais-missionand-2015-19-strategic-goals-amended-12-november-2015 (identifying seven High Level Goals: (1) Assessing and 

Responding to Insurance Sector Vulnerabilities; (2) The IAIS as the Global Standard Setter for Insurance; (3) 

Contributing to Financial Stability in the Insurance Sector; (4) Enhancing Effective Supervision; (5) Enhancing 

Implementation and Observance of ICPs; (6) Effective Stakeholder Outreach and External Interaction; and (7) 

Effective and Efficient Organisation and Operations).

202 IAIS, Strategic Plan, 6, 9-16.

203 IAIS, Strategic Plan, 18.

204 IAIS, Strategic Plan, 18. See also FIO, 2018 Annual Report, 36-37 (describing IAIS structural changes); Section 

IV.A.1 of this Report (discussing Executive Committee changes, including the addition of FIO to the IAIS 

Executive Committee).
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setting—ICPs, ComFrame, and G-SII policy measures.205 The IAIS also revised relevant ICPs 

and ComFrame sections to accommodate, and comport with, the Holistic Framework (discussed 

further in Section II.B.2 of this Report). Specifically, between July 2018 and July 2019, the IAIS 

released the following ICPs, ComFrame, and related materials for public consultation:

• ICS Version 2.0, as part of ComFrame, released on July 31, 2018 (see also Section 

II.B.1 of this Report); 

• Overall ComFrame, released on July 31, 2018;

206

• Revisions related to the Holistic Framework, released on June 14, 2019, including 

revisions to:

o ICP 9 (Supervisory Review and Reporting) and ComFrame in ICP 9, 

o ICP 10 (Preventive Measures, Corrective Measures and Sanctions),

o ICP 16 (Enterprise Risk Management for Solvency Purposes) and ComFrame in 

ICP 16,

o ICP 20 (Public Disclosure), and

o ICP 24 (Macroprudential Supervision);207

• Various additional supervisory materials released on June 14, 2019, including

o Draft revised IAIS Glossary;

o Draft ComFrame Assessment Methodology;

o Changes in the Introduction to ICPs and ICP 7 (Corporate Governance) made for 

consistency with ComFrame; and 

o Draft Revised ICP 22 (Anti-Money Laundering and Combatting the Financing of 

Terrorism).208

Noteworthy among these consultations were the revisions to ICP 22, its first revision since 2013, 

which was updated to improve usefulness to supervisors and enhance consistency with FATF 

Recommendations (see also Section IV.A.4 of this Report). In addition, the introduction of 

 

205 For more information on past revisions to ICPs and ComFrame, see FIO, 2018 Annual Report, 39-40.

206 “Public Consultation: Overall ComFrame,” IAIS, last updated June 14, 2019, 

https://www.iaisweb.org/page/consultations/closed-consultations/2018/overall-comframe. See also IAIS, Cover 

Note for Draft Overall ComFrame Released for Public Consultation on 31 July 2018, 

https://www.iaisweb.org/page/consultations/closed-consultations/2018/overall-comframe/file/76108/draft-overallcomframe-for-public-consultation. 

207 “Public Consultation: Revisions related to the Holistic Framework for Systemic Risk in the Insurance Sector,” 

IAIS, last updated June 15, 2019, https://www.iaisweb.org/page/consultations/closed-consultations/2019/revisionsrelated-to-holistic-framework-for-systemic-risk-in-the-insurance-sector.

208 “Public Consultation: IAIS Supervisory Material,” IAIS, last updated June 14, 2019, 

https://www.iaisweb.org/page/consultations/closed-consultations/2019/iais-supervisory-material.
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recovery planning requirements for IAIGs in the ComFrame material in ICP 16 was entirely new 

material.

The IAIS currently intends to adopt the revised ICPs and ComFrame (including ICS Version 2.0) 

at the Annual General Meeting in November 2019. It should be noted that while ICS Version 

2.0 is ultimately a part of ComFrame, it has not yet been integrated into ComFrame and will be 

adopted as a stand-alone document. The adoption of ComFrame will mark a major milestone for 

the IAIS. ComFrame was last adopted in 2014, and in many cases, the material was skeletal. 

The 2019 version is expected to be fully developed and, together with the ICPs, will present a 

complete framework for supervision of IAIGs.

4. Financial Crime: FCTF and FATF

Some international insurance work spans organizations, as in the area of financial crime. FIO’s 

work on financial crime includes chairing the IAIS FCTF. In the capacity of chair of the FCTF, 

a member of FIO’s staff also chairs the IAIS Observer Organization delegation to the FATF.

FATF is an inter-governmental body established in 1989 and has the objectives of setting 

standards and promoting effective implementation of legal, regulatory, and operational measures 

to combat money laundering, terrorist financing, and certain other threats.

209 In its capacity as an 

IAIS observer, FIO participated in recent work of a FATF drafting group culminating in the 

October 2018 publication of FATF’s Risk-based Approach Guidance for the Life Insurance 

Sector.

210 The FATF guidance: highlights that the money laundering and terrorist financing risk 

assessment should reflect the nature, size, and complexity of the business; stresses the 

importance of the involvement of senior management; and aims to support the design and 

implementation of the risk-based approach for the life insurance sector.

At the IAIS, FCTF’s work in recent years has focused primarily on insurance industry 

cybersecurity.211 For example, in August 2016, the IAIS released its Issues Paper on Cyber Risk 

to the Insurance Sector,

212 which was developed by the FCTF under FIO leadership. The Issues 

Paper recommended that the IAIS follow up on that work by developing an Application Paper 

“further exploring cyber risk . . . and proposing supervisory practices for the insurance sector.” 

 

209 See “Who We Are,” FATF, http://www.fatf-gafi.org/about/.

210 FATF, Risk-Based Approach Guidance for the Life Insurance Sector (2018), http://www.fatfgafi.org/publications/fatfrecommendations/documents/rba-life-insurance.html.

211 See, e.g., FIO, 2018 Annual Report, 32.

212 IAIS, Issues Paper on Cyber Risk to the Insurance Sector (2016), https://www.iaisweb.org/file/61857/issuespaper-on-cyber-risk-to-the-insurance-sector.
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That project was assigned to the FCTF and, following a public comment period,

213 the IAIS 

published its Application Paper on Supervision of Insurer Cybersecurity in November 2018.

214

Upon completion and publication of the new FATF Guidance in 2018, the FCTF began its work 

on reviewing and updating ICP 22 (Anti-Money Laundering and Combatting the Financing of 

Terrorism).215 On June 28, 2019, the IAIS held a telephonic public information session 

addressing supervisory materials, including ICP 22, which was released as a draft in advance of 

the call.216 During the call, the FCTF Chair introduced the proposed revisions and explained the 

general approach to this work taken by the FCTF, including enhancing emphasis on and 

contextualization of the “risk based approach” to supervision of anti-money laundering and 

countering the financing of terrorism consistent with FATF standards. Following receipt of 

written comments in August 2019, the FCTF intends to further consider the draft revisions to

ICP 22, which is planned for finalization and publication in connection with the IAIS General 

Meeting in November 2019.217

5. Increasing Transparency at the IAIS

In November 2018, Treasury and the Federal Reserve jointly published a report on their efforts 

to increase transparency at IAIS meetings.218 The Transparency Report explained that, although 

the IAIS has taken initial steps to improve stakeholder transparency, Treasury and the Federal 

Reserve support further increasing transparency and stakeholder input into IAIS decisionmaking. 

It noted that Team USA work collaboratively to develop their positions with input from U.S. 

stakeholders and advocate for international standards that are in the best interests of the United 

States. The Transparency Report also recognized that any international standards adopted by the 

IAIS are not binding or operational in the United States unless implemented through the relevant 

state or federal legislative or administrative process, as appropriate.

FIO continues its work to increase transparency at the IAIS. FIO staff helped to develop the 

IAIS Strategic Plan, discussed in Section IV.A.2 of this Report, which includes “Transparency” 

 

213 “Public Consultation: Application Paper on Supervision of Insurer Cybersecurity,” IAIS, last updated November 

8, 2018, https://www.iaisweb.org/page/consultations/closed-consultations/2018/application-paper-on-cyber-security.

214 For more on this Application Paper, see Section III.C.2 of this Report.

215 IAIS, Newsletter (October 2018), 6, https://www.iaisweb.org/page/news/newsletter-archive/file/77466/iaisnewsletter-october-2018; IAIS, Newsletter (January 2019), 8, 

https://www.iaisweb.org/page/news/newsletter/file/79801/iais-newsletter-january-2019.

216 “Public Consultation: IAIS Supervisory Material,” IAIS, last updated June 14, 2019,

https://www.iaisweb.org/page/consultations/closed-consultations/2019/iais-supervisory-material; IAIS, Revisions to 

the IAIS Supervisory Material (redline) (June 2019), 207-220; https://www.iaisweb.org/page/consultations/closedconsultations/2019/iais-supervisory-material/file/82746/revisions-to-the-iais-supervisory-material-redline1.

217 Consistent with IAIS practice, in connection with finalization of the updated ICPs, the FCTF will provide public 

feedback regarding resolution of comments received.

218 Treasury and Federal Reserve, Transparency Report, 1.
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as one of its five High-Level Goals. In addition, as described in Section I.B.2 of this Report, in 

May 2019 FIO hosted a stakeholder meeting on IAIS work with other members of Team USA. 

FIO will continue to work with its Team USA colleagues to expand opportunities for robust 

engagement with U.S. stakeholders to inform international policy priorities in connection with 

insurance. Treasury will continue to provide formal and informal opportunities for U.S. 

stakeholders to engage with U.S. members of the IAIS on issues arising before the IAIS.

B. Covered Agreements with the European Union and with the United Kingdom

1. Background and Agreement with the European Union

In September 2017, Secretary Mnuchin and the United States Trade Representative, Ambassador 

Robert E. Lighthizer, together with EU officials, signed the Bilateral Agreement between the 

United States of America and the European Union on Prudential Measures Regarding Insurance 

and Reinsurance, generally known in the United States as the U.S.-EU Covered Agreement.219 

A covered agreement is an international bilateral or multilateral agreement on insurance or 

reinsurance that “relates to the recognition of prudential measures” and that “achieves a level of 

protection for insurance or reinsurance consumers that is substantially equivalent to the level of 

protection achieved” under U.S. state-based regulation.220 The U.S.-EU Covered Agreement 

was the first covered agreement ever entered into by the United States, pursuant to the FIO Act, 

and it is the only such agreement currently in force.221

The U.S.-EU Covered Agreement addresses three areas of prudential insurance supervision: 

group supervision; reinsurance, including reinsurance collateral; and exchange of information 

between supervisory authorities. As discussed in detail in FIO’s 2018 Annual Report,222 the 

agreement is an important achievement, which resolves on a national basis longstanding 

 

219 Treasury, “Treasury, USTR Sign Covered Agreement on Prudential Insurance and Reinsurance Measures with 

the European Union,” news release, September 26, 2017, https://home.treasury.gov/news/press-releases/sm0164. 

For the agreement text, see “Bilateral Agreement between the United States of America and the European Union on 

Prudential Measures Regarding Insurance and Reinsurance,” https://www.state.gov/18-404/. Background 

information and a collection of related documents are also accessible on Treasury’s website. “Initiatives: U.S. and 

EU Covered Agreement,” Treasury, last updated November 13, 2017, 

https://www.treasury.gov/initiatives/fio/Pages/EU_Covered_Agreement.aspx.

220 FIO Act, 31 U.S.C. § 313(r)(2).

221 Pursuant to Article 8 thereof, the U.S.-EU Covered Agreement entered into force on April 4, 2018. See Notice 

Concerning the Entry into Force of the Bilateral Agreement between the European Union and the United States of 

America on Prudential Measures Regarding Insurance and Reinsurance, 2018 O.J. (L 91), 

https://eur-lex.europa.eu/legal-content/EN/TXT/?toc=OJ%3AL%3A2018%3A091%3ATOC&uri=uriserv%3AOJ.L

_.2018.091.01.0001.01.ENG. In anticipation of Brexit, the United States and the United Kingdom signed a covered 

agreement in December 2018, which largely mirrors the U.S.-EU Covered Agreement, but it has not entered into 

force. See discussion in Section IV.B.2 of this Report.

222 See FIO, 2018 Annual Report, 41-55.
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concerns arising both from the prudential approach concerning credit for reinsurance of U.S. 

states to insurers that cede business to EU reinsurers,

223 and from the prudential approach of EU 

member states to U.S. insurance groups conducting business in the EU.224 The agreement 

addresses these matters while protecting consumers and affirming the U.S. system of insurance 

regulation, including the role of state insurance regulators as the primary supervisors of the 

business of insurance in the United States.225 As stated by Secretary Mnuchin at the time of 

signing: “By providing regulatory clarity and reducing regulatory burden, the Agreement 

enables American companies to be more competitive in the EU, enhances opportunities for U.S. 

insurers and reinsurers at home and abroad, and furthers the administration’s goal of sustained 

economic growth.”226

Under the agreement, the EU agrees, among other things, not to apply aspects of its prudential 

approach to solvency regulation to U.S. insurers and reinsurers operating in the EU. Instead, the 

agreement establishes specific conditions whereby both the EU and the United States will respect 

the group supervision of the home country as to group capital, governance, and reporting. 

Among other benefits, a U.S. insurer will now be able to operate in the EU without subjecting its 

U.S. parent to costly worldwide group capital requirements, which may otherwise have been 

applicable under EU law, and U.S. reinsurers will not be required to establish a local EU 

presence in order to assume business from EU ceding insurers.227

 

223 “Credit for reinsurance” describes the degree to which, under U.S. statutory insurance accounting, ceding 

insurers are permitted to recognize transfers of risk to reinsurers as reductions of policy liabilities or as assets, 

thereby freeing up regulatory capital to support new and existing business. FIO, The Breadth and Scope of the 

Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States 

(2014), 11, https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/FIO%20-

Reinsurance%20Report.pdf (Reinsurance Report).

224 See generally FIO, 2018 Annual Report, 41-45, and materials cited therein.

225 Treasury and USTR advised Congress in 2015 that achievement of a covered agreement with the EU would 

“further confirm that the existing U.S. insurance regulatory system serves the goals of insurance sector oversight, 

policyholder protection, and national and global financial stability.” Letter from Anne Wall, Assistant Secretary for 

Legislative Affairs, Department of the Treasury and Mike Harney, Assistant U.S. Trade Representative for 

Congressional Affairs, USTR, to Senator Richard Shelby, et al. (November 20, 2015), 

https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/Covered%20Agreement%20Letters%20to%20Congress.pdf. 

226 Treasury, “Treasury, USTR Sign Covered Agreement on Prudential Insurance and Reinsurance Measures with 

the European Union,” news release, September 26, 2017. See also Treasury, “Joint Statement on Upcoming 

Signature of the Bilateral Agreement between the European Union and the United States of America on Prudential 

Measures Regarding Insurance and Reinsurance,” news release, September 22, 2017, 

https://home.treasury.gov/news/press-releases/sm0163.

227 Reinsurance is the subject of Article 3 of the U.S.-EU Covered Agreement. Group Supervision is addressed in 

Article 4 of the U.S.-EU Covered Agreement.
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2. Agreement with the United Kingdom

In last year’s Annual Report, FIO highlighted the importance of maintaining continuity on 

prudential insurance matters with the United Kingdom as it prepared to exit the EU, including 

with respect to the matters addressed by the U.S.-EU Covered Agreement.228 As the UK is one 

of the world’s largest insurance markets, and as its insurers and reinsurers are important sources 

of capacity in the United States, there are clear benefits to both the United States and the UK for 

proactively preparing for effects of the UK’s withdrawal from the EU on its bilateral insurance 

relationships with the United States.

229

Accordingly, building on the success of the U.S.-EU Covered Agreement negotiations, and to 

maintain regulatory certainty and market continuity, in 2018 the United States and the UK 

negotiated a covered agreement.

230 This agreement was submitted to Congress on December 11, 

2018231 and signed by Secretary Mnuchin, Ambassador Lighthizer, and the UK Ambassador to 

the United States on December 18, 2018.232 Consistent with steps taken when the United States

signed the U.S.-EU Covered Agreement in 2017, the United States also published a U.S. policy 

statement regarding implementation of the U.S.-UK Covered Agreement.

233 Upon conclusion of 

the negotiations, Treasury and USTR summarized the undertaking with the United Kingdom as 

follows:

 

228 See FIO, 2018 Annual Report, 53-55.

229 FIO, 2018 Annual Report, 55. See also Treasury, Insurance EO Report, 140 (“Given the benefits associated with 

the U.S.-EU Covered Agreement ... should the [UK] withdraw from the EU, the United States should consider 

whether it would be mutually beneficial for the United States and the UK to enter into negotiations on prudential 

insurance and reinsurance matters, similar to those addressed by the U.S.-EU Covered Agreement.”).

230 Bilateral Agreement between the United States of America and the United Kingdom on Prudential Measures 

Regarding Insurance and Reinsurance (December 18, 2018), https://home.treasury.gov/system/files/136/20181218-

US-UK-Covered-Agreement.pdf.

231 Letters from Steven T. Mnuchin, Secretary of the Treasury and Robert E. Lighthizer, United States Trade 

Representative, to Chair and to the Ranking Member of the four committees of jurisdiction (December 11, 2018), 

https://home.treasury.gov/system/files/136/US-UK_Covered_Agreement-Final-Hill-12-11-18.pdf (transmitting final 

legal text of the covered agreement between the United States and the United Kingdom).

232 Treasury, “Treasury, USTR Sign Bilateral Agreement with the United Kingdom on Prudential Measures 

Regarding Insurance and Reinsurance,” news release, December 19, 2018, 

https://home.treasury.gov/index.php/news/press-releases/sm580; Treasury, “Joint Statement on Signing the Bilateral 

Agreement on Prudential Measures Regarding Insurance and Reinsurance,” news release, December 19, 2018, 

https://home.treasury.gov/news/press-releases/sm579. As noted in the December 11 letters, Treasury and USTR 

first notified Congress of their intent to enter into negotiations with the United Kingdom on October 6, 2018. See

also Letters from Secretary Mnuchin and Ambassador Lighthizer to Chair and to the Ranking Member of the four 

committees of jurisdiction (November 6, 2018) (confirming commencement of negotiations with the United 

Kingdom).

233 Statement of the United States on the Covered Agreement with the United Kingdom (December 18, 2018), 

https://home.treasury.gov/system/files/136/US_Policy_Statement_US-UK18%20December%202018.pdf.
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The U.S.-UK Covered Agreement is an important step in providing regulatory 

certainty and market continuity as the United Kingdom prepares to leave the 

European Union in March 2019, as well as in making U.S. companies more 

competitive in domestic and foreign markets and making regulations more 

efficient, effective, and appropriately tailored. The U.S.-UK Covered Agreement 

also benefits the U.S. economy and consumers by affirming the U.S. state-based 

system of insurance regulation and increasing growth opportunities for U.S. 

insurers.234

The agreement with the UK is based upon the provisions of the U.S.-EU Covered Agreement, 

and incorporates the respective timeframes of the U.S.-EU Covered Agreement. For example, 

the U.S.-UK Covered Agreement “shall apply” per Article 10 on the later of its date of entry into 

force or 60 months from 22 September, 2017 (i.e., 22 September 2022) -- which is 60 months 

after the date that the U.S.-EU Covered Agreement was signed (and is therefore the same date on 

which the U.S.-EU Covered Agreement shall apply under Article 10 of that agreement). 

Similarly, provided that the U.S.-UK Covered Agreement has entered into force, the relevant 

dates under that agreement concerning, for example: (1) U.S. reinsurance collateral elimination;

(2) the commencement and conclusion of preemption analysis by FIO; and (3) group supervision

provisions, all occur on the same dates as they do for the analogous provisions under the 

U.S.-EU Covered Agreement.235

In the same way, provided that the U.S.-UK Covered Agreement enters into force, all of the 

benefits received by the United States and its insurance sector under the U.S.-EU Covered 

Agreement, and the related obligations of the EU, will continue to be in place as between the 

United States and the UK as the provisions and respective timeframes would have applied under 

the agreement with the EU. The U.S.-UK Covered Agreement also contains an additional 

provision that the Parties shall consult with the Agreement’s “Joint Committee” within 90 days 

of entry into force.236

 

234 Treasury, “Treasury, USTR Finalize Bilateral Agreement with the UK on Prudential Measures Regarding 

Insurance and Reinsurance,” news release, December 11, 2018, https://home.treasury.gov/news/pressreleases/sm570.

235 To take another example, under Article 10, Paragraph 2(e) of the U.S.-UK Covered Agreement, even if U.S. 

insurance and reinsurance groups with operation in the UK are not yet subject to a group capital assessment in the 

United States (as described in Article 4 Paragraph (h) of the U.S.-UK Covered Agreement), the UK will not impose 

a group capital requirement at the level of the worldwide parent undertaking of the insurance or reinsurance group, 

with regard to such U.S. group, during the period from the date of entry into force of the U.S.-UK Covered 

Agreement until November 7, 2022. The latter date (November 7, 2022) is 60 months from the date on which the 

U.S.-EU Covered Agreement became provisionally applicable. Compare U.S.-EU Covered Agreement, Article 10, 

Paragraph 2(e) of the (“from the date of provisional application ... and for 60 months thereafter”). The U.S.-EU 

Covered Agreement became provisionally applicable on November 7, 2017. See FIO, 2018 Annual Report, 48.

236 U.S.-UK Covered Agreement, Article 7, Paragraph 7.
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The statutory Congressional “layover” period for the U.S.-UK Covered Agreement concluded 90 

days following the December 11, 2018 transmittal to Congress of the final text of the 

agreement.

237 As of August 31, 2019, the UK has not yet left the EU. Accordingly, the U.S.-UK 

Covered Agreement has not yet entered into force.

3. Progress of the States

Because the business of insurance in the United States is principally regulated by the U.S. states, 

successful implementation of these covered agreements on a uniform national basis contemplates 

action by each of the states to conform relevant laws to the provisions of the agreements, 

particularly regarding the conditions for elimination of collateral requirements applicable to EU 

reinsurers accepting business from U.S. ceding insurers (and, similarly, applicable in the case of 

cessions to UK reinsurers once the U.S.-UK Covered Agreement enters into force). If that does 

not occur within the implementation periods set out in the agreements,

238 state insurance 

measures that are inconsistent with the reinsurance provisions of the agreement may be 

preempted by the covered agreement in accordance with the FIO Act.239

In last year’s Annual Report, FIO noted that after the U.S.-EU Covered Agreement was signed, 

the states, through the NAIC, had made considerable progress toward setting the stage for state 

implementation.

240 Progress discussed included commencement by the NAIC of a transparent 

process to develop revisions to its Credit for Reinsurance Model Law (#785) and Regulation

(#786) and the NAIC’s continued work on a GCC.

241

That progress by the NAIC and the U.S. states has continued over the last year and with respect 

to reinsurance collateral has moved to the next phase of implementation. Work on the model law 

and regulation, which is led by the NAIC’s Financial Condition Committee and its Reinsurance 

Task Force, began after a public hearing held by the NAIC in February 2018 and the Executive 

Committee’s formal approval in April 2018 to commence the project. On June 25, 2019, the 

NAIC adopted revisions to its Credit for Reinsurance Model Law and Regulations intended to 

 

237 See 31 U.S.C. § 314(c) (submission and layover provisions).

238 Under Article 9, Paragraph 4 of the U.S.-EU Covered Agreement, the United States is obligated to begin 

evaluating state laws for potential preemption not later than the first day of the month, 42 months after the date the 

agreement was signed, i.e., by March 1, 2021. The United States “shall complete any necessary preemption 

determination” not later than the first day of the month, 60 months after signature (September 1, 2022). See also

U.S.-EU Covered Agreement, Article 10, Paragraph 2(d).

239 Subject to certain procedures, including providing notice and an opportunity for public comment, a state 

insurance measure shall be preempted by a covered agreement if the FIO Director determines that it results in less 

favorable treatment of a non-United States insurer domiciled in a foreign jurisdiction that is subject to a covered 

agreement than a United States insurer domiciled, licensed, or otherwise admitted in that state, and is inconsistent 

with the covered agreement. 31 U.S.C. § 313(f).

240 See FIO, 2018 Annual Report, 44-51.

241 FIO, 2018 Annual Report, 45-48.
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“make the models consistent with provisions of covered agreements with the European Union 

and United Kingdom with respect to reinsurance collateral requirements.”242 Upon this approval 

of the revisions to the NAIC Credit for Reinsurance Model Law (#785) and Regulation 

(#786),243 NAIC President and Maine Insurance Superintendent Eric Cioppa stated, “I encourage 

my colleagues to work with their state legislatures to pass these updates quickly.”244

In view of the obligation of the United States under the U.S.-EU Covered Agreement to 

encourage each U.S. state to promptly implement revisions to credit for reinsurance laws and 

regulation consistent with Article 3 of the agreement,245 on July 12, 2019, the FIO Director 

addressed the National Council of Insurance Legislators (NCOIL) at their Summer National 

Meeting, during which he emphasized the need for prompt action.246 At that meeting, NCOIL’s 

Joint State-Federal Relations & International Insurance Issues Committee passed a resolution

stating: “NCOIL renews its strong support for the Reinsurance Models and urges all States to 

adopt the Models, as amended.”247

Similarly, in August 2019, at least four relevant NAIC committees and task forces confirmed 

support for the model revisions and emphasized the importance of timely state-by-state action to 

adopt the revised credit for reinsurance model law and regulations. For example:

• The NAIC Reinsurance Task Force adopted the minutes of its May 15, 2019 meeting. 

At the May 15, 2019 meeting, the Task Force adopted the credit for reinsurance 

model law and regulation revisions, and addressed the importance for states to 

 

242 NAIC, “NAIC Updates to Credit for Reinsurance Model Law and Regulation,” news release, June 25, 2019, 

https://www.naic.org/Releases/2019_docs/credit_reinsurance_model.htm.

243 The revised models, in redlined text, are currently available in materials posted by the NAIC: Reinsurance Task 

Force: Credit for Reinsurance Model Law - Redlined (NAIC July 15, 2019), https://naiccms.org/sites/default/files/inline-files/MO785%20redlined%206-25-19.pdf; Credit for Reinsurance Model 

Regulation—Redlined (NAIC July 15, 2019), https://naic-cms.org/sites/default/files/inlinefiles/MO786%20redlined%206-25-19.pdf. The NAIC maintains a compendium of its model laws and regulations 

on its website: “NAIC Model Laws, Regulations, Guidelines and Other Resources,” NAIC, 

https://www.naic.org/prod_serv_model_laws.htm.

244 “NAIC Updates to Credit for Reinsurance Model Law and Regulation,” news release.

245 U.S.-EU Covered Agreement, Article 9, Paragraph 3(b).

246 NCOIL, “2019 NCOIL Summer Meeting in Newport Beach a Success,” news release, July 15, 2019, 

http://ncoil.org/2019/07/15/2019-ncoil-summer-meeting-in-newport-beach-a-success/.

247 NCOIL, “Resolution in Continued Support of the National Association of Insurance Commissioners (NAIC) 

Credit for Reinsurance Model Law and Regulation,” http://ncoil.org/wp-content/uploads/2019/07/reinsuranceresolution-newport-beach.pdf. See also NCOIL Joint State-Federal Relations and International Insurance Issues 

Committee, Newport Beach, California, Draft Minutes (July 11, 2019), http://ncoil.org/wpcontent/uploads/2019/07/Joint-Cmte-Minutes-Newport-Beach-FINAL.pdf (noting adoption of the resolution).
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implement the model law and regulation revisions as soon as possible. The Task 

Force also discussed the model revisions as an accreditation standard.

248

• The NAIC Financial Regulation & Accreditation Committee encouraged states to 

begin immediate and uniform adoption of the revisions, without regard to the timing 

of inclusion of the new revisions to models #785 and #786 as accreditation 

standards.

249

• The Financial Condition Committee adopted the minutes of its May 28, 2019 meeting

at which it had adopted the credit for reinsurance model law and regulation revisions; 

and adopted the report of the meeting of the Reinsurance Task Force described 

above.

250

• The NAIC Executive Committee and Plenary, meeting in joint session, adopted the 

minutes of their June 25, 2019 joint session at which they had adopted the credit for 

reinsurance model law and regulation revisions.251

Additionally, progress by the U.S. states on the GCC, through the NAIC, continues to be an area 

of importance to the ultimate success of the U.S.-EU Covered Agreement. Under the U.S.-EU 

Covered Agreement, if U.S. insurance supervisors do not develop and implement a group capital 

assessment applicable to U.S. groups with EU insurance or reinsurance operations, EU regulators 

would not be barred from imposing Solvency II group capital requirements on such groups.252

As further discussed in Section II.A.1 of this Report, in May 2019 the NAIC began field testing 

the aggregation-based GCC that it has been developing since 2017.

 

248 NAIC, Reinsurance (E) Task Force Draft Minutes (August 9, 2019), 

https://www.naic.org/meetings1908/cmte_e_reinsurance_2019_summer_nm_minutes.pdf. See also NAIC, 

Reinsurance (E) Task Force Meeting Summary Report (August 4, 2019), 

https://www.naic.org/meetings1908/cmte_e_reinsurance_2019_summer_nm_summary.pdf.

249 NAIC, Financial Regulation Standards and Accreditation (F) Committee Draft Minutes (August 8, 2019), 

https://www.naic.org/meetings1908/f_cmte.pdf. See also NAIC, Financial Regulation Standards and Accreditation 

(F) Committee Meeting Summary Report (August 3, 2019), 

https://www.naic.org/meetings1908/cmte_f_2019_summer_nm_summary.pdf.

250 NAIC, Financial Condition (E) Committee Meeting Draft Minutes (August 6, 2019), 

https://www.naic.org/meetings1908/e_cmte.pdf. See also NAIC, Financial Condition (E) Committee Meeting 

Summary Report (August 5, 2019), https://www.naic.org/meetings1908/cmte_e_2019_summer_nm_summary.pdf.

251 NAIC, Executive (EX) Committee and Plenary Draft Minutes (August 20, 2019), 

https://www.naic.org/meetings1908/cmte_ex_plenary_2019_summer_nm_minutes.pdf. See also NAIC, Executive 

(EX) Committee and Plenary Meeting Summary Report (August 6, 2019), 

https://www.naic.org/meetings1908/cmte_ex_plenary_2019_summer_nm_summary.pdf.

252 See FIO, 2018 Annual Report, 47; U.S.-EU Covered Agreement, Article 10.
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4. The Path Forward on U.S. Implementation

Completion of the work of the states, through the NAIC, to develop revised models to conform

with the U.S.-EU Covered Agreement is a key milestone in the U.S. implementation of the 

agreement. However, important steps remain to be taken by U.S. state legislatures and insurance 

supervisors in order to achieve full U.S. compliance in accordance with the agreement’s timeline, 

and thereby maintain the benefits of the agreement for both sides. As Secretary Mnuchin stated 

in a speech in May, “successful implementation of the U.S.-EU covered agreement contemplates 

action by each of the states to conform relevant laws to the provisions of the agreement.”253

In order to ensure that the benefits obtained by the United States under the U.S.-EU Covered 

Agreement are realized for the long term, FIO will continue to encourage timely progress by the 

U.S. states on the steps that are necessary to ensure the United States complies with its 

obligations under the agreement. As the U.S. states move forward with implementation, FIO 

intends to remain a helpful resource to the states.

In the coming months, FIO will be focusing on its obligations—consistent with the timing under 

the agreement—to ensure that each state conforms its laws to the terms of the agreement, and 

that any “state insurance measures,” that is “[s]tate law[s], regulation[s], administrative ruling[s], 

bulletin[s], guideline[s], or practice[s] relating to or affecting prudential measures applicable to 

insurance or reinsurance,” in accordance with the definition of “state insurance measure” in the 

FIO Act, are not inconsistent with the U.S.-EU Covered Agreement. For example, FIO will be 

looking to each state not only to amend its laws and regulations to conform to the U.S.-EU 

Covered Agreement, but to administer its laws and regulations in a manner that conforms to 

Article 3 of the U.S.-EU Covered Agreement concerning reinsurance. Under the agreement, not 

later than September 1, 2022, the United States shall complete any necessary preemption 

determination, which FIO will undertake—in accordance with the statutory provisions set forth 

in 31 U.S.C. § 313(f) 254— with respect to any state insurance measure that is inconsistent with 

the agreement and results in less favorable treatment of an EU reinsurer than a U.S. reinsurer.255 

FIO will be monitoring the implementation progress of the U.S. states, on a state-by-state basis. 

In the coming months, FIO will be asking both the NAIC and NCOIL to assist in this aspect by 

providing FIO with real-time status information on the state law and regulation amendment 

process. This information will assist FIO in meeting the U.S. commitment to encourage the 

 

253 Secretary Mnuchin International Forum Remarks.

254 See note 239 above. Among other requirements concerning preemption, the FIO Act includes provisions for 

consultation, notice, and hearing concerning a potential inconsistency, and for the FIO Director to consider whether 

the inconsistency still exists, prior to a preemption determination becoming final. 31 U.S.C. § 313(f)(2). In addition, 

under 31 U.S.C. § 313(n)(1), the FIO Director is required to make a report to Congress not later than September 30 

of each year, identifying preemption steps that have been taken.

255 U.S.-EU Covered Agreement, Article 9, Paragraph 4. This paragraph also calls on the United States to prioritize 

under its preemption evaluation the insurance measures of those states with the highest volume of gross ceded 

reinsurance.
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states to act expeditiously, allowing FIO to prioritize federal steps, and maintaining FIO’s ability 

to keep the covered agreement counterparties up to date on developments in the United States.

Following full implementation and application of the U.S.-EU Covered Agreement on a timely 

basis, the United States is committed to ensuring the ongoing fulfillment of its commitments 

under the agreement, including by closely monitoring state insurance measures to ensure a 

measure is not inconsistent with the agreement. For example, this means monitoring to ensure 

that the obligations under Article 3 (reinsurance) are carried out by each state in practice and as 

an ongoing matter, including with respect to ensuring that supervisory practices related to a 

measure are not inconsistent with the agreement. To facilitate this monitoring, FIO will engage

affirmatively on a regular basis with state insurance regulators and their representatives, and FIO 

and USTR will closely consult with state insurance regulators and their representatives if a case 

arises in which a covered agreement counterparty suggests that a state insurance measure is 

inconsistent with the agreement. FIO and USTR intend to work cooperatively with the U.S. 

states and their representatives in this process.

5. Engagement with the European Union

Article 7 of the U.S.-EU Covered Agreement establishes a “Joint Committee” and calls for it to 

meet at least once within 180 days after the earlier of the date of entry into force or provisional 

application of the agreement, and to meet at least once a year thereafter. The United States and 

the EU held the first meeting of the Joint Committee on March 6, 2018, in Brussels, shortly 

before the agreement came into force.256 The Joint Committee met again, in Washington, on 

April 2, 2019.257 In addition to officials from Treasury and USTR, U.S. participants at the second 

meeting included two U.S. state insurance commissioners (who are also senior NAIC officers). For 

the European Union, attendees included representatives of the EU’s Directorate-General for 

Financial Stability, Financial Services and Capital Markets Union (DG-FSMA), the EU 

delegation to the United States, and the European Union Insurance and Occupational Pensions 

Authority (EIOPA). Pursuant to the U.S.-EU Covered Agreement, the Joint Committee 

“provide[s] the Parties with a forum for consultation and to exchange information on the 

administration of the Agreement and its proper implementation.”258 Accordingly, at the April 

2019 meeting, the U.S. and EU participants provided updates on each party’s implementation 

with respect to reinsurance, group supervision, and exchange of information.

 

256 Treasury, “First Joint Committee Meeting Under the Bilateral Agreement between the European Union and The 

United States of America on Prudential Measures Regarding Insurance and Reinsurance,” news release, March 27, 

2018, https://home.treasury.gov/news/press-releases/sm0334.

257 Treasury, “Second Joint Committee Meeting Under the Bilateral Agreement between the United States of 

America and the European Union on Prudential Measures Regarding Insurance and Reinsurance,” news release, 

April 12, 2019, https://home.treasury.gov/news/press-releases/sm652. A representative from the U.S. Federal 

Reserve also participated in this Joint Committee meeting.

258 U.S.-EU Covered Agreement, Article 7.
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Under Article 10 of the agreement, the EU is obligated to ensure that within two years from 

signature, i.e., September 22, 2019, its member states have revised applicable laws to implement 

the provisions of Article 3, Paragraph 3. These provisions permit U.S. reinsurers to assume 

business from EU ceding insurers without establishing a “local presence” in the EU, as otherwise 

could be required by an EU member state when an assuming reinsurer is not from either an EU 

member state or a supervisory jurisdiction deemed equivalent pursuant to the Solvency II 

Directive.259 No EU member states are enforcing such provisions any longer as regards business 

ceded to U.S. reinsurers.

260 Further, Treasury and USTR were advised at the April 2019 Joint 

Committee meeting that it would now be unlawful under EU law for an EU member state to 

enforce such restrictions against U.S. reinsurers.

At the April 2019 Joint Committee meeting, both sides acknowledged progress to date on 

implementation, reconfirmed their commitments to full and timely implementation with respect 

to all provisions of the agreement, and also reaffirmed their commitment to continuous review of 

progress on the U.S.-EU Covered Agreement and close coordination between the two sides. To 

this end, Treasury appreciates EIOPA’s announcement in April 2018 that monitoring and

ensuring consistent implementation by EU member states is among its “priorities,”261 and 

welcomes its recommitment and progress report as of April 2019.262

6. Certain Jurisdictions that are not Party to a Covered Agreement

The revised Credit for Reinsurance Model Law (#785) and Regulation (#786) adopted by the 

NAIC in June 2019 incorporate a two-part structure for collateral elimination requirements in the 

case of applicable reinsurers from non-U.S. “reciprocal jurisdictions,” defined as either: (1) a

non-U.S. jurisdiction that has entered into a covered agreement with the United States; or (2) an 

NAIC qualified jurisdiction263 which is not party to a covered agreement but meets certain 

additional specified requirements intended to be aligned with the U.S.-EU Covered 

 

259 U.S.-EU Covered Agreement, Article 10, Paragraph 2(g).

260 See FIO, 2018 Annual Report, 50-51.

261 EIOPA, Supervisory Convergence Plan 2018-2019 (2018), 3, 

https://eiopa.europa.eu/Publications/Reports/Supervisory%20Convergence%20Plan%202018-2019.pdf.

262 EIOPA, Report on Supervisory Activities in 2018 (2019), 

https://eiopa.europa.eu/Publications/Reports/EIOPA_2018_SupervisoryActivities_April2019.pdf.

263 A “qualified jurisdiction” is one which the states, through the NAIC, have determined meets certain standards

concerning prudential supervision and other matters, such that U.S. insurers ceding risk to NAIC “certified 

reinsurers” from such qualified jurisdiction may be permitted to recognize full credit for reinsurance while the 

reinsurer posts a specified reduced percentage of reinsurance collateral. A jurisdiction may be added to the qualified 

jurisdiction list maintained by the NAIC based on evaluations performed by NAIC committees and staff. It is up to 

individual states, however, to determine whether to treat a jurisdiction as “qualified.” See generally NAIC, Process 

for Developing and Maintaining the NAIC List of Qualified Jurisdictions (2014), https://naiccms.org/sites/default/files/inline-files/committees_e_reinsurance_related_qualified_jurisdictions_final_130827.pdf.
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Agreement.264 At present, the NAIC qualified jurisdictions other than those from the EU 

(including the UK) are Bermuda, Switzerland, and Japan. The new model law and regulation 

revisions anticipate analysis by the states (facilitated by the NAIC) to determine whether these 

qualified jurisdictions meet the conditions in the revised models (which are based in large 

measure on the U.S.-EU Covered Agreement) for designation as “reciprocal jurisdictions” and, if 

so, whether reinsurers from those jurisdictions meet the conditions for designation as reciprocal 

reinsurers (also based on the terms of U.S.-EU Covered Agreement). If these provisions are 

adopted as law by the states, such designation would permit U.S. ceding insurers to receive full 

credit for cessions to this category of reciprocal reinsurer without necessity for collateral, thereby 

putting such reciprocal reinsurers on the same footing as regards state law reinsurance collateral 

requirements, as reciprocal reinsurers from jurisdictions which are party to a covered agreement 

with the United States.

FIO has long advocated for development and uniform implementation of collateral reform in the 

United States that is risk-based, rather than geographically-based.

265 Accordingly, in addition to 

its attention to adoption and implementation of the revised models with respect to the U.S.-EU 

Covered Agreement and U.S.-UK Covered Agreement, FIO intends to closely monitor state

efforts to introduce collateral elimination on a wider and more uniform basis for reinsurers from 

jurisdictions which are not a party to a covered agreement but are eligible for classification by 

the NAIC as reciprocal jurisdictions. As such designation of a reciprocal jurisdiction is a new 

procedure, FIO has not expressed a view as to the effect of that designation in terms of benefits 

for U.S. insurers and reinsurers.

266

 

264 Section 2.F(1)(a)(ii) of the approved revisions to the Credit for Reinsurance Model Law also defines a type of 

“reciprocal jurisdiction” within the United States as well, i.e., a U.S. state which meets the requirements for 

accreditation under the NAIC financial standards and accreditation program. For more on NAIC accreditation, see

Section III.A.3.b of this Report.

265 FIO, How to Modernize and Improve the System of Insurance Regulation in the United States, 37 (2013), 

https://www.treasury.gov/initiatives/fio/reportsand-notices/Documents/How%20to%20Modernize%20and%20Improve%20the%20System%20of%20Insurance%2

0Regulation%20in%20the%20United%20States.pdf.

266 Expression of these reservations should not be read to imply doubts concerning the ability of the states under 

these revisions of law to effectively exercise prudential supervision and policyholder protection.
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C. Insurance Dialogue Projects

1. EU-U.S. Insurance Project

FIO is continuing its work with the EU-U.S. Insurance Project, a collaborative effort among U.S. 

and EU insurance authorities to increase mutual understanding, enhance cooperation, and

promote business opportunity, consumer protection, and effective supervision.267 In addition to 

FIO, current members of the EU-U.S. Insurance Project include: the NAIC, state insurance 

commissioners, the Federal Reserve, EIOPA, ACPR/ Banque de France, BaFin, the Central Bank 

of Ireland, the De Nederlandsche Bank, the European Commission, and the Prudential 

Regulation Authority.

Beginning in 2017, the EU-U.S. Insurance Project focused on three topics: (1) insurer 

cybersecurity and the cyber risk insurance market; (2) the use and implications of big data in 

insurance underwriting; and (3) insurance-related intracompany transactions.268 In October 

2018, the EU-U.S. Insurance Project published papers on each of these three topics.269 These 

papers served as a foundation for panel discussions at the EU-U.S. Insurance Project’s sixth 

public event, a forum in Luxembourg on November 10, 2018.270

In 2019, the EU-U.S. Insurance Project continues to regularly discuss insurer cybersecurity, the 

cyber insurance market, and big data issues. The insurer cybersecurity workstream, for example, 

is discussing the development of a template for a supervisor exercise to help improve 

cooperation and coordination of cross-border response in the event of an international cyber 

incident. One possible outcome of this workstream could be a cybersecurity exercise, but one is 

not currently scheduled. The cyber insurance market workstream is examining non-affirmative 

cyber exposure and the potential for catastrophic losses; the challenges of reinsuring cyber risk; 

and the availability of cyber insurance data, including lessons learned from cyber data reporting 

 

267 See EU-U.S. Dialogue Project, EU-US Dialogue Project: The Way Forward, Objectives and Initiatives for the 

Future (December 2012), https://www.treasury.gov/initiatives/fio/EUUS%20Insurance%20Project/Documents/eu_us_dialogue_wayforward_2012.pdf.

268 For a more detailed description of 2018 target outcomes and deliverables, see EU-U.S. Dialogue Project, EU-US 

Insurance Dialogue Project: New Initiatives for 2017-2019; Focus Areas for 2018 (2018), 

https://www.treasury.gov/initiatives/fio/EU-US%20Insurance%20Project/Documents/EU-US_Initiatives_2017-

2019.pdf.

269 EU-U.S. Insurance Dialogue Project, Insurance Industry Cybersecurity Issues Paper (2018), 

https://eiopa.europa.eu/Publications/Other%20Documents/181031%20EUUS%20Project%20Cybersecurity%20Paper_publication.pdf; EU-U.S. Insurance Dialogue Project, The Cyber 

Insurance Market (2018), https://eiopa.europa.eu/Publications/Other%20Documents/181031%20EUUS%20Project%20Cyber%20Insurance%20White%20Paper_publication.pdf; EU-U.S. Insurance Dialogue Project, 

Big Data Issues Paper (2018), 

https://eiopa.europa.eu/Publications/Other%20Documents/181031_EU%20US%20Big%20Data%20%20Issue%20P

aper_Publication.pdf; EU-U.S. Insurance Dialogue Project, Supervision of Intro-Group Transactions (IGTs) (2018), 

https://eiopa.europa.eu/Publications/Other%20Documents/181031_EU%20US%20Project%20on%20IGTs_Key%2

0messages_publication.pdf.

270 “Event—Public Forum: EU-U.S. Insurance Project,” EIOPA, https://eiopa.europa.eu/Pages/Events/PUBLICFORUM-EU-US-INSURANCE-PROJECT.aspx.
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in the United States and the potential for similar initiatives in the EU. The big data workstream 

is looking at third party vendor and other issues. The EU-U.S. Insurance Project also anticipates 

holding a seventh public event in Washington D.C. in early 2020.

2. U.S.-UK Insurance Project

Building on the EU-US Insurance Project and in light of the United Kingdom’s withdrawal from 

the EU, FIO is starting a U.S.-UK Insurance Project with U.S. and UK insurance authorities that 

will, among other things, explore commonalities and differences between U.S. and UK insurance 

supervision. In view of the critical role that these markets serve for commercial and individual 

policyholders, officials in both jurisdictions have a shared interest in maintaining continuity with 

respect to insurance supervisory matters as the UK prepares to depart from the EU. To begin the 

dialogue, FIO has led introductory calls with the U.S. and UK authorities and has discussed how 

the work would mirror the EU-U.S. Insurance Project.

D. Financial Stability Board

The G-20 established the FSB in 2009 as its financial regulatory reform implementation 

organization, tasked with promoting the implementation of effective regulatory, supervisory, and 

other financial sector policies and coordinating the work of international standard-setting bodies, 

including the IAIS, “as they work toward developing strong regulatory, supervisory and other 

financial sector policies.”271 The FSB’s membership consists of 68 institutions from 25 

jurisdictions and ten international organizations and standard-setting bodies, including the 

IAIS.272 Treasury, the Federal Reserve, and the SEC are the FSB’s U.S. members.273 Treasury’s 

Office of International Affairs represents Treasury at the FSB. The current FSB Chair—as of 

December 2018—is the Federal Reserve Governor and Vice Chair for Supervision, Randal K. 

Quarles. FIO coordinates with the U.S. members on insurance matters discussed at the FSB.

In November 2018, the FSB welcomed the publication by the IAIS of the Holistic Framework.274 

The FSB also noted that in light of the progress that the IAIS has made on the Holistic 

Framework, the FSB, in consultation with the IAIS and national authorities, decided not to 

engage in an identification of G-SIIs in 2018.275 Following the completion of the Holistic 

 

271 See Treasury, Insurance EO Report, 57-59, 130; “History of the FSB,” FSB, http://www.fsb.org/history-of-thefsb/; “About the FSB,” FSB, http://www.fsb.org/about/#history.

272 FSB, 5th Annual Report: 1 April 2017 – 31 March 2018 (2018), 1, 38, http://www.fsb.org/wpcontent/uploads/P011218.pdf.

273 FSB, 5th Annual Report, 37; “Randal K. Quarles,” FSB, http://www.fsb.org/profile/randal-k-quarles/.

274 FSB, “FSB Welcomes IAIS Proposed Insurance Systemic Risk Framework and Decides Not to Engage in an 

Identification of G-SIIs in 2018,” news release, November 14, 2018, https://www.fsb.org/2018/11/fsb-welcomesiais-proposed-insurance-systemic-risk-framework-and-decides-not-to-engage-in-an-identification-of-g-siis-in-2018/. 

275 FSB, “FSB Welcomes IAIS Proposed Insurance Systemic Risk Framework.”
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Framework’s development in November 2019, the FSB will assess the IAIS’s recommendation 

to suspend G-SII identifications from 2020. In November 2022, the FSB will revisit the decision 

to publish an annual identification of G-SIIs based on the initial years of implementation of the 

Holistic Framework.276

E. OECD

Internationally, FIO also participates in the IPPC at the OECD. The OECD is a multilateral 

organization that serves as a source of advice on various policymaking and implementation 

matters, and collects and publishes statistical data and analyses on various topics. The U.S. 

delegation to the IPPC is made up of representatives from the U.S. Departments of Commerce 

and Labor, FIO, and state insurance regulators.

In early 2019, Yoshi Kawai of the Japan Financial Services Agency—the former founding and 

longstanding Secretary General of the IAIS—became the chair of the IPPC. At the December 

2018 meeting, the U.S. Department of Labor’s Assistant Secretary for the Employee Benefits 

Security Administration, Preston Rutledge, was elected to be a member of the bureau of the 

Working Party on Private Pensions, which works in coordination with the IPPC. Over the next 

few years, the IPPC is expected to continue to address issues relating to LTCI, reinsurance, best 

practices for insurance regulation, international insurance standards, and terrorism insurance. All 

of these issues touch on significant U.S. policy initiatives currently being led by Treasury, and it 

is important that FIO take an active leadership role in the international work on insurance matters 

at the OECD.

F. Bilateral Dialogue with India

FIO participates in the U.S.-India Financial Regulatory Dialogue, an annual meeting between 

U.S. Treasury and financial services regulators and their Indian counterparts to share information 

and perspectives on key regulatory issues. The 2019 meeting was held in Washington, D.C. on 

August 26-27. At this meeting, FIO and IRDAI signed an MOU that identifies the following 

shared goals: engaging in international standard-setting activities; promoting financial stability; 

sharing experiences on various regulatory functions; providing mutual assistance, such as by 

participating in training activities; and promoting other matters of interest to FIO and IRDAI. 

The MOU’s purpose is to provide a framework for cooperation and coordination, including for 

the exchange, handling, protection, and return of information and, when appropriate, 

investigative assistance with respect to each office’s oversight and other lawful responsibilities.

The MOU also contains certain protective provisions for confidential information shared or 

exchanged between the offices and sets forth procedures for making or responding to requests for 

assistance by one party to the other. The MOU is significant in establishing and maintaining a 

constructive and mutually beneficial working relationship between FIO and IRDAI. FIO will 

work with IRDAI and stakeholders on next steps for implementation of the MOU.

 

276 FSB, “FSB Welcomes IAIS Proposed Insurance Systemic Risk Framework.”
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V. ECONOMIC GROWTH AND INFORMED CHOICES

This Section V provides an update on regulatory developments at the federal and state levels 

relating to the standards of care for retail sales of insurance and other financial products. The 

section then reviews regulatory developments in retirement income and LTCI, as well as the 

state of the LTCI industry. The section concludes with a discussion of InsurTech, including an 

overview of the InsurTech market, a discussion of innovation and its impact on the insurance 

industry, and a description of key regulatory issues relating to InsurTech.

A. Standards of Conduct

Throughout 2018 and continuing into 2019, policymakers and multiple stakeholders continued to 

focus on the appropriate standard of care for the sale of retail investment products in the wake of 

a court decision vacating the Department of Labor’s fiduciary rule in its entirety.277

On April 18, 2018, the SEC proposed a comprehensive package of rulemakings and 

interpretations to govern the standards of conduct applicable to broker-dealers and investment 

advisers that provide retail investment advice.278 On June 5, 2019, after receiving thousands of 

public comments on the proposed package, the SEC adopted Regulation Best Interest 

(Regulation BI), which establishes a new standard of conduct for a broker-dealer when making a 

recommendation to a retail customer of any securities transaction or investment strategy 

involving securities—including, importantly, retirement plan rollover recommendations. The 

SEC also adopted: (i) a rule requiring that each broker-dealer and investment adviser send its 

retail clients and file with the SEC a “Client Relationship Summary” providing information 

about the broker-dealer or adviser; (ii) interpretive guidance on the fiduciary obligations of an 

investment adviser in serving its clients; and (iii) interpretive guidance concerning the ability of a 

broker-dealer to provide advice that is “solely incidental” to its transaction execution services 

without being required to register as an investment adviser.279

 

277 Chamber of Commerce of the United States of America v. United States Department of Labor, 885 F.3d 360 (5th 

Cir. 2018).

278 Regulation Best Interest; Proposed Rule, 83 Fed. Reg. 21574 (May 9, 2018), https://www.gpo.gov/fdsys/pkg/FR2018-05-09/pdf/2018-08582.pdf (proposing SEC Interpretation Regarding Standard of Conduct for Investment 

Advisers); Proposed Commission Interpretation Regarding Standard of Conduct for Investment Advisers; Request 

for Comment on Enhancing Investment Adviser Regulation, 83 Fed. Reg. 21203 (May 9, 2018), 

https://www.federalregister.gov/documents/2018/05/09/2018-08679/proposed-commission-interpretation-regardingstandard-of-conduct-for-investment-advisers-request-for; Form CRS Relationship Summary; Amendments to Form 

ADV, Required Disclosures in Retail Communications and Restrictions on the Use of Certain Names or Titles; 

Proposed Rule, 83 Fed. Reg. 21416 (May 9, 2018), https://www.gpo.gov/fdsys/pkg/FR-2018-05-09/pdf/2018-

08583.pdf. See also FIO, 2018 Annual Report, 57 (describing SEC proposals).

279 Regulation Best Interest: The Broker-Dealer Standard of Conduct, 84 Fed. Reg. 33318 (July 12, 2019), 

https://www.federalregister.gov/documents/2019/07/12/2019-12164/regulation-best-interest-the-broker-dealerstandard-of-conduct.
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In the insurance context, Regulation BI applies to broker-dealer firms and their sales 

representatives making recommendations to retail customers of any transaction or investment 

strategy involving variable annuities, variable life insurance, and other insurance products that 

are registered as securities with the SEC.

Although Regulation BI does not specifically define the term “best interest,” it provides that 

broker-dealers and their registered representatives have a duty to act in the best interest of the 

client without putting their own interests ahead of those of the client. In announcing Regulation 

BI, the SEC stated that the new standard of conduct “substantially enhances the broker-dealer 

standard of conduct beyond existing suitability obligations” and draws from key fiduciary 

principles that cannot be satisfied through disclosure alone.280 A broker-dealer can meet the 

standard by satisfying specified duties of: disclosure (providing full and fair written disclosure 

concerning its relationship with the customer, materials fees and costs, and conflicts of interest); 

care (exercising reasonable diligence, care, and skill); and conflict management (establishing, 

maintaining, and enforcing written policies and procedures reasonably designed to identify and

disclose material facts about conflicts of interest, and in instances where disclosure is 

insufficient, to mitigate or, in certain instances, eliminate the conflict. Broker-dealers must fully 

comply with Regulation BI by June 30, 2020.

The response of state insurance regulators to the SEC’s package of rulemakings and 

interpretations presents a key regulatory coordination challenge for the U.S. states. Regulation 

BI applies to insurance products registered as securities; it does not apply to unregistered 

products such as fixed annuities.281 Accordingly, the states will decide the standard of conduct 

for insurance producers when recommending a fixed annuity to their customers.

In November 2017, partly in response to regulatory developments at the federal level, the 

NAIC’s Annuity Suitability Working Group began work on revisions to the Suitability in 

Annuity Transactions Model Regulation with the goal of creating greater uniformity across the 

states. The NAIC has stated that a high degree of harmonization across regulatory platforms 

would be beneficial to consumers and the industry, and that it hopes to continue a productive 

dialogue with the SEC, the Department of Labor, and other financial regulators as updates to the 

 

280 SEC, “SEC Adopts Rules and Interpretations to Enhance Protections and Preserve Choice for Retail Investors in 

Their Relationships With Financial Professionals,” news release, June 5, 2019, https://www.sec.gov/news/pressrelease/2019-89. The SEC sought to create a “fiduciary-like” standard that maintains the availability of the 

traditional commission-based broker-dealer business model. See 84 Fed. Reg. at 33330.

281 The return on a variable annuity is based on the performance of underlying investment funds; by contrast, the 

return on a fixed annuity is based on a credited rate of interest (which may or may not depend on changes in a 

market index), subject to a minimum guarantee. The market for fixed annuities, and fixed indexed annuities in 

particular, has outpaced the variable annuity market in recent years. According to LIMRA data, new sales of 

variable annuities totaled $100 billion in 2018, while fixed annuity sales reached $133.5 billion (including $70 

billion of indexed annuities).
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respective standards of conduct governing the sale of annuity products are considered.282

Following the SEC’s proposal of Regulation BI in April 2018, the working group has focused on 

similarities and differences between the model regulation and Regulation BI, including whether 

the Model Regulation should define the term “best interest.” At the NAIC’s Summer National 

Meeting in August 2019, the working group expressed its intent to present a revised draft of the 

model regulation to its parent committee prior to or at the Fall National Meeting.283

On July 18, 2018, the New York Department of Financial Services (NYDFS) finalized 

Regulation 187, which imposes a best interest standard on the sale of both annuity and life 

insurance products in New York.284 The regulation places a duty on the producer (or, where 

there is no producer, the life insurer) to ensure that a recommendation of an annuity or life 

insurance policy furthers the consumer’s needs and objectives when taking into consideration 

only the interests of the consumer and without regard to the producer’s or insurer’s financial 

compensation or incentives. The regulation became effective for annuity contracts on August 1, 

2019, and will become effective for life insurance products on February 1, 2020. It is unclear 

whether and to what extent other states may follow New York’s lead with respect to a best 

interest standard. However, given the sharply different views across the states on the appropriate 

standard of care, and notwithstanding the efforts of the NAIC’s working group, uniform adoption 

of a single standard appears unlikely.

B. Retirement Income

Congress has introduced two retirement security bills, the Setting Every Community Up for 

Retirement Enhancement (SECURE) Act of 2019 and the Retirement Enhancement and Savings 

Act of 2019 (RESA).

285 The SECURE Act and RESA contain substantially similar provisions to 

amend the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 

(ERISA) to modify requirements for tax-favored retirement savings accounts and 

employer-provided pension plans.

On August 4, 2019, the NAIC’s Life Insurance and Annuity Committee voted to form a new 

working group to implement the committee’s charge to explore ways to promote retirement 

 

282 See “Annuity Suitability & Best Interest Standard,” NAIC, last updated March 5, 2019, 

https://www.naic.org/cipr_topics/topic_annuity_suitability.htm.

283 NAIC, Meeting Summary Report, Annuity Suitability Working Group (August 3, 2019), 

https://naic.org/meetings1908/cmte_a_aswg_2019_summer_nm_summary.pdf.

284 NYDFS, 11 N.Y. Comp. Codes R. & Regs. Tit. 11, § 224 (July 17, 2018),

https://www.dfs.ny.gov/docs/insurance/r_finala/2018/rf187a1txt.pdf.

285 Setting Every Community Up for Retirement Enhancement Act of 2019, H.R. 1994, 116th Cong. (2019), 

https://www.congress.gov/bill/116th-congress/house-bill/1994; Retirement Enhancement and Savings Act of 2019, 

S. 972, H.R. 1007, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/senate-bill/972.
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security consistent with the NAIC’s Retirement Security Initiative.286 The Retirement Security 

Initiative focuses on three major areas: Education, Consumer Protection, and Innovation.287

C. Long-Term Care Insurance

In recent years, Treasury and FIO have commented on the growing social need for long-term 

care and the sharp contraction of the private LTCI market.288 As of year-end 2018, an estimated 

4.7 million individual LTCI coverages were in force,289 with LTCI policies paying $10.3 billion 

in claims to approximately 303,000 individuals during the year.290 Despite these contributions, 

the market for traditional, stand-alone LTCI policies continued to decline in 2018, as annualized 

premiums for new sales totaled $169 million, eight percent lower than in 2017; and the estimated 

number of Americans purchasing new policies (57,000) dropped 15 percent from the prior 

year.291 The number of insurers offering LTCI remained at an historical low (less than a dozen 

compared to more than 100 in the early 2000s).

As new sales of stand-alone LTCI policies continue to decline, some insurance distributors and 

consumers have turned to “combination” products, which combine a traditional life insurance 

policy (or less frequently, an annuity) with a long-term care benefit. After three consecutive 

years of premium growth, sales of individual life combination products slowed slightly in 2018, 

generating $4.3 billion in premiums, two percent lower than in 2017. However, new policy 

counts increased two percent year-over-year, with over 400,000 policies sold. Measured by new 

lives insured, combination products now represent more than 87 percent of the market for 

individual LTCI solutions.292

The financial performance of in-force LTCI policies remains a key issue for the insurance 

industry, investors, regulators, and policyholders. During 2018, LTCI carriers continued to 

increase their reserves (which are funds set aside to pay future claims), update the actuarial 

 

286 NAIC, Life Insurance and Annuity (A) Committee: Meeting Summary Report (August 4, 2019), 

https://naic.org/meetings1908/cmte_a_2019_summer_nm_summary.pdf.

287 See “Retirement Security,” NAIC, last updated January 14, 2019, 

https://www.naic.org/cipr_topics/topic_retirement_security.htm.

288 See, e.g., Treasury, Annual Report on the Insurance Industry (2017), 83-88, 

https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2017_FIO_Annual_Report.pdf (2017 

Annual Report) Treasury, Insurance EO Report, 143; FIO, 2018 Annual Report, 59-61.

289 LIMRA, U.S. Individual Long-Term Care Insurance (2018 Annual Review) (April 25, 2019), 7.

290 American Association for Long-Term Care Insurance, “Long Term Care Insurance Industry Paid $10.3 Billion in 

Claims in 2018,” news release, January 14, 2019, http://www.aaltci.org/news/long-term-care-insurance-associationnews/long-term-care-insurance-industry-paid-10-3-billion-in-claims-in-2018.

291 LIMRA, U.S. Individual Long-Term Care Insurance (2018 Annual Review), 3. According to LIMRA data, 

during the five-year period from 2014 through 2018, annualized new premiums for stand-alone LTCI decreased by 

60 percent, while the annual number of newly-issued policies decreased by 67 percent.

292 LIMRA, U.S. Individual Life Combination Products (2018 Annual Review) (July 10, 2019), 2, 10.
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assumptions behind their reserves, and provide more detailed disclosures of their reserving 

methodologies.293 One rating agency estimates that, because LTCI is a long-duration liability, 

most insurers will not reach their peak reserves for in-force business for another 10-15 years. 294 

Accordingly, uncertainty about the profitability of in-force business will persist, and ultimately 

will depend largely on the accuracy of actuarial assumptions. This uncertainty, combined with 

negative trends in claims experience caused by increased longevity and other factors,295 as well 

as ongoing questions regarding the ability to obtain regulatory approvals of premium rate 

increases, has led several major public companies to exit the LTCI market, creating a drain in 

capital.296 Concerns over the financial solvency of certain insurers, and the potential impact of 

insolvencies on state insurance guaranty associations, are also an important consideration for this

market.

297

State insurance regulators and the NAIC are actively reviewing a range of LTCI issues and 

potential policy changes to help stabilize and potentially grow the private market. The NAIC has 

 

293 See, e.g., GE, “GE Provides Update on Insurance Review; $6.2B After-Tax GAAP Charge in 4Q’17,” news 

release, January 16, 2018, https://www.ge.com/investorrelations/sites/default/files/pressrelease%20insurance%20011618_1_0.pdf ($9.5 billion GAAP charge and estimated 

statutory capital contributions of $15 billion over seven years relating to closed block of LTCI reinsurance); 

Genworth Financial, “Genworth Financial Announces Fourth Quarter 2018 Results,” news release, February 5, 

2019, http://investor.genworth.com/investors/news-releases/archive/archive/2019/Genworth-Financial-AnnouncesFourth-Quarter-2018-Results/default.aspx (largest issuer of in-force LTCI policies announces $327 million reserve 

increase based on annual review of assumptions and methodologies).

294 S&P Global Ratings, Following the Trail of U.S. Insurers’ Long-Term Care Assumptions (2019), 1, 

https://www.spratings.com/documents/20184/908539/LifeINSHT_Jan2419_Article4.pdf/2f9c6736-6f26-36ae-d32e3f2d8c265818.

295 The annual statutory loss ratio (the dollar amount of claims divided by premiums) rose from 55 percent in 2009 

to almost 100 percent in 2017. S&P Global, Following the Trail.

296 MetLife discontinued the sale of new LTCI coverage in 2010; Prudential followed suit in 2012; Unum stopped 

selling new individual LTCI policies in 2009 and new group LTCI policies in 2012; and John Hancock discontinued 

new LTCI sales in 2016. By 2018, none of the top five LTCI writers were owned by a public company; only one 

was organized as a stock company, and the other four were either mutual or fraternal insurers. By contrast, in 2009, 

six of the top ten LTCI writers were owned by public companies.

297 For example, a Pennsylvania-domiciled LTCI insurer is operating under a corrective action plan with the 

Pennsylvania Department of Insurance. The insurer reported a net loss of $500 million in 2018, including a $359 

million addition of premium deficiency reserves for the year, resulting in a negative $470 million capital and surplus 

position as of December 31, 2018. Tim Zawacki, “LTC Insurer Faces Corrective Action Plan After Posting Large 

Surplus Deficit,” S&P Global Market Intelligence, April 8, 2019, 

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/51012284. This development 

follows the court-ordered liquidation of two LTCI subsidiaries of Penn Treaty Corporation in March 2017, resulting 

in state guaranty association liabilities of approximately $3 billion to be paid out over decades. See National 

Organization of Life and Health Insurance Guaranty Associations, “Guaranty System to Provide Safety Net for 

Policyholders of Penn Treaty/American Network Insurance Companies,” news release, March 1, 2017, 

https://www.nolhga.com/resource/file/NOLHGAPennTreatyPressReleaseFINAL.pdf. When an insurer is liquidated, 

certain remaining claims are paid by the state guaranty association system and funded by assessments on solvent 

insurers in the relevant states.
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identified LTCI as the organization’s top priority for 2019, and formed an Executive Task Force 

on LTCI to focus on “developing a consistent national approach for reviewing long-term care 

insurance rates that result[s] in actuarially appropriate increases being granted by the states in a 

timely manner, and eliminates cross-state rate subsidization.”298 The task force is also 

responsible for identifying options to provide choices for consumers regarding modifications to 

LTCI contract benefits where policies are no longer affordable due to rate increases. At the 2019 

Summer National Meeting, the task force organized workstreams on six different topics. The 

first workstream is a multistate review of rate review practices, which is the centerpiece of the 

task force and will focus on different actuarial methodologies used by the states. The second 

workstream will explore alternatives for protecting policyholders from caps on state guaranty 

association coverage and potential inequities arising from the states’ inconsistent approaches to 

premium rate increase requests. The third workstream will focus on ensuring that policyholders 

understand their options when faced with a rate increase. The fourth workstream will evaluate 

the interaction between rate increase issues and reserving issues. The fifth workstream will 

address non-actuarial variances among the states when reviewing rate increases. The sixth 

workstream will consider whether the task force needs additional data to support its work. The 

task force intends to deliver a report on these issues to the NAIC Executive Committee by the 

2020 Fall National Meeting.299

State legislators and policymakers are also considering and implementing new approaches to the 

challenges of financing long-term care. In May 2019, Washington State signed into law the 

Long Term Care Trust Act.300 The Act provides an employment-based lifetime LTCI benefit of 

$36,500, indexed annually for inflation. The insurance covers services such as personal aides 

providing care at home, outfitting a home with a wheelchair ramp or similar support, adult day 

care, nursing home care, and residential options including an adult family home or assisted living 

facility. Beneficiaries can also use the benefit to provide financial support to family caregivers. 

Beginning in 2025, workers will be able to access their benefits after paying (via payroll 

withholding) into the program for ten years with no more than a five year break (or use 

alternative vesting by paying into the program for three of the last six years). Benefits will be 

funded by a payroll tax on employees of 58 cents per $100 of wages beginning January 1, 2022. 

The program is optional for self-employed workers. In a separate state initiative, Minnesota is 

reviewing two LTCI reform ideas: (1) a product targeted at middle-income consumers that 

begins as a traditional term life insurance policy but automatically converts the death benefit into 

LTCI at retirement age; and (2) creating a package of home care benefits—such as home-

 

298 “Long-Term Care Insurance (EX) Task Force,” NAIC, https://naic-cms.org/cmte_ex_ltci_tf.htm.

299 Hailey Ross, “NAIC Looks to Model Laws to Smooth Out LTC Rate Inconsistency Across States,” S&P Global

Market Intelligence, August 7, 2019, 

https://platform.mi.spglobal.com/web/client?auth=inherit#news/article?id=53355050.

300 See Dena Bunis, “Washington State Enacts Public Long-Term Care Insurance,” AARP, May 14, 2019, 

https://www.aarp.org/politics-society/advocacy/info-2019/washington-long-term-care-law.html; see also “Long 

Term Care Trust Act Factsheet,” Washingtonians for a Responsible Future,

https://www.agingwashington.org/files/2019/02/2019-Long-Term-Care-Trust-Act-Factsheet.pdf.
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delivered meals, housekeeping, some personal care services, and caregiver respite—and allowing 

the package to be offered on an added premium basis in Medigap and Medicare Advantage so it 

is complementary to Medicare.

301 Other states are actively considering a range of new 

approaches to the challenges of financing long-term care.

As provided in the Insurance EO Report, Treasury has convened an inter-agency task force led 

by Treasury’s Office of Economic Policy and including FIO, tax experts within Treasury, and 

representatives of the Department of Health and Human Services, the Centers for Medicare & 

Medicaid Services, the Internal Revenue Service, the Department of Labor, and the Office of 

Management and Budget.302 The purpose of the task force is to develop policies to complement 

reforms at the state level relating to the regulation of LTCI.303 The task force was organized in 

2018 and has been reviewing various proposals to reform federal laws and regulations relating to 

regulation of LTCI, including the ten federal policy options presented to Congress for its 

consideration by the NAIC in April 2017.304 The task force has consulted with a range of 

stakeholders, including trade groups, insurance companies and insurance product distributors, 

consumer and other advocacy groups, actuaries, academics, legal experts, state insurance 

regulators and the NAIC, and others with relevant knowledge. As part of its stakeholder 

engagement, the task force held a public meeting on July 25, 2019, and invited the public to 

submit written comments by August 30, 2019. The task force has also reviewed data, research, 

and published materials from private and public sources. The task force currently expects to 

issue a written report with its findings and recommendations in late 2019 or early 2020.

FIO will continue to monitor efforts at the federal and state levels (including the NAIC) to 

strengthen the private LTCI market while continuing to protect consumers, and will encourage 

federal and state policymakers to work with industry, consumer groups, and other stakeholders to 

more effectively regulate LTCI. For example, FIO will continue to monitor the extent to which 

the NAIC and the U.S. states are able to develop a consistent national approach for reviewing 

LTCI rates that results in actuarially-appropriate increases being granted by the states in a timely 

manner, and eliminates cross-state subsidization.

 

301 See Howard Gleckman, “Minnesota Considers Two New Ways To Pay For Long-Term Care,” Forbes, December 

18, 2018, https://www.forbes.com/sites/howardgleckman/2018/12/14/minnesota-considers-two-new-ways-to-payfor-long-term-care/.

302 “Federal Interagency Task Force on Long-Term Care Insurance,” Treasury, https://home.treasury.gov/policyissues/economic-policy/economic-policy-reports-and-notices/federal-interagency-task-force-on-long-term-careinsurance.

303 See Treasury, Insurance EO Report, 144.

304 NAIC, Long-Term Care Innovation (B) Subgroup: Federal Policy Options to Present to Congress (April 2017), 

https://www.naic.org/documents/cmte_b_senior_issues_related_ltc_federal_policy_issues.pdf.
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D. InsurTech

“InsurTech,” the insurance analogue to “Fintech,” can be defined as the innovative use of 

technology in connection with insurance. InsurTech encompasses diverse technological 

developments, including: AI and other forms of machine learning; “big data”—that is, the 

ability to gather large volumes of data, often from multiple sources, and produce new kinds of 

observations, measurements, and predictions with such data;

305 blockchain (distributed ledger 

technology); cloud infrastructure; drones; IoT; smartphone apps; and peer-to-peer, usage-based, 

and on-demand insurance. While advances in insurance industry technology have matured more 

slowly than in other areas of financial services, there has been increasing momentum over the 

last few years. For example, by one count there are now approximately 1,500 InsurTech startups 

operating globally, with over $9 billion in disclosed capital commitments to InsurTech 

investments over the past five years.

306

FIO has been monitoring and reporting on InsurTech issues for several years, including 

identifying areas of potential competitive or regulatory concern for regulators, policymakers, the 

private sector, and consumers.

307 In addition, Treasury’s FACI (discussed in Section III.A.4 of 

this Report) has addressed InsurTech-related topics at several meetings, such as the May 2018 

meeting discussing blockchain initiatives and InsurTech accelerators.308

More recently, FIO engaged in extensive stakeholder outreach and analysis of InsurTech. This 

new initiative was preceded by Treasury’s Fintech EO Report, which concluded that lawmakers, 

policymakers, and regulators should:

take coordinated steps to encourage the development of innovative insurance 

products and practices in the United States. Domestically, this includes 

consideration of improving product speed to market, creating increased regulatory 

flexibility, and harmonizing inconsistent laws and regulations. Treasury’s Federal 

Insurance Office ... should work closely with state insurance regulators, the 

NAIC, and federal agencies on InsurTech issues. 309

 

305 See, e.g., FIO, Report on Protection of Insurance Consumers and Access to Insurance (2016), 5, 

https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2016_FIO_Consumer_Report.pdf. 

306 Jackson Mueller, InsurTech Rising: A Profile of the InsurTech Landscape (2018), 3, 

https://assets1b.milkeninstitute.org/assets/Publication/Viewpoint/PDF/InsurTech-Rising-12.4.18.pdf.

307 See, e.g., FIO, 2017 Annual Report, 63-70; FIO, 2018 Annual Report, 61-64.

308 Open Meeting of the Federal Advisory Committee on Insurance, 83 Fed. Reg. 19140 (May 1, 2018), 

https://www.federalregister.gov/documents/2018/05/01/2018-09217/open-meeting-of-the-federal-advisorycommittee-on-insurance. See also “Federal Advisory Committee on Insurance (FACI),” Treasury, last updated 

August 28, 2019, https://www.treasury.gov/initiatives/fio/Pages/faci.aspx.

309 Treasury, Fintech EO Report, 144.
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In the spring and summer of 2019, FIO discussed InsurTech issues with over three dozen 

insurance industry stakeholders, including insurers, reinsurers, InsurTech startups, tech 

companies, accelerators/incubators, trade associations, academics, consumer groups, consultants, 

and lawyers. While various policymakers are examining InsurTech issues,310 FIO, through its 

role as the source of insurance expertise in the federal government, can provide a national 

perspective on these important issues. To that end, this Report provides a summary and analysis 

of FIO’s recent InsurTech outreach and InsurTech-related work, organized around three topics: 

(1) market overview, (2) innovation and its impact, and (3) regulatory frameworks and reforms. 

Increasing amounts of data and digitalization also present issues relating to cyber insurance and 

cybersecurity; those issues are separately addressed in Section III.C of this Report.

1. Market Overview

InsurTech has gained prominence in the past ten years, as investment in the insurance sector 

specifically targeted towards technology has risen.311 InsurTech startups have received 

significant investments and significant attention, with some viewing “InsurTech” as synonymous 

with “startup.”

InsurTech startups generally fall into one of three categories: (1) “full stack,” (2) managing 

general agents (MGAs), or (3) technology service providers (TSPs).312 A full stack company is a 

fully-licensed insurer that underwrites its own policies, assumes the risk, and typically also 

manages the claims process. An MGA, in contrast, may be the sole company to directly interact 

with a customer, but partners with an insurer that will assume the risk and ultimate liability for 

any claims. MGAs may work with a single insurer, serving as an “agent” platform for that 

insurer, or they may provide customers with a choice of insurers and thus serve as a “broker” 

platform. TSPs can provide a variety of services throughout the insurance value chain, which 

typically includes the elements shown in Figure 4.

 

310 See, e.g., U.S. Government Accountability Office, Insurance Markets: Benefits and Challenges Presented by 

Innovative Uses of Technology (2019), https://www.gao.gov/assets/700/699561.pdf; House Committee on Financial 

Services, “Committee Passes Bills to Promote Innovation, Strengthen the Financial System and Protect Consumers, 

Small Businesses and Investors,” news release, May 9, 2019, 

https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=403739 (noting the passage of 

resolutions to establish the Task Force on Financial Technology and the Task Force on Artificial Intelligence); 

“InsurTech, Innovation & Technology,” NAIC, https://www.naic.org/index_innovation_technology.htm.

311 See, e.g., Mueller, InsurTech Rising, 3 (noting that startups’ “growth and proliferation . . . began to accelerate in 

2010, largely driven by an increase in venture capital funding”).

312 See, e.g., Mueller, InsurTech Rising, 5-6.
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Figure 4: Insurance Value Chain

Source: FIO

InsurTech startups are involved in product offerings throughout the insurance industry, including 

auto insurance, life insurance, homeowners and renters insurance, title insurance, commercial 

insurance, travel insurance, and specialty products. Stakeholders noted, however, that most 

InsurTech deals focus on personal lines, rather than commercial lines.313 In addition, funding for 

innovation in life and annuity products generally lags behind that in P&C products.314

Sufficient capital is available for InsurTech startups and innovation investment. Figure 5 shows 

global InsurTech investment between 2012 and 2018. The second quarter of 2019 saw the 

announcement of 69 InsurTech deals with a total value of $1.41 billion—the fourth straight 

quarter with over $1 billion in InsurTech funding.315

 

313 See also Willis Towers Watson, Willis Re, and CB Insights, Quarterly InsurTech Briefing Q2 2019 (2019), 28-

35, https://www.willistowerswatson.com/en-US/Insights/2019/07/Quarterly-InsurTech-Briefing-Q2-2019 (listing 

InsurTech transactions in second quarter; based on descriptions, the majority of products involve personal lines than 

commercial lines, although they are not clearly delineated as such). The InsurTech startups getting the most press 

attention generally tend to be in the personal lines. See, e.g., Tim Zawacki, “U.S. P&C Industry’s Fastest-Growing 

Insurer Takes Root as InsurTech Flourishes,” S&P Global Market Intelligence, May 29, 2019, 

https://platform.mi.spglobal.com/web/client?auth=inherit&overridecdc=1&#news/article?id=52020074&KeyProduc

tLinkType=6. Compare “AI-Based InsurTech Cytora Raises $32.5 Million, With Focus on Commercial Insurance,” 

Carrier Management, April 22, 2019, https://www.carriermanagement.com/news/2019/04/22/192346.htm. 

314 See Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 28-35 (listing second quarter funding 

rounds totaling over $880 million involving 49 P&C InsurTech startups, as compared to funding rounds totaling 

over $300 million involving 18 L&H InsurTech startups).

315 Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 24.

Product Design 

& Approval Marketing Underwriting & Rating

Policy 

Administration

Claims 

Management

Finance & Asset 

Management
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Figure 5: Global InsurTech Investments ($ billions)

Source: CB Insights; Willis Towers Watson

Observers have noted a “shift toward later-stage investments.”316 In the second quarter of 2019, 

“early stage funding volume hit its lowest market since Q3 2017, emphasizing the consolidation 

toward the later stages,”317 as shown in Figure 6. However, even the most recent data 

demonstrate that over half of investments are in the early seed and Series A stages, rather than in 

the later Series B through E+ stages.

Figure 6: InsurTech Transactions by Investment Stage

Source: Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 27

 

316 Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 1.

317 Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 24.

$0.09 $0.13 $0.23

$1.41

$0.74

$1.08

$2.15

$0.26 $0.15 $0.64

$1.30

$0.94

$1.15

$2.00

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

2012 2013 2014 2015 2016 2017 2018

Investment Amount ($billions)

Year

P&C Life

41%

23%

13%

5%

2%

3%

13%

2012-Q2 2019

33%

23%

18%

3%

4%

7%

12%

Q2 2019

Seed/Angel

Series A

Series B

Series C

Series D

Series E+

Other
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While InsurTech startups are a significant part of the InsurTech landscape, established insurers, 

reinsurers, agents, and brokers (the “industry incumbents”) also are significant InsurTech 

participants. Not only are industry incumbents innovators, they also are significant investors in 

technology, whether through: (1) an internal business unit focused on innovation; (2) an 

affiliated entity that makes venture capital deals; and/or (3) investing their own funds in 

InsurTech startups.318 In the second quarter of 2019, the number of strategic technology

investments by insurers and reinsurers hit a record high since the tracking of InsurTech deals

began in 2012, as shown in Figure 7.

319 

Figure 7: Technology Investments by Insurers and Reinsurers (Number of Deals)

Source: Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 37

Commentators have noted that, compared to other areas of Fintech, “the interaction between 

industry incumbents and new entrants in the development of InsurTech generally involves more 

cooperation and collaboration than direct competition and disruption.”320 Stakeholders generally 

agreed that InsurTech startups are not currently disrupting the insurance industry. For example, 

one recent analysis noted that less than 10 percent of InsurTech investments to date have flowed 

into startups targeting full-scale value chain disruption.321

 

318 See, e.g., Mueller, InsurTech Rising, 10 (“Investment in InsurTech continues to climb, but unlike what we have 

seen in several other FinTech verticals, investment is increasingly driven by incumbents and not solely from the 

venture capital space”).

319 Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 1, 25.

320 Mueller, InsurTech Rising, 3.

321 Mueller, InsurTech Rising, 11-12.

1 4

29

66

105

119 118

66

0

20

40

60

80

100

120

2012 2013 2014 2015 2016 2017 2018 2019

Q1+Q2

Number of Deals

Year
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InsurTech startups’ preferences for improving existing insurance industry structures—rather than 

disrupting them—is unsurprising. One study noted the “complementary strengths” of established 

insurers and InsurTech startups, with startups “offering better value for money and timely and 

efficient service” and established insurers “offering superior security, brand identity, and support 

for personal interaction.”322 Moreover, commentators have noted that while InsurTech startups 

“may be experts in harnessing new technology, they have little know-how when it comes to 

mainstay tasks like managing risk or navigating regulations. Nor do they have large capital 

reserves for scaling up the business.”323

In the near term, most industry incumbents appear to have adopted a three-fold “build, partner, 

buy” InsurTech strategy: build capabilities in-house, partner with InsurTech startups, and buy 

InsurTech startups when warranted. They also often work with accelerators, incubators, and 

InsurTech hubs in these efforts.324

Industry incumbents are also seeking out technology to fulfill identified needs, rather than 

investing in promising technology without a specific need in mind. These needs include 

improving the customer experience, and improving efficiency in underwriting, claims handling,

and other processes.

In sum, the InsurTech market is maturing. Private equity capital for InsurTech is plentiful, as 

shown in Figures 5 through 7. Partnerships, joint ventures, acquisitions, industry incumbents’ 

in-house investments, and overall higher spending on TSPs are all fueling InsurTech growth. 

Additionally, insurers are increasingly discussing InsurTech issues at the senior executive level, 

with many industry incumbents creating innovation-specific positions such as Head of 

Innovation and Chief Digital Officer. Rating agencies are also increasingly stressing the 

importance of innovation.325

2. Innovation and its Impact on the Insurance Industry

Innovation and market adaptation have always been important within the insurance industry, 

although the pace of innovation in the InsurTech sector has lagged behind other areas of 

financial services. In this sense, InsurTech has helped provide a label to an ongoing evolution of 

insurers seeking to meet consumer demands and remain competitive. Given recent explosive 

growth in reliance on digital devices and processes in the economy and consumers’ daily lives, it 

 

322 Capgemini and Efma, World Insurance Report 2017 (2018), 7, https://worldinsurancereport.com/wpcontent/uploads/sites/6/2018/10/World-Insurance-Report-2017.pdf. 

323 Capgemini and Efma, World Insurance Report 2017, 7.

324 See, e.g., Mueller, InsurTech Rising, 15-16.

325 See, e.g., A.M. Best, “AM Best Requests Comments on Draft Criteria: Scoring and Assessing Innovation,” news 

release, March 14, 2019, http://news.ambest.com/presscontent.aspx?altsrc=108&refnum=27732.
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is unsurprising to see that the pace of innovation has begun to accelerate within the insurance 

industry as well.326

The evolution of innovation generally can be divided into three stages. First, a company’s 

“core” initiatives seek to improve on current product offerings to enhance the consumer 

experience. Next, “adjacent” offerings involve examining near-term developments (within the 

two- to seven-year range) which represent a natural outgrowth of the company’s core offerings. 

Finally, a company’s “transformational” offerings maintain a focus on creating innovative 

products and markets for the future.

Until recently, InsurTech has focused on core initiatives—such as streamlining distribution—and 

spent less time looking at adjacent and transformational offerings. Aging hardware and business 

infrastructure are key constraints restricting the industry’s technological advancement. Larger 

insurers often develop new systems in parallel with their legacy systems, finding parallel 

development more efficient and cost-effective than attempting to upgrade existing systems. 

However, smaller insurers with fewer resources may find it more difficult to update their systems 

and remain competitive. Stakeholders cited additional reasons for the delay in industry-wide 

transformation, including regulatory constraints (discussed further in Section V.D.3 of this 

Report) and the general tendency of the insurance industry to adhere to its traditional processes. 

Rather than being “disruptive,” these core technologies facilitate existing processes to enhance 

the customer experience and improve business workflows.327 They may also pave the way for 

adjacent and transformational offerings.

The pace of modernization within the insurance industry reflects iterative approaches that are an 

essential part of innovation, allowing entities to create, learn, adapt, and grow before making 

significant investments in a certain technology. Many entities, particularly those with fewer 

resources, may also want more certainty about the future regulatory and market environment, 

and remain cautious about moving forward with new technology until it is proven effective and 

scalable. Stakeholders in the L&H sector, in particular, are cautious about innovation in 

underwriting because once a policy is issued, it can remain in force for decades. The pace of 

development also varies by line of insurance, with the majority of digital innovation occurring

within personal lines of insurance, particularly in the area of distribution.

Despite these limitations, some insurers are actively looking to drive transformational change. 

Stakeholders have proposed a number of ways that technology could enhance various aspects of 

insurance, including underwriting, mitigation, operations, claims processing, and customer 

interactions. Some stakeholders noted that InsurTech may also expand the ability to underwrite 

previously “uninsurable” risks or persons by decreasing the cost of underwriting and making 

new risks more cost-effective. Other stakeholders noted that benefits to some consumers—

whether in terms of pricing, availability, and user experience—might need to be balanced against 

increased pricing and reduced availability for other classes of consumers. The net effects of 

 

326 See Bansi Nagji and Geoff Tuff, “Managing Your Innovation Portfolio,” Harvard Business Review, May 2012, 

https://hbr.org/2012/05/managing-your-innovation-portfolio.

327 See Mueller, InsurTech Rising, 25 (“At this point, InsurTech is simply driving greater efficiencies and offering 

multiple ways to address the lack of customer centricity embedded in the current insurance marketplace”).
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InsurTech and innovation on product availability and pricing for consumers will likely be the 

subject of further discussions among policymakers.

Any transformation of the insurance sector will also be driven by external factors. For example, 

as described below in Section V.D.2.e of this Report, the P&C industry will need to adapt to the 

new risks and benefits of autonomous vehicles. Stakeholders noted that the L&H industry will 

need to keep pace with medical innovations such as whole genome sequencing, liquid biopsies, 

electronic health records, epigenetics, and gene therapy.

As these examples suggest, the pace of InsurTech development and adoption will continue to 

vary by sector. While some forms of technology are applicable to both the P&C and L&H 

sectors, each sector has also adapted specified technologies to fulfill its needs. For example, a 

P&C insurer may focus on using wearables to reduce workplace accidents while a L&H insurer 

would apply similar technology to track fitness levels. Stakeholders also reported that the L&H 

sector generally lags behind the P&C sector in innovation, but suggested that technology applied 

in the P&C sector could be modified for application in the L&H sector in the future.

328

a) Digital Distribution and Marketing

The distribution of insurance products is an area that has been regularly targeted for InsurTech 

advancement. Stakeholders indicated that the InsurTech startups receiving the most investments

have focused on distribution.

329 Stakeholders also reported that incumbent insurers have 

improved their distribution channels by purchasing or partnering with startups, or building their 

own technology, modeled after innovations in the broader financial services sector.330 Insurers 

have modified their distribution models in many ways, from the creation of smartphone apps, 

e-delivery, the use of chatbots, and the adoption of digital performance marketing through 

platforms such as Instagram and YouTube, to the deployment of application programming 

interfaces (APIs).

APIs provide new methods of distribution and mechanisms to reach new policyholders. They

serve as a core infrastructure used to integrate and connect third-party application software and 

services.331 APIs can introduce insurers to potential policyholders by bundling insurance with 

other types of products, allowing insurers to simplify and encourage the purchase of insurance 

products by offering a single point of entry for consumers. By offering products through APIs 

and alternative distribution channels, insurers can increase their potential reach by targeting 

consumers who would not otherwise consider purchasing insurance. Stakeholders described 

APIs and alternative distribution channels as ways to provide access to people who may know 

 

328 Accenture, The Rise of InsurTech (2017) 8, https://financialservices.accenture.com/rs/368-RMC-681/images/therise-of-insurtech-pov.pdf.

329 See also Willis Towers Watson et al., Quarterly InsurTech Briefing Q2 2019, 24 (noting: “Distribution-focused 

start-ups continue to dominate deal count, recording 55% of deals in Q2 2019”).

330 Treasury’s Fintech EO Report provides a broad overview of technological innovation in the broader financial 

services sector. See generally Treasury, Fintech EO Report.

331 See generally “What are APIs,” Red Hat, https://www.redhat.com/en/topics/api.
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they “should” have insurance but have not taken action to obtain it. For example, there could be 

a time when combining an API (on, for example, a website that helps prospective parents prepare

for the birth of a child) with accelerated underwriting could simplify the process sufficiently that 

an otherwise-reluctant individual would apply for a life insurance policy.

b) The Growth of Big Data and Complex Models

The potential applications of “big data” remains a critical issue for InsurTech. New data are

becoming available at an exponential rate, and much of these data could be available for use by

insurers. Reports estimate that 90 percent of the world’s data have been created since 2016 and 

that, by 2025, 49 percent of the world’s stored data will be located in public cloud 

environments.332 Data generated in real-time are also expected to grow from 15 percent today to 

30 percent by 2025, which will result in the increased availability of current and accurate data 

with big data applications.333 Stakeholders identified information collected from IoT sensors, 

wearables, and online activity as potential data sources that could be mined to enhance 

underwriting capabilities and improve the consumer experience; in addition, third-party data 

vendors and sources (such as social media) provide access to additional sources of data.

Core innovation involving big data analytics has generally focused on improving the customer 

experience, but has not yet ventured to the same degree into underwriting. Stakeholders noted 

that new data sources already allow insurers to price risk by examining individual actions, such 

as using a telematics device to monitor an individual’s driving habits rather than relying on 

actuarial studies based on aggregated historical data for similar classes of drivers. In the future, 

increased availability of data could allow insurers to create additional rate classes and price risk 

more accurately, and potentially provide coverage to individuals who were previously 

uninsurable or could only purchase insurance at steep rates. On the other hand, risk 

segmentation could also result in situations where insurers withdraw from certain markets and 

products may not be equally available to consumers. Covering additional risks would require 

new sources of capital, which may present additional hurdles for insurers. Further subdividing 

rate classes could also potentially lead to growth in the residual market—or result in rate classes 

so small they would effectively eliminate the risk pooling nature of insurance itself.

Currently, big data typically is processed through increasingly complex models. In addition, 

some stakeholders raised concerns that the complexity of big data models makes it extremely 

difficult to determine whether a certain data element is serving as a proxy for a prohibited 

discriminatory factor. Others countered that insurers have a long history of identifying unfairly 

 

332 Bernard Mar, “How Much Data Do We Create Every Day? The Mind-Blowing Stats Everyone Should Read,” 

Forbes, May 21, 2018, https://www.forbes.com/sites/bernardmarr/2018/05/21/how-much-data-do-we-create-everyday-the-mind-blowing-stats-everyone-should-read; David Reinsel, John Gantz, and John Rydning, The Digitization 

of the World: From Edge to Core, IDC (2018), 4, https://www.seagate.com/files/www-content/ourstory/trends/files/idc-seagate-dataage-whitepaper.pdf.

333 Reinsel et al., Digitalization of the World, 13.
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discriminatory rating factors and therefore are well suited to do the same with any new data 

sources and models.

Policy discussions about the use of big data in insurance may be influenced by the outcome of 

ongoing debates about data ownership and privacy. For example, one issue is whether complex 

models can be created and maintained while complying with data privacy laws. (For more on 

data regulation, see Section V.D.3.c of this Report.) Given the importance of data in risk rating

and underwriting, some stakeholders have advocated for federated data sources or data 

portability that allow consumers to take advantage of their data when they move to a new 

insurer.334 As policymakers consider and adopt data privacy laws, an increasingly-important

question will be how the rights of consumers to access their individual data will affect insurers’ 

ability to use such data. As the quantity of available data exponentially increases, responsible 

management and maintenance to ensure data accuracy and security will be important issues.

c) Artificial Intelligence, Machine Learning, Deep Learning, and Predictive 

Analytics

AI, machine learning, and deep learning have significant potential to better harness the power of 

big data and improve the insurance value chain. These three concepts have distinct meanings. 

AI refers to the concept of using algorithms to create machines capable of handling complex or 

“smart” tasks. Machine learning is an advanced subset of AI in which machines make predictive 

calculations based on analysis of prior data; in a sense “learning” from previous data. Deep 

learning techniques—also known as “neural networks”—are an advanced form of machine 

learning that can be thought of as state-of-the-art technology designed to simulate human 

decision-making.335

Many insurers have already begun using AI techniques to communicate with customers through 

virtual assistants or chatbots, and several startups have developed their business models entirely 

around the use of AI communications. This development has occurred partially in response to 

 

334 Federated data is presented to a user in a single interface, but the data is decentralized and stored in external 

databases. Use of federated databases would allow multiple insurers to have access to the same data. See generally

“Federated Systems,” IBM Knowledge Center, 

https://www.ibm.com/support/knowledgecenter/en/SSFMBX/com.ibm.data.fluidquery.doc/topics/cfpint01.html.

335 Because machine learning and deep learning are subsets of AI, the remainder of this section will use AI to refer 

to concepts involving AI, machine learning, and deep learning. For more on the primary differences between the 

concepts of AI, machine learning, and deep learning, see Bernard Marr, “What is the Difference Between Artificial 

Learning and Machine Learning?” Forbes, December 6, 2016,

https://www.forbes.com/sites/bernardmarr/2016/12/06/what-is-the-difference-between-artificial-intelligence-andmachine-learning; Bernard Marr, “What’s the Difference Between Deep Learning, Machine Learning and AI?,” 

Forbes, December 8, 2016, https://www.forbes.com/sites/bernardmarr/2016/12/08/what-is-the-difference-betweendeep-learning-machine-learning-and-ai.
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consumer demand for non-traditional communication options that can be done via mobile app or 

website, rather than on the phone or in person.

Insurers are also using AI to perform a wide variety of tasks that could be burdensome and 

time-consuming for humans. For example, AI can be used to analyze policy language for new

purposes, such as reviewing large numbers of in-force policies to identify the presence of 

non-affirmative cyber coverage.336 According to one estimate, twenty percent of insurers have 

invested in AI technology to improve fraud detection capabilities.

337 Munich Re announced 

plans to use AI-enabled software to assess hurricane damage to insured homes, with the goal of

expediting the payment of claims.338 In the L&H sector, Verisk has partnered with a health data 

consolidation platform to review electronic health records, which will be leveraged for faster and 

more accurate policy underwriting.339 Using AI may also lead to higher quality results: Aon has 

stated that its application of AI technology to gather data from historical insurance documents 

uncovered 170 million potential data points that will be used to understand the underlying causes 

of claims, determine loss ratios, and develop benchmarks, while the manual data extraction 

process lost 95 percent of valuable data.340

Predictive analytics is another area where AI has significant potential. Predictive analytics uses 

models created by algorithms that predict the likelihood of future risk. By applying AI 

technology, a model gains the ability to engage in automated pattern recognition and 

self-learning. The ability to develop predictive models that continuously refine themselves could 

result in faster and more accurate underwriting. Predictive analytics using AI remains in its 

infancy, and the industry will need to overcome challenges related to data quality and familiarity 

with the technology before its use will become widespread.341 One constraint on using AI in 

 

336 See Martin Davidson, “Silent Cyber: The Danger Lying Buried in Your Insurance Policy,” Insurance Times, 

September 6, 2018, https://www.insurancetimes.co.uk/corporate-insight/silent-cyber-the-danger-lying-buried-inyour-insurance-policy/1428130.article. For more information on non-affirmative cyber coverage, see Section 

III.C.1 of this Report.

337 Anne Rawland Gabriel, “Insurers’ Anti-Fraud Tech Budgets on the Rise,” Digital Insurance, April 8, 2019, 

https://www.dig-in.com/news/insurers-anti-fraud-tech-budgets-on-the-rise.

338 Charlie Wood, “Munich Re to Deploy Hi-Res Imagery, AI for Faster Hurricane Claim Payments,” Reinsurance 

News, April 30, 2019, https://www.reinsurancene.ws/munich-re-to-deploy-high-res-imagery-ai-for-faster-hurricaneclaim-payments/.

339 Charlie Wood, “Verisk Looks to Improve Life Insurance Underwriting with Human API Partnership,” 

Reinsurance News, April 29, 2019, https://www.reinsurancene.ws/verisk-looks-to-improve-life-insuranceunderwriting-with-human-api-partnership/.

340 Luke Gallin, “Aon Uses Artificial Intelligence to Extract Critical Data Insights from Historical [Insurance] 

Documents,” Intelligent Insurer, April 11, 2019, https://www.intelligentinsurer.com/news/aon-uses-artificialintelligence-to-extract-critical-data-insights-from-historical-documents-18084.

341 See Tom Bigham, et al., Deloitte, AI and Risk Management: Innovating with Confidence (2018), 5, 24, 

https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/risk/lu-ai-and-risk-management.pdf (noting that 

“adoption of AI in [financial services] is still in its early stages” and “[a]n absence of large sets of high quality data 

is, in general, one of the major obstacles to the application of AI solutions.”).
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predictive analytics is that insurers are generally hesitant to mine external data sets for risk 

assessment purposes because the bulk of externally-generated data is unformatted and may 

represent incomplete data sets. This issue is compounded when considering third-party data 

sources. Increasing interest in InsurTech has attracted many generalist data brokers who may not 

understand how data is used in the insurance industry. Startups focusing on data analytics may

not have an insurance background and may be ill-equipped to comply with the insurance 

regulatory framework and its data regulations. Although AI is making it easier for insurers to 

organize unstructured data, it remains difficult to determine which data elements may be 

predictive in nature for insurance purposes.

342 Going forward, policymakers will need to 

continue addressing issues related to big data management, use of federated data, and advances 

in AI sophistication.

d) Telematics and IoT Sensors

The use of telematics in auto insurance has been at the forefront of core InsurTech innovation. 

Personal auto insurance involves a relatively homogenous set of risks and the data received from 

telematics devices is easily translated into a level of risk. Initially, auto insurers primarily relied 

on plug-in devices to collect vehicle sensor data related to driving habits, such as acceleration, 

hard braking, speed, and mileage. More recently, many insurers have added the option for 

policyholders to use their mobile phones instead of a plug-in device. Not only does this allow 

insurers to track additional behaviors—such as phone usage while driving—it also gives insurers 

the opportunity to provide real-time feedback and encourage safer driving habits. In the future, 

the expanded use of mobile phones as telematics devices could provide new sources of data for 

auto insurers and other industry participants.

The popularity of vehicle telematics has served as a valuable example for scaling the use of 

sensors for other forms of insurance. Insurers are exploring the use of sensors in homeowners’ 

insurance to alert homeowners of risks such as leaking pipes, fire, and theft. Insurers are also 

navigating the regulatory landscape to determine how IoT devices can be supplied to 

policyholders for mitigation purposes without violating anti-rebating statutes. (For more on antirebating reform proposals, see Section V.D.3.a of this Report.) However, growth in this area has 

been limited by the nature of IoT data. The majority of data received in a connected IoT 

ecosystem is unstructured, and insurers will only be able to better identify new ways to 

understand loss from this data once analytics capabilities have further matured.343

 

342 Unstructured data is the term used to describe “free-form” data that does not adhere to strict organization or 

protocols, such as human speech or text. See generally Jayant Lakshmikanthan, “Role of Unstructured Data in AI,” 

Insurance Thought Leadership, April 16, 2019, http://insurancethoughtleadership.com/role-of-unstructured-data-inai/. 

343 “A.M. Best Webinar: How the Internet of Things is Remaking Homeowners Insurance,” April 24, 2019, 

http://www3.ambest.com/conferences/events/eventregister.aspx?event_id=WEB618.
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IoT devices also highlight the tension between consumer demand for convenience and concerns 

about data privacy. Although over two-thirds of the world’s population owns more than one IoT 

device, 63 percent of people have admitted to finding connected devices “creepy” and 75 percent 

expressed distrust in the way their data are shared.344 The variety of data collected by IoT 

combined with this consumer distrust may create complications for insurers seeking to obtain 

informed consent to use IoT sensor data.

The popularity of “wearables” like smart watches and fitness trackers are also providing insurers 

with valuable sensor data. On the P&C side, stakeholders indicated that wearable sensors are 

being used to identify repetitive stress injuries and reduce workers’ compensation claims. In the 

future, wearables could also have anti-fraud implications by providing data indicating where an 

individual was and what the individual was doing at the time of the claim. L&H insurers are also 

finding wearables a useful method of collecting health data and using this information to provide 

feedback to policyholders. One stakeholder from an L&H insurer added that wearables are 

creating coverage opportunities for individuals with chronic illness who were previously 

uninsurable.

As with vehicle telematics, insurers are hopeful that expanding use of sensors will enable them to 

provide real-time feedback to policyholders and mitigate risk. At the same time, these sensors 

can create new risks, some of which could be quite severe. Many studies have demonstrated the 

significant vulnerability of IoT technology to security threats.345 Not only does a compromised 

device create cyber risk, it can interfere with the intended functions of the device to detect other 

risks such as fire, flood, or theft.346

As with other technologies, use of telematics and sensors is expected to continue to scale within 

personal lines and eventually find additional applications in commercial lines of insurance.

e) Emerging Technologies

Advancements in data and distribution are resulting in the development of emerging 

technologies. Because these technologies are unlikely to fully mature as core innovations, they

will have the most impact as near-term and transformational innovations.

 

344 Consumers International and the Internet Society, The Trust Opportunity: Exploring Consumers’ Attitudes to the 

Internet of Things (2019), 3, 7, https://www.internetsociety.org/wp-content/uploads/2019/05/CI_IS_Joint_ReportEN.pdf.

345 See, e.g., Deepak Kumar et al., All Things Considered: An Analysis of IoT Devices on Home Networks (2019) 

https://press.avast.com/hubfs/stanford_avast_state_of_iot.pdf.

346 Bako Ali and Ali Ismail Awad, “Cyber and Physical Security Vulnerability Assessment for IoT-Based Smart 

Homes,” Sensors, March 8, 2018, 9, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5876893/pdf/sensors-18-

00817.pdf.
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Figure 8: Emerging Technologies

Visual 

Computing

Recognize facial 

characteristics to pre-fill 

data (age, gender, etc.)

Blockchain

Assess damage to 

property for loss 

estimate

Sensors and 

Telematics

Detect water leaks in 

homes

Provide customers with 

theft alerts

AI

Provide feedback to 

encourage safer driving

“Self-teaching” 

underwriting models

Detect fraud

Detect repetitive stress 

injuries to mitigate WC 

claims

Automate notification 

of death for payment of 

life benefits

Manage reinsurance 

contracts

Automate claims 

payments

Communicate with 

customers using 

chatbots

Improve portability of 

customers’ historical 

data

Improve driver safety in 

autonomous vehicles

Share risk data for cyber 

underwriting

Source: FIO

Blockchain. The profile of blockchain as an emerging technology for insurance has increased in 

recent years.

347 The value of blockchain lies in its ability to make information on the blockchain 

universally accessible to all users in real-time. Blockchain has a variety of potential insurance 

and reinsurance applications. For example, in the future, blockchain technology could be used to 

manage reinsurance contracts and instantly pay out claims, verify claims information to reduce 

fraud, manage capital, or share information between regulators and insurers.348 Stakeholders 

suggested that blockchain could be a good option for insurers who rely heavily on legacy 

systems, because they could “leapfrog” directly to blockchain technology when updating their 

systems. In addition, insurers currently underwrite the same risks in a variety of ways, and 

blockchains could encourage more standardization.

Blockchain technology also could be used to manage smart contracts. Smart contracts are 

programmed to execute automatically when a specified condition has been met. In the context of 

blockchain, the smart contract’s code “can be stored and processed on a distributed ledger 

and . . . write any resulting change into the distributed ledger.”349 Parametric triggers are gaining 

 

347 For additional background information on blockchain, see FIO, 2018 Annual Report, 62.

348 See CB Insights, How Blockchain Could Disrupt Insurance (2019), 

https://www.cbinsights.com/research/blockchain-insurance-disruption/.

349 Chamber of Digital Commerce, Smart Contracts: Is the Law Ready? (2018), 10, 

https://digitalchamber.org/smart-contracts-whitepaper/.
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traction as an option for insuring against natural disasters, and stakeholders suggested that 

blockchain smart contracts could be used to quickly pay claims or cover policyholders’ 

temporary expenses after a disaster occurs. A drawback is that parametric triggers do not result 

in payment tailored to the extent of loss; the pre-established payment amount will inevitably 

result in some form of overpayment (for policyholders who experienced minor loss) or 

underpayment (for policyholders who experienced severe loss).

Stakeholders noted that the potential use of blockchain will likely raise legal and regulatory 

concerns that will need to be resolved before blockchain will be a more viable technology for the 

insurance industry.350 One of the biggest potential challenges for blockchain is how it will 

comply with emerging data privacy laws, as discussed further in Section V.D.3.c of this Report.

Auto Insurance Innovations. Changes in driving habits highlight the ways in which innovation 

can lead to transformational shifts in the insurance industry. In recent years, the increased 

consumer use of transportation network companies like Uber and Lyft has led to changes in the 

auto insurance market. Insurers are applying telematics technology to begin offering 

“pay-as-you-drive” policies for individuals using their cars less frequently as well as new types 

of coverage for individuals using their personal vehicles to provide ride-sharing services. The 

growth of the “gig economy” (in connection with transportation and other areas) also encouraged 

insurers to consider options for providing workers’ compensation coverage for individuals who 

are generally classified as independent contractors.351

Autonomous vehicles will likely lead to future transformation in the auto insurance market and 

mobility in general.352 Stakeholders estimate that fully autonomous vehicles remain at least a 

decade away, but advancements are already having an impact on the way auto insurance is 

offered.353 Auto manufacturer Tesla recently announced that it intends to create a personal auto 

insurance policy for its vehicles with automated driver-assistance systems.354 In addition to auto 

manufacturers offering their own insurance, changes in the nature of risk created by autonomous 

vehicles could shift the future focus of auto insurance from individual liability to product 

liability.355

Cyber. Cyber insurance (discussed in Section III.C of this Report) is another area that could 

lead to transformation in the insurance industry, as society’s increased reliance on technology 

continues to increase cyber risks. However, the process of underwriting cyber coverage will also 

 

350 See Mark Webb, “Blockchain, Privacy and Regulation,” Insurance Thought Leadership, December 19, 2018, 

http://insurancethoughtleadership.com/blockchain-privacy-and-regulation/.

351 See FIO, 2017 Annual Report, 71-73.

352 See FIO, 2017 Annual Report, 71-72.

353 Steve Sherretta, “Long Road Ahead: The Promise—and Perils—of Self-Driving Cars,” interview with John Paul 

MacDuffie, Knowledge@Wharton, July 6, 2018, https://knowledge.wharton.upenn.edu/article/self-driving-cars/.

354 Dana Hull and Katherine Chiglinsky, “Tesla to Create Own Insurance Product, Says Musk,” Insurance Journal, 

April 26, 2019, https://www.insurancejournal.com/news/national/2019/04/26/524842.htm.

355 See, e.g., FIO, 2017 Annual Report, 71-72; “Background on: Self-Driving Cars and Insurance,” Insurance 

Information Institute, July 30, 2018, https://www.iii.org/article/background-on-self-driving-cars-and-insurance.
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create a wealth of data and technical knowledge that can be used to expand the industry’s risk 

mitigation services.

Based on FIO’s engagement process, it appears that InsurTech currently remains most valuable 

at creating greater efficiencies that improve the service and operations components of the 

insurance value chain. Given the rapid pace of technological development, future transformation 

of the insurance industry is likely.

3. Regulatory Frameworks and Reforms

a) The Current System and Areas for Improvement

Insurance regulation differs from other forms of financial regulation with which some startups—

and many of their venture capital investors—may be more familiar. Most significantly, states are 

the primary regulators of insurance in the United States. Most stakeholders agreed there is room 

for improvement in the U.S. regulatory ecosystem.

Stakeholders noted that inconsistent state laws often present a high regulatory barrier for 

InsurTech startups.356 It can be time-consuming and expensive to analyze and comply with 

numerous different state laws. InsurTech startups are finding a solution to this “learning curve” 

problem by partnering with incumbent insurers. In particular, as noted above, some startups are 

becoming MGAs or TSPs, to reduce their licensing burdens. For example, some startups are

becoming a licensed broker rather than a licensed insurer in order to not be subject to a licensed 

insurer’s capital requirements.

The most commonly cited areas for state law improvement included: anti-rebating; cancellation 

and non-renewal notice requirements; distribution and surplus lines restrictions; paper and proof 

of delivery requirements; and rate and form requirements, as discussed further below.

Anti-Rebating Laws: Most stakeholders noted that anti-rebating law is a regulatory area that is

“low-hanging fruit” ripe for state law reform. Nearly all states have “anti-rebating” laws, which 

prohibit giving anything of more than de minimis value as an inducement for purchasing an 

insurance policy.357 First developed in the 1880s, anti-rebating laws were designed to prevent

brokers from discounting or sharing their commissions, but now encompass almost anything of 

 

356 Some stakeholders noted that the inconsistency lies not only in the letter of the law, but also in how state 

insurance departments enforce the laws. This was cited as creating a lack of predictability in how state insurance 

regulators may exercise their discretionary regulatory authority.

357 See, e.g., Model Unfair Trade Practices Act (NAIC 2004), https://www.naic.org/store/free/MDL-880.pdf. 

California and Florida, with some exceptions, removed many anti-rebating restrictions in the 1980s. See also Jamie 

Parson et al., “Time to Dust Off the Anti-Rebate Laws,” Journal of Insurance Regulation (Vol. 36, No. 7, 2017), 4-

5, https://www.naic.org/prod_serv/JIR-ZA-36-07-EL.pdf.
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value that could be provided to policyholders.

358 Several stakeholders advocated for 

modernizing anti-rebating laws by updating model laws, noting, for example, that national 

models should clearly allow insurers to provide policyholders with sensors that can help mitigate 

risk and loss. In the context of life insurance, the sensor might be a wearable activity tracker or 

fitness band; for P&C insurers, it could be a home sensor that warns of excessive water. Some 

states already have taken steps in this direction. For example, in 2018, Pennsylvania clarified 

that anti-rebating restrictions do not prohibit certain value-added services related to loss 

control.359 In 2019, both NCOIL and the NAIC examined anti-rebate reform.360 At the NAIC’s 

summer meeting, members of the Innovation and Technology Task Force agreed to request an 

update on model law anti-rebating prohibitions.361

Cancellation/Non-Renewal Notice Requirements: States generally protect policyholders by 

requiring insurers to provide advance notice (typically, at least 30 days if not more) of policy 

cancellation or non-renewal.362 Such notice requirements were originally intended for a standard 

one-year policy, however, stakeholders observed that such rules inhibit innovative short-term 

episodic and/or usage-based insurance products. For example, a three-hour policy for an escooter ride would be incompatible with a 30-day non-renewal notice requirement.

Distribution and Surplus Lines Restrictions: Some stakeholders noted that the existing 

regulatory system unduly restricts the distribution and sale of insurance products through 

innovative means. For example, one issue raised was whether state law should be agnostic as to 

what platform is used to distribute insurance—whether through an agent, on an insurer’s website, 

on a third-party website, or an app—so long as a licensed insurer (or broker) is involved in the 

sale. More broadly, several stakeholders advocated that surplus lines restrictions should be eased

to encourage increased innovation. Currently, for example, many states impose “due diligence” 

requirements mandating a search for available products within the admitted market each time 

before purchasing a policy through a surplus lines insurer.363 Several stakeholders noted that 

 

358 See, e.g., Parson et al., “Time to Dust Off Anti-Rebate Laws,” 2; Ian Adams, “Anti-Rebating Laws and the Utah 

Experience,” R Street Shorts, February 2015, https://www.rstreet.org/wpcontent/uploads/2015/02/RSTREETSHORT8.pdf.

359 Pennsylvania Act of May 4, 2018, Pub. L. No. 114, No. 22 (formerly S.B. 877).

360 See, e.g., Alan Smith, “At NCOIL, Anti-Rebating Debate Ponders Fitbits and Free Turkeys,” Insurance Journal, 

July 13, 2019, https://www.insurancejournal.com/blogs/2019/07/13/532167.htm; NAIC, Innovation and Technology 

(EX) Task Force Agenda (June 4, 2019), 

https://naic-cms.org/sites/default/files/call_materials/cmte_ex_ittf_190604_agenda%5B1%5D.pdf (listing multiple 

presentations regarding anti-rebating language in the Model Unfair Trade Practices Act).

361 See, e.g., Ray Lehmann, “NAIC Innovation Panel Moves for Update of Anti-Rebating Model,” Insurance 

Journal, August 5, 2019, https://www.insurancejournal.com/blogs/right-street/2019/08/05/534953.htm.

362 See, e.g., Improper Termination Practices Model Act (NAIC 2001), https://www.naic.org/store/free/MDL915.pdf.

363 An admitted insurer is “an insurance company licensed to business in a state(s), domiciled in an alternative state 

or country.” Surplus lines insurers can write insurance on a surplus lines basis when the desired coverage cannot be 
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these requirements, formulated for a non-digital era, are incompatible with automation and 

providing the prompt service demanded by modern consumers. Stakeholders opined that in areas 

where surplus rules had been eased—such as for Massachusetts auto insurance and in the Florida 

homeowners’ insurance market—there had been no adverse consequences to consumers.

Paper and Proof of Delivery: Many stakeholders noted that state insurance regulation has not 

kept pace with contemporary consumer preferences. Stakeholders explained that, currently, 

there is no uniform way in the United States for an insurer and insured to interact electronically 

from the beginning to the end of the insurance transaction, i.e., from submitting applications, to 

providing policy documents, to claims notification, and ultimately to claims settlement. In this 

regard, several stakeholders pointed to state statutes requiring proof of postal delivery, despite 

many consumers’ expressed preference for electronic delivery for speed and convenience. While 

progress has been made, particularly with respect to the acceptance of electronic signatures,364

stakeholders argued there is room for continued improvement in the area.

Rate and Form Requirements: Several stakeholders identified a need to modernize the state 

rate and form filing process in order to improve products’ speed to market, and particularly to 

enhance the speed in offering innovative products to consumers. They observed that rate and 

form filing regulations are inflexible and inhospitable to new entrants that are aiming to test the 

market. This concern is not limited to InsurTech startups. Treasury also noted concerns about 

product approval and speed-to-market in its Insurance EO Report.365

b) Sandboxes

Another important issue is regulatory sandboxes and their potential ability to identify solutions 

for regulatory impediments to innovation. A “sandbox” is commonly understood by 

stakeholders to be a regulatory or legislative construct that allows companies to test new 

products and technologies in a contained environment without meeting all current regulatory 

requirements. Worldwide, several insurance regulatory authorities have created sandboxes for 

InsurTech startups or companies, including Bermuda, Denmark, Hong Kong, and the UK.366

 

obtained from admitted insurers in the jurisdiction in question. See “Glossary of Insurance Terms,” NAIC, 

https://www.naic.org/consumer_glossary.htm.

364 See, e.g., Uniform Electronic Transactions Act (Uniform Law Commission 1999), 

https://www.uniformlaws.org/committees/community-home?CommunityKey=2c04b76c-2b7d-4399-977ed5876ba7e034; Electronic Signatures in Global and National Commerce Act, Pub. L. No. 106-229, 114 Stat. 464 

(2000); Okla. Senate Bill 700 (amending 12A Okla. Stat. § 15-102 to modify the definition of “electronic record” 

and “electronic signature” within the state’s version of the Uniform Electronic Transaction Act to include records or 

signatures obtained through blockchain technology).

365 Treasury, Insurance EO Report, 120-122.

366 See, e.g., Government of Bermuda, “Insurance Regulatory Sandbox to Boost InsurTech in Bermuda,” news 

release, June 22, 2018, https://www.gov.bm/articles/insurance-regulatory-sandbox-boost-insurtech-bermuda; “FT 

Lab,” Danish Financial Supervisory Authority, https://www.dfsa.dk/Supervision/Fintech/FT-lab; “Insurtech 
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Stakeholders had differing views on the necessity and utility of regulatory “sandboxes” in the 

United States, but agreed that any sandbox, if adopted, needs to be carefully defined, and should 

include consumer protections and solvency requirements. Some noted that formal sandboxes—

however defined—are unnecessary in the United States because each of the 50 state insurance 

departments generally has the regulatory discretion to waive requirements. Other stakeholders 

expressed concern that sandboxes, if not implemented appropriately, could create an “un-level 

playing field” in favor of sandbox participants. These opponents generally perceived a potential 

for bias in favor of startups that would be prejudicial to industry incumbents who were subject to 

the existing insurance regulatory regime. In contrast, some stakeholders supporting sandboxes 

noted that if regulators use discretionary authority to waive requirements—rather than use formal 

regulatory sandboxes with explicit requirements—outcomes might be dictated based on market 

power or other considerations that reflect an existing un-level playing field. The unpredictability 

and potential inconsistency in the exercise of discretionary authority by the various states is 

another issue of concern for stakeholders. One potential option that was raised during FIO’s 

engagement was a multi-state sandbox that could improve the efficiency and consistency of 

decision-making among the participating states. More generally, several stakeholders—as well 

as commentators generally—have cautioned that regulators implementing sandboxes need to find 

the appropriate balance between increasing the ability of insurers to provide new products and 

protecting consumer interests.

367

Some states are proceeding to create formal or informal sandboxes. Kentucky’s Governor signed 

legislation in March 2019, creating a “sandbox” through which an applicant may test an 

“insurance innovation” and the insurance department will not take “any administrative or 

regulatory action” against them, subject to the conditions specified in the law.368 Additionally, 

Kentucky now has a dedicated insurance innovation webpage.369 Oregon similarly has an 

“Innovation Hub” webpage with information about its regulatory sandbox to encourage 

“responsible testing of new business models, delivery channels, automated decisions, and 

partnerships.”370 In June 2019, the Vermont Governor signed a bill creating an insurance 

regulatory sandbox that allows the state insurance commissioner to grant “innovation waivers” 

 

Corner,” Hong Kong Insurance Authority, https://www.ia.org.hk/en/aboutus/insurtech_corner.html; “FCA 

Innovate,” Financial Conduct Authority, https://www.fca.org.uk/firms/fca-innovate. See also Mueller, InsurTech 

Rising, 16-19.

367 Lee Reiners, “North Carolina’s Proposed Regulatory Sandbox Needs Work,” The FinReg Blog, May 28, 2019, 

https://sites.duke.edu/thefinregblog/2019/05/28/north-carolinas-proposed-regulatory-sandbox-needs-work/.

368 Kentucky House Bill 386, https://apps.legislature.ky.gov/recorddocuments/bill/19RS/hb386/bill.pdf.

369 “Insurance Innovation—Think Kentucky,” Kentucky Department of Insurance, 

http://insurance.ky.gov/ppc/Division.aspx?div_id=25.

370 “Oregon’s Innovation Hub for Insurance and Financial Services,” State of Oregon, 

https://dfr.oregon.gov/innovation/Pages/index.aspx.
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under specified conditions.371 Other states are studying the feasibility of a regulatory sandbox.372 

FIO will continue to monitor the use of sandboxes by state regulatory authorities.

c) Data Regulation: Data Use and Data Privacy

Insurers have massive amounts of data and will continue to acquire more data as innovation 

continues. Data regulation was a key discussion topic for stakeholders. 

Stakeholders underscored the need to clearly distinguish data security and cybersecurity issues 

from issues relating to data use and privacy. Stakeholders raised cybersecurity concerns in 

connection with InsurTech—for example, noting that increased digitalization may increase the 

risk of data theft—but generally recognized cybersecurity as a distinct area. This Report,

therefore, addresses cybersecurity issues separately, in Section III.C.2.

Data Use - Big Data Analytics and Model Review: Stakeholders emphasized that big data 

(discussed above in Section V.D.2.b of this Report) can present both opportunities and 

challenges for insurers and consumers. Big data can improve efficiency help find new sources of 

new business, improve customer engagement, and enhance product design. Big data also can 

present stakeholders with challenges, however, in terms of data storage and accessibility, 

security, and use.

Big data also presents significant challenges for regulators, as some consumer advocates noted. 

While acknowledging that big data has the potential to help consumers, some stakeholders 

suggested: “Big Data has massively increased the market power of insurers versus consumers 

and versus regulators.”373 Another challenge is transparency of the data and the models in which 

they are used. According to stakeholders, the complexity of models and the volume of data may 

require regulators to rely on the representations of the insurers and their third-party modelers; 

regulators may not have the resources for independent reviews. In addition, when models are 

developed and evolve through AI or other forms of machine learning, that is, when models 

change themselves based on their own operations, it “raises questions about insurers’ ability to 

supervise models, let alone regulators’ ability to do so.”374

State insurance regulators have recognized the issues presented by big data analytics and 

complex models and are beginning to take steps to address them. The NAIC’s Casualty 

 

371 8 V.S.A. § 15a (as added by Vermont S. 131 (2019)).

372 See, e.g., District of Columbia Financial Services Regulatory Sandbox and Innovation Council, Mayor’s Order 

2019-003 (January 25, 2019), https://www.dcregs.dc.gov/Common/NoticeDetail.aspx?NoticeId=N0078695; 

Nebraska Legislative Resolution 94 (106th Legislature, First Session, 2019), 

https://nebraskalegislature.gov/FloorDocs/106/PDF/Intro/LR94.pdf.

373 Center for Economic Justice, “Eating the Big Data Elephant” (presentation, IRES CDS 2018, August 14, 2018), 

7, 8 http://www.cej-online.org/issues/big-data/.

374 Center for Economic Justice, “Eating the Big Data Elephant,” 10.
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Actuarial and Statistical Task Force, for example, is drafting a white paper on “best practices for 

the regulatory review of complex predictive models and analytics filed by insurers to justify 

rates.”375 The NAIC’s Big Data Working Group, meanwhile, states that it is focused on the use 

of data for accelerated underwriting in life insurance, including a proposal for states to share 

resources for the review of complex models, while continuing to review the current regulatory 

framework for the oversight of insurers’ use and need of consumer data.376

NYDFS has also issued guidance to life insurers on the use of external consumer data and 

information sources in underwriting for life insurance.

377 Life insurance stakeholders also cited

life insurers’ use of genetic testing as an important issue, as discussed further in Box 1. 

Box 1: Life Insurers’ Use of Genetic Testing

Stakeholders in the life insurance industry expressed concern that consumers and regulators may 

not fully appreciate the issues raised by the use of genetic test results in life insurance 

underwriting. They noted that, in order to more accurately underwrite policies, life insurers 

would like to know what an applicant knows about his or her health, including family history as 

well as the results of any medical tests, including genetic tests. According to life insurers, full 

disclosure ensures a level playing field and avoids adverse selection (i.e., when applicants who 

are less healthy conceal their health status to obtain better coverage) which can lead to higher 

rates and/or fewer available products for other consumers. Stakeholders did not affirmatively 

seek to require genetic tests of applicants, but rather to require disclosure of genetic test results if 

the applicant otherwise had taken such a test—whether at the recommendation of a doctor or 

through a popular commercial service. They also expressed concern that, in the future, 

regulators might prohibit disclosure to insurers of such voluntary test results. 

Some consumer advocates, however, countered that the risk of adverse selection may be 

overstated, expressing the view that insurers themselves are using data and algorithms without 

full disclosure or consumers’ consent through “accelerated underwriting” processes. These 

stakeholders note that genetic information is not necessarily predictive of future costs—many of 

those who carry disease-associated genes will never have a related illness—and therefore no 

reason exists for insurers to use this information simply because it is available. Consumer 

 

375 “Big Data,” NAIC, last updated May 24, 2019, https://www.naic.org/cipr_topics/topic_big_data.htm. See also

NAIC Casualty Actuarial and Statistical Task Force, Exposure Draft: Regulatory Review of Predictive Models (July 

24, 2019), https://naic-cms.org/sites/default/files/inlinefiles/Predictive%20Model%20White%20Paper%20Exposed%208-3-19.pdf. 

376 “Big Data,” NAIC. 

377 NYDFS, Insurance Circular Letter No. 1 (2019): Use of External Consumer Data and Information Sources in 

Underwriting for Life Insurance (2019), https://www.dfs.ny.gov/industry_guidance/circular_letters/cl2019_01. 
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advocates also warned about potentially discouraging people from genetic testing for fear of 

insurance discrimination.378

Data Privacy: One of the most important and most frequently raised regulatory issues for many 

stakeholders was new data privacy laws. Stakeholders recognize that insurers already are subject 

to numerous laws on data privacy and data handling, including the Gramm-Leach-Bliley Act for 

financial institutions generally, the Health Insurance Portability and Accountability Act for 

medical information, and state insurance laws and regulations. The increasing volume and 

accessibility of personal information, however, has led some states to enact or consider new, 

additional data privacy laws.

While recognizing the public policy and consumer considerations that prompted laws such as the 

California Consumer Privacy Act (CCPA),379 many stakeholders expressed concern that data 

privacy laws will evolve on a patchwork basis in the United States. Stakeholders cautioned that 

inconsistent state regulation of data privacy—with different definitions of “personal 

information,” different consent and “opt out” requirements, and different views on what “deidentified data” can be used without constraints—could require expensive compliance efforts by 

insurers and limit their ability to innovate. Such compliance costs might also serve as an 

additional barrier to entry for InsurTech startups. Some stakeholders also warned that 

contradictory consumer disclosures could increase confusion and potential distrust.

Some stakeholders also warned that some privacy law provisions—like the “right to be 

forgotten” that is inspired by the European Union’s General Data Protection Regulation 

(GDPR)—are fundamentally incompatible with technological innovations like blockchain.380 

The very structure of blockchain requires the collection and permanent preservation of data.

One common theme from FIO’s engagement is the need for regulators and policymakers to adopt 

a more consistent approach to privacy regulation. In particular, some stakeholders advocated for 

federal legislation with a uniform national standard for data privacy that extended beyond 

insurers to all companies.

 

378 See Center for Economic Justice, “Life Insurers’ Use of Genetic Information: Public Policy and Regulatory 

Issues” (presentation, NCSL Task Force on Insurance, May 18, 2019).

379 Calif. Civil Code § 1798.100 et seq. (enacted through California Assembly Bill 375).

380 Although data can be appended to a blockchain, they cannot be erased—to do so would “break” the chain. There 

is no clear answer as to how blockchain technology could comply with data privacy laws that give consumers the 

“right to be forgotten” and have their personal data deleted. One option would be to keep personally identifiable 

information (PII) off the blockchain; the blockchain would contain markers that would point to PII kept in a secure 

location off the blockchain. This option would increase the complexity of the blockchain and reduce 

standardization—one of the key benefits of blockchain technology.
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d) RegTech: Technology Talent Gaps and State Reforms

In the United States, “RegTech”—that is, exploring and promoting technology innovations to 

improve the effectiveness and efficiency of insurance regulation—is an ongoing concern. The 

NAIC is continuing its work on technology projects as part of its State Ahead strategic plan.381 It 

also has created a centralized listing of InsurTech contact information for each state,

382 as well as 

task forces and working groups focused on InsurTech, such as the Artificial Intelligence 

Working Group.

383 Individual states are also addressing InsurTech and RegTech. For example, 

NYDFS established a Research and Innovation Division in July 2019.384 In addition, the Texas 

Department of Insurance began testing the use of AI for improving regulatory consistency in 

policy review and approval.

385 Despite new tools and new organizational structures emphasizing 

innovation and technology, stakeholders recognized “technology talent gaps” among insurance 

regulators and, to a lesser extent, within the insurance industry itself.

Around the globe, insurance supervisors, regulators, and legislators are examining technology’s 

impact on the insurance industry and insurance supervision.386 The IAIS cited Fintech as a key 

theme in its 2020-2024 Strategic Plan (as discussed in Section IV.A.2 of this Report). It also 

 

381 NAIC, Shaping the Future: 2018 Annual Report—Operations and Technology, 

https://www.naic.org/annual_report_2018/chapter_ops.htm.

382 “InsurTech, Innovation & Technology,” NAIC, https://www.naic.org/index_innovation_technology.htm.

383 NAIC, “NAIC Event Focuses on Artificial Intelligence in Insurance,” news release, August 6, 2019, 

https://www.naic.org/Releases/2019_docs/naic_event_focus_artificial_intelligence_insurance.htm. NAIC has 

indicated that this working group will “study the development of artificial intelligence, its use in the insurance sector 

and its impact on consumer protection and privacy, marketplace dynamics, and the state-based insurance regulatory 

framework.” Id.

384 NYDFS, “DFS Superintendent Linda A. Lacewell Announces Newly Created Research and Innovation Division, 

New Executive Appointments,” news release, July 23, 2019, 

https://www.dfs.ny.gov/reports_and_publications/press_releases/pr1907231.

385 Texas Department of Insurance, “TDI Tests Artificial Intelligence to Review Policies,” news release, April 9, 

2019, https://www.tdi.texas.gov/news/2019/tdi04092019.html. 

386 See, e.g., IAIS, Issues Paper on Increasing Digitalisation in Insurance and its Potential Impact on Consumer 

Outcomes (2018), https://www.iaisweb.org/page/supervisory-material/issues-papers/file/77816/issues-paper-onincreasing-digitalisation-in-insurance-and-its-potential-impact-on-consumer-outcomes; IAIS, Application Paper on 

the Use of Digital Technology in Inclusive Insurance (2018), https://www.iaisweb.org/page/supervisorymaterial/application-papers/file/77815/application-paper-on-the-use-of-digital-technology-in-inclusive-insurance; 

EIOPA, Outsourcing to the Cloud: EIOPA’s Contribution to the European Commission Fintech Action Plan 

(2019), 

https://eiopa.europa.eu/Publications/EIOPA%20Outsourcing%20to%20the%20cloud_Contribution%20to%20Fintec

h%20action%20plan%20%283%29.pdf; EIOPA, Big Data Analytics in Motor and Health Insurance: A Thematic 

Review (May 2019), 

https://eiopa.europa.eu/Publications/EIOPA_BigDataAnalytics_ThematicReview_April2019.pdf; Financial 

Conduct Authority, The Impact and Effectiveness of Innovate (April 2019), 

https://www.fca.org.uk/publication/research/the-impact-and-effectiveness-of-innovate.pdf.
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stressed the “crucial” need for cooperation between supervisory authorities in an increasingly 

digitalized world.387 FIO has joined the IAIS’s Fintech Forum.

This Report has outlined some of the key InsurTech issues in the United States. FIO intends to 

remain engaged in this area, and will continue to monitor developments in this area, consistent 

with the recommendation of the U.S. Government Accountability Office: “It will be important 

for NAIC and state insurance regulators, as well as the Federal Insurance Office, to continue 

monitoring developments in these areas.”388 Additionally, consistent with the Fintech EO 

Report, FIO and Treasury will continue to study these issues and evaluate whether to put forth 

recommendations in its 2020 Annual Report, or in other forums, as appropriate.

 

387 IAIS, Issues Paper on Increasing Digitalisation in Insurance, 30-31.

388 U.S. Government Accountability Office, Innovative Uses of Technologies, 33.
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VI. INSURANCE INDUSTRY FINANCIAL OVERVIEW

A. Domestic Insurance Marketplace Overview

Over the past decade, the insurance industry has maintained a solid financial profile. Like other 

financial market participants, however, insurers are managing their operations in response to a 

different economic environment in 2018 as compared to 2009. An easing of monetary policy 

helped to start the recovery from the financial crisis. The benchmark federal funds rate was 

reduced to 0.25 percent in December 2008, a historically low rate that remained in effect until 

2015. In 2018, the financial sector benefitted from reduced corporate tax rates and higher 

interest rates.

Although interest rate increases generally have not eased tight profit margins for insurers, the 

industry has stabilized its leverage ratios, retained positive earnings, maintained liquidity 

coverage ratios, and grown its assets to strengthen its capital base since 2009. There have been 

some recent signs of potential weakening, however, in the financial health of both the L&H and 

P&C sectors. In the last two years, the L&H sector has reported negative growth in its operating 

income, while surrender activity reached a new decade high in 2018. For the P&C sector, 

growth in cash and short-term investments turned negative in 2018, as did growth in 

policyholder surplus. Finally, both sectors, in search of yield, have shown an increase in their 

share of bond holdings allocated to private placements. Despite recent trends that suggest 

increased risk exposures, the insurance industry has generally moved to capitalize itself 

appropriately to cover any potential fall-out.

Since the 2009 low point for domestic insurance premiums (following the financial crisis), 

industry premiums have grown in every year except in 2013. In 2018, total direct premiums

written for the combined L&H and P&C sectors were $1.41 trillion, growing by more than five 

percent over 2017 levels and nearly 29 percent from 2009, as shown in Figure 9.

389 Premium 

growth in 2018 was the second highest since 2009, exceeded only by a slightly stronger 

performance in 2011.

 

389 Except as otherwise indicated, data cited in this section of the Report are as of December 31, 2018, as derived 

from S&P Global on April 18, 2019. These data are on a statutory accounting basis. S&P Global continuously 

updates its data for corrections in filings; 2017 data in this Report are based on updated data available as of April 18, 

2019, and thus may be different in some respects from corresponding figures reported in FIO’s 2018 Annual Report. 

Due to certain conventions used by S&P Global for aggregation of industry data, some columns in the 

accompanying tables may not sum to the totals that have been separately accumulated by S&P Global from 

individual legal entity data. Some figures may not add to 100 percent due to rounding.
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Figure 9: Total Direct Premiums Written

for L&H and P&C Sectors ($ trillions)

Source: S&P Global

1. Financial Performance and Condition

This section focuses on the financial performance and condition of the 709 L&H insurers, the 

2,602 P&C insurers, and the 1,179 health insurers licensed in the United States.390 Insurers in 

the L&H sector offer products in two segments: (1) life insurance and annuities, which generally 

protect against the risk of financial loss associated with an individual’s death and provide income 

streams for retirement, respectively; and (2) accident and health (A&H) products, which cover 

expenses for health and long-term care or provide income in the event of disability. Insurers in 

the P&C sector offer products that generally protect against the risk of financial loss associated 

with damage to property or exposure to liability for individuals and families (personal lines) or 

for businesses (commercial lines).

Net premiums written for the L&H sector were approximately $604 billion in 2018, or 31

percent of net premiums written for the combined L&H, P&C, and Health sectors.391 For the 

P&C sector, net premiums written were approximately $615 billion, or 32 percent of net 

premiums written for the combined L&H, P&C, and Health sectors. The Health sector reported 

$708 billion of net premiums written for 2018, or 37 percent of the combined total for the three 

sectors.

At the end of 2018, the L&H sector held approximately $6.8 trillion of total assets (including 

$2.5 trillion held in separate accounts), the P&C sector held approximately $2.0 trillion, and the 

 

390 A.M. Best Aggregates and Averages (2018 Editions) and S&P Global. The L&H and P&C sectors are the 

primary insurance sectors in the United States. The Health sector includes companies licensed solely as health 

insurers or as Health Maintenance Organizations, but is not the focus of the remainder of this Report.

391 Net premiums written means direct premiums written less net ceded reinsurance premiums.

$1.00

$1.05

$1.10

$1.15

$1.20

$1.25

$1.30

$1.35

$1.40

$1.45

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Direct Premiums Written ($trillions)

Year
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Health sector held approximately $417 billion. Capital and surplus in the L&H sector stood at 

approximately $399 billion as of December 31, 2018, the P&C sector reported policyholder 

surplus of approximately $753 billion, and the Health sector reported approximately $200

billion.

Figures 10 and 11 present snapshots of the L&H sector market, showing the ten largest L&H 

insurance groups measured by direct premiums written, and market share for life insurance 

(including annuities and other deposit-type contracts) and for A&H lines of business, 

respectively. Premiums shown in Figures 10 and 11 aggregate all L&H sector products and all 

geographies of the United States.

Figure 10: L&H Insurance Groups by 2018 U.S. Life Insurance Lines

Direct Premiums Written ($ thousands)

2017 

Rank

2018

Rank Insurance Group

2017 Direct 

Premiums 

Written ($000)

Share

of Total 

(%)

2018 Direct 

Premiums 

Written ($000)

Share

of Total 

(%)

1 1 MetLife, Inc. $ 86,621,636 13.57 $ 96,451,607 14.15

2 2 Prudential Financial, Inc. 47,465,693 7.44 53,148,550 7.80

3 3 New York Life Insurance Co. 31,852,412 4.99 35,452,211 5.20

5 4 Massachusetts Mutual Life Insurance Co. 24,735,091 3.87 27,154,611 3.98

8 5 American International Group, Inc. 21,465,665 3.36 26,446,934 3.88

6 6 Lincoln National Corp. 22,455,077 3.52 25,804,565 3.79

4 7 Principal Financial Group, Inc. 28,153,239 4.41 25,322,774 3.72

10 8 AXA Equitable Holdings Co. 21,290,299 3.34 22,579,431 3.31

9 9 Transamerica Corp. 21,317,714 3.34 22,352,418 3.28

7 10 Jackson Holdings LLC 22,439,071 3.52 21,511,557 3.16

Combined Top 10 $ 327,795,897 51.35 $ 356,224,658 52.27

Combined Top 25 $ 498,357,152 78.07 $ 540,697,303 79.33

Combined Top 100 $ 629,867,028 98.67 $ 673,630,841 98.87

Total U.S. Life Insurance Lines $ 638,379,280 $ 681,631,044 

Source: S&P Global (includes Life Insurance (No Annuity), Annuity Considerations, Deposit-type Contracts (State 

Page), Other Considerations (State Page))

The data presented in Figures 10 and 11 for life and annuity business, and in the comparable 

figures that follow for other lines of business, are aggregated at a group level from filings made 

with state insurance regulators by individual legal entity insurers. For example, premiums 

shown for MetLife Inc. include premiums written by all of its insurance subsidiaries in the 

United States, but exclude business written by affiliated entities in other jurisdictions. Similarly, 

Jackson National Life Group is foreign-owned, and the results shown only include U.S. 

operations.

Over 2018, the market share rankings among the three largest writers of life insurance and 

annuities were unchanged. MetLife remained the largest writer of life insurance products in the 

United States, followed by Prudential and New York Life. MassMutual gained one spot, rising 

to the fourth largest, while AIG jumped up three notches into fifth position. AXA also rose to 

eighth largest from its tenth position in 2017. Principal Financial Group dropped to seventh

largest from fourth, and Jackson National slipped to tenth position from eighth. The aggregate 

market shares of the top ten, 25, and 100 companies were little changed compared to 2017.
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Figure 11: L&H Insurance Groups by 2018 U.S. A&H Lines

Direct Premiums Written ($ thousands)

2017 

Rank

2018 

Rank Insurance Group

2017 Direct 

Premiums

Written ($000)

Share 

of Total 

(%)

2018 Direct 

Premiums 

Written ($000)

Share 

of Total 

(%)

1 1 UnitedHealth Group Inc. $ 52,353,113 27.73 $ 56,496,235 29.04

2 2 CVS Health Corp. 30,004,745 15.89 32,614,694 16.76

3 3 Cigna Corp. 17,771,300 9.41 20,526,988 10.55

5 4 Metlife, Inc. 7,600,969 4.03 7,937,343 4.08

4 5 Aflac Inc. 14,993,250 7.94 7,905,196 4.06

6 6 Unum Group 5,887,345 3.12 6,178,416 3.18

7 7 Mutual of Omaha Insurance Co. 4,020,339 2.13 4,289,460 2.20

8 8 Guardian Life Insurance Co. of America 3,758,560 1.99 3,938,319 2.02

10 9 Lincoln National Corp. 2,445,713 1.30 2,699,929 1.39

9 10 Genworth Financial Inc. 2,653,016 1.41 2,633,754 1.35

Combined Top 10 $ 141,488,350 74.95 $ 145,220,334 74.63

Combined Top 25 $ 165,715,757 87.78 $ 171,000,832 87.88

Combined Top 100 $ 186,676,991 98.89 $ 193,281,624 99.35

Total U.S. A&H Lines $ 188,781,567 $ 194,562,680

Source: S&P Global

Figure 11 shows A&H premiums written by insurers authorized to offer both life and health 

insurance; it excludes A&H premiums written by insurers authorized to offer only health 

insurance (see Figure 13 below). Thus, for example, the data presented in Figure 11 for 

UnitedHealth Group do not reflect that insurer’s total health insurance premiums on a 

consolidated basis, but only premiums written by its subsidiaries licensed to offer both life and 

health insurance. UnitedHealth Group also writes health insurance business through subsidiaries 

that offer only health insurance, and those premiums are reflected in Figure 13.

There was little change in the top ten writers of A&H lines of business in 2018. UnitedHealth 

Group remained the largest writer of A&H lines in 2018; CVS Health entered as the secondlargest following its 2018 acquisition of Aetna 2017’s second-largest A&H writer.

As noted above, P&C insurers underwrite a variety of products, generally categorized as either 

personal lines or commercial lines. Figure 12 reports market share information on a combined 

P&C sector basis; details for commercial lines and personal lines market shares are provided in 

the discussion below.
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Figure 12: P&C Insurance Groups by 2018 U.S. Combined Lines

Direct Premiums Written ($ thousands)

2017 

Rank

2018 

Rank Insurance Group

2017 Direct 

Premiums

Written ($000)

Share

of Total 

(%)

2018 Direct 

Premiums 

Written ($000)

Share

of Total 

(%)

1 1 State Farm Mutual Automobile Insurance Co. $ 64,892,583 10.10 $ 65,849,676 9.77

2 2 Berkshire Hathaway Inc. 38,818,874 6.04 43,869,809 6.51

3 3 Liberty Mutual Holding Co. Inc. 33,831,726 5.27 34,605,081 5.14

5 4 Progressive Corp. 27,862,882 4.34 33,754,923 5.01

4 5 The Allstate Corp. 31,501,664 4.90 33,251,176 4.94

6 6 Travelers Companies, Inc. 24,875,076 3.87 26,244,172 3.90

7 7 Chubb Ltd. 21,266,737 3.31 22,008,957 3.27

8 8 United Services Automobile Association 20,151,368 3.14 21,984,970 3.26

9 9 Farmers Insurance Group of Companies 19,854,803 3.09 20,309,974 3.01

10 10 Nationwide Mutual Group 19,218,907 2.99 18,416,861 2.73

Combined Top 10 $ 302,274,620 47.05 $ 320,295,599 47.54

Combined Top 25 $ 420,929,749 65.51 $ 442,815,693 65.74

Combined Top 100 $ 557,160,009 86.72 $ 587,521,626 87.23

Total U.S. P&C Sector $ 642,509,475 $ 673,781,349 

Source: S&P Global (includes all lines of business)

On a combined basis (including all lines of P&C business), State Farm remained the largest 

writer of P&C business in 2018. There was little change among the top ten P&C companies. 

Compared to 2017, only Progressive and Allstate changed rankings, with Progressive passing 

Allstate for fourth position.

For P&C commercial lines, there was a change at the top as Travelers passed Chubb for the 

largest writer of P&C commercial lines. Berkshire Hathaway gained one spot, passing CNA for 

sixth position, while Hartford also passed Nationwide for eighth position. There was no change 

in the market share rankings of the top ten writers of P&C personal lines. For both commercial 

lines and personal lines, there was little change in the aggregate market shares of the top 10, 25, 

and 100 companies in 2018.

As shown in Figure 13 below, market share rankings among the top ten health insurance groups 

were little changed in 2018. UnitedHealth Group continued to dominate the market, and 

GuideWell Mutual entered the top ten in ninth position.
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Figure 13: Health Insurance Groups by 2018 U.S. Health Lines

Direct Premiums Written ($ thousands)

2017 

Rank

2018 

Rank Insurance Group

2017 Direct 

Premiums 

Written ($000)

Share of 

Total

(%)

2018 Direct 

Premiums 

Written ($000)

Share

of Total 

(%)

1 1 UnitedHealth Group Inc. $ 87,199,759 12.96 $ 100,589,323 14.00

2 2 Anthem, Inc. 65,645,632 9.76 66,067,104 9.20

3 3 Humana Inc. 53,176,602 7.90 55,848,935 7.77

4 4 HealthCare Services Corp. 34,304,533 5.10 37,655,147 5.24

5 5 Centene Corp. 28,573,486 4.25 35,333,521 4.92

6 6 CVS Health Corp. 23,841,501 3.54 21,635,071 3.01

7 7 WellCare Health Plans, Inc. 18,425,997 2.74 19,907,554 2.77

8 8 Kaiser Foundation Health Plan, Inc. 17,406,943 2.59 19,279,172 2.68

11 9 GuideWell Mutual Holding Corp. 15,253,562 2.27 17,954,524 2.50

10 10 Molina Healthcare, Inc. 16,665,219 2.48 16,216,140 2.26

Combined Top 10 $362,250,611 53.85 $ 390,486,492 54.36

Combined Top 25 $495,605,175 73.67 $ 532,509,913 74.13

Combined Top 100 $645,221,814 95.91 $ 690,182,721 96.08

Total U.S. Health Insurance Lines $672,749,379 $ 718,343,614 

Source: S&P Global

2. Life and Health Sector

a) Performance

This section presents additional analysis of the financial performance of the L&H sector in 2018, 

and then assesses the L&H sector’s overall financial condition as of December 31, 2018.

i. Net Premiums Written

Net premiums written is the sum of direct premiums written and reinsurance assumed, less 

reinsurance ceded. Direct premiums written is a principal measure of the size and growth of the 

insurance industry. Over 2018, direct written premiums of $733 billion for the L&H sector grew 

by six percent, the strongest growth since 2010. Direct annuity premiums and considerations 

(individual and group) swelled by 12 percent to $354 billion as interest rates rose over most of 

the year, and favorable regulatory developments relieved pressure on the annuity market.392 

Growth in annuity premiums and considerations more than offset a more than one percent 

decline in direct life insurance premiums written. After reinsurance transactions, L&H sector net 

premiums written were $604 billion in 2018, marking a one percent increase from the $597 

 

392 Jason Woleben, “Fixed Annuity Sales Jump YOY in 2018, Pushing Total Individual Annuities Higher,” S&P 

Global Market Intelligence, March 27, 2019, 

https://platform.mi.spglobal.com/web/client?auth=inherit&overridecdc=1&#news/article?id=50785596.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

105

billion reported in 2017, following three consecutive years of negative growth. A six percent 

decrease in net annuity premiums and considerations was offset by a six percent gain in net life 

insurance premiums and an eight percent increase in net A&H premiums. A number of large 

reinsurance transactions in 2018 by AIG and Voya Financial were cited as the main cause of the 

weaker net premiums written result.

393 Net premiums written accounted for 67 percent of total 

L&H sector revenues, a level notably lower than the ten-year historical average of 71 percent; 

this decline was largely due to a nearly $50 billion swing in the reinsurance allowance, from an 

expense of $25 billion in 2017 to a $32 billion benefit in 2018. For 2018, annuity premiums and 

deposits represented 45 percent of total net premiums written, a decrease from the 48 percent 

reported in 2017, as shown in Figures 14 and 15. Sales of traditional life insurance products rose 

to make up 24 percent of 2018 L&H sector net premiums written (from 23 percent in 2017), 

while the remainder was almost comprised entirely of A&H sector premiums.

Figure 14: L&H Sector Net Premiums Written ($ billions)

Source: S&P Global

 

393 Tim Zawacki, “US Life Industry Premiums Rose, but Statutory Profits Fell in 2018,” S&P Global Market 

Intelligence, March 25, 2019,

https://platform.mi.spglobal.com/web/client?auth=inherit&overridecdc=1&#news/article?id=50711785.

$0

$50

$100

$150

$200

$250

$300

$350

$400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Net Premiums Written ($billions)

Year

 Life Insurance Premiums Annuity Premiums & Deposits Accident & Health Premiums
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Figure 15: L&H Sector Net Premiums, Considerations, and Deposits ($ thousands)

2014 2015 2016 2017 2018

Life Insurance Premiums $ 133,901,046 $ 151,398,875 $ 115,034,222 $ 137,148,663 $ 145,258,227

Annuity Premiums & Deposits 352,823,672 324,041,791 318,539,213 287,222,231 269,550,482

A&H Premiums 156,605,802 158,826,446 162,844,867 169,324,331 183,553,158

Credit Life & Credit A&H Premiums 1,388,591 1,379,933 1,261,511 1,261,969 1,292,008

Other Premiums & Considerations 2,554,797 2,497,634 2,192,329 2,097,850 3,986,445

Total $ 647,273,909 $ 638,190,255 $ 599,872,141 $ 597,055,044 $ 603,640,320

Share of Total 2014 2015 2016 2017 2018

Life Insurance Premiums 21% 24% 19% 23% 24%

Annuity Premiums & Deposits 55% 51% 53% 48% 45%

A&H Premiums 24% 25% 27% 28% 30%

Credit and Other 1% 1% 1% 1% 1%

100% 100% 100% 100% 100%

Source: S&P Global

ii. Policyholder Contract Benefits, Surrenders, and Other Expenses

Policyholder contract benefits are claims or obligations of L&H insurers under life insurance, 

annuity, and other contracts and policies. Contract surrenders occur when a policyholder or 

contract holder elects to cancel a policy or contract before the end of its contractual term and to 

receive its accumulated cash value. Contract benefit payments and contract surrenders comprise 

the majority of total expenses for L&H insurers. Non-benefit-related expenses include general 

administrative and overhead expenses, expenses incurred in acquiring business (particularly 

producer commissions), and expenses related to payments made under contractual provisions of 

polices, including loss verification and adjustment expenses. Figures 16 and 17 show aggregate 

L&H sector benefit payments, surrenders, reserve increases, and all other expenses for recent 

years.
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Figure 16: L&H Sector Expenses ($ billions)

Source: S&P Global

Figure 17: L&H Sector Expenses ($ thousands)

2014 2015 2016 2017 2018

Total Benefits Payments $ 251,752,087 $ 263,909,819 $ 271,355,287 $ 281,362,794 $ 290,153,220

Total Surrenders 281,532,892 272,998,652 265,095,216 308,928,847 350,167,147

Total Increase in Reserves 108,734,429 80,546,645 133,139,152 106,352,493 142,720,901

Total Transfers to Separate Accounts (16,464,689) 36,922,715 (38,046,582) (65,770,433) (89,589,784)

Commissions 52,063,514 55,501,271 64,569,458 58,002,036 58,237,818

General & Administrative Expenses 58,950,536 60,074,070 62,361,327 65,853,750 65,795,273

Insurance Taxes, Licenses and Fees 9,981,134 10,481,358 10,828,050 8,814,672 10,728,150,

Other Expenses 65,995,973 (4,914,286) (2,709,027) (4,290,289) 11,152,989

Total $ 812,545,876 $ 775,520,244 $ 766,592,880 759,253,869 $ 839,365,714

Source: S&P Global

Total L&H sector expenses increased by nearly ten percent in 2018. Total contract surrenders 

increased 13 percent in 2018, reserve increases jumped by 34 percent, and total benefits 

payments rose three percent. Significant increases in aggregate reserves for ordinary and group 

annuities, as well as accelerated surrenders and withdrawals of ordinary and group annuities,

drove the growth in total expenses.394 A 36 percent increase in the net amount transferred from 

separate accounts was the only notable favorable change in 2018.

 

394 Zawacki, “US Life Industry Premiums Rose, but Statutory Profits Fell in 2018.”

$0

$50

$100

$150

$200

$250

$300

$350

$400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Net Premiums Written ($billions)

Year

Total Benefits Payments Total Surrenders Total Reserve Increases
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iii. Investment Income

Net investment income represented about 21 percent of aggregate L&H sector revenues in 2018, 

down slightly from 22 percent in 2017. Nonetheless, net investment income increased by nearly 

three percent for the year, to $187 billion. Figures 18 and 19 show L&H sector net investment 

income from invested assets (excluding net realized gains and losses on the disposition of assets) 

and the net investment yield for recent years.

Figure 18: L&H Sector Annual Net Investment Income ($ billions)

and Net Yield on Invested Assets (%)

Source: S&P Global

Figure 19: L&H Sector Annual Net Investment Income ($ thousands)

and Net Yield on Invested Assets (%)

2014 2015 2016 2017 2018

Net Investment Income $ 171,733,049 $ 170,760,967 $ 173,025,713 $ 182,255,857 $ 187,296,188

Total Cash & Investments 3,631,569,037 3,703,872,525 3,891,873,165 4,074,792,672 4,120,824,800

Net Yield on Invested Assets 4.83% 4.66% 4.56% 4.58% 4.57%

Source: S&P Global

Longer-term interest rates steadily rose over most of 2018, followed by a sharp decline in 

December (see Figure 20); the net yield on invested assets of 4.57 percent was essentially flat 

compared to the 2018 result of 4.58 percent. Additionally, the nearly three percent gain in net 

investment income outpaced the growth in total cash and invested assets in 2018, which was 

slightly more than one percent. Nonetheless, the general interest rate environment remained near 

$157

$164

$167 $167 $167

$172 $171

$173

$182

$187

4.0%

4.5%

5.0%

5.5%

$140

$145

$150

$155

$160

$165

$170

$175

$180

$185

$190

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Net Yield (%)

Net Investment Income ($billions)

Year

Net Investment Income (left axis) Net Yield on Invested Assets (right axis)
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109

historically low levels at the end of the year, and continued to present risks to the L&H sector.395 

A more detailed discussion of these risks can be found in Section VI.D of this Report.

Figure 20: Percentage Yield on 10-Year Treasury Bonds

Source: S&P Global

In 2018, the L&H sector net realized capital losses continued to narrow, dropping to $4.7 billion

from $8.6 billion in 2017, or nearly 45 percent. This followed a 25 percent decrease in realized 

capital losses experienced in 2017. The improvement in 2018 was due to higher realized gains 

on bonds and other invested assets. Losses on derivative securities (almost exclusively used for 

hedging transactions) were significantly higher compared to 2017.

iv. Net Income and Return on Equity

Figure 21 presents a summary income statement for the L&H sector. Total revenues in the L&H

sector were $904 billion in 2018, an increase of nearly eight percent from the $840 billion 

reported in 2017. The significant change in the reinsurance allowance, i.e., reserve adjustments 

on reinsurance ceded, from a $25 billion expense in 2017 to a $32 billion benefit in 2018, was

the main driver of the gain in total revenues. Several large life insurers, including American 

General Life Insurance Company, Voya Insurance, Delaware Life Insurance Company, and 

Hannover Life Reassurance Company of America, were the main contributors to this 

adjustment.396 The one percent increase in net premiums written, the three percent increase in 

net investment income, and a two percent increase in separate accounts revenues, also 

contributed to the rise in total revenues. Total expenses increased by nearly 11 percent to $839

 

395 See also FIO, 2017 Annual Report, 11.

396 Matthew Coppola, Best’s Special Report: First Look: 2018 Life/Annuity Financial Results (2019).

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

Jun-15

Dec-15

Jun-16

Dec-16

Jun-17

Dec-17

Jun-18

Dec-18

Percentage Yield

Month and Year
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110

billion, leading to a 26 percent drop in pre-tax operating income. Net income fell by nearly nine

percent to $38 billion in 2018 due to the reduction in net realized capital losses and a 72 percent 

decline in federal income taxes.

Figure 21: L&H Sector Net Income ($ thousands)

2014 2015 2016 2017 2018

Premiums, Consideration & Deposits $ 647,273,909 $ 638,190,255 $ 599,872,141 $ 597,055,044 $ 603,640,320

Net Investment Income 171,733,049 170,760,967 173,025,713 182,255,857 187,296,188

Reinsurance Allowance (14,987,927) (86,443,933) (16,975,046) (25,108,912) 32,080,941

Separate Accounts Revenue 34,270,975 35,197,929 34,652,744 36,551,982 37,266,227

Other Income 39,701,639 90,479,682 61,330,223 49,001,443 43,800,053

Total Revenue 877,991,645 848,184,900 851,905,776 839,755,415 904,083,729

Total Expenses 812,545,876 775,520,244 766,592,880 759,253,869 839,365,714

Policyholder Dividends 16,430,515 18,271,884 18,230,320 17,498,496 18,190,052

Net Gain from Operations before Tax 49,012,243 54,396,094 67,061,448 63,003,084 46,527,963

Federal Income Tax 10,106,056 10,566,280 16,282,427 12,358,720 3,417,611

Net Income before Capital Gains 38,905,344 43,832,635 50,782,390 50,644,532 43,110,352

Net Realized Capital Gains (Losses) (1,306,441) (3,543,569) (11,384,798) (8,554,859) (4,747,496)

Net Income $ 37,605,615 $ 40,285,063 $ 39,397,552 $ 42,089,546 $ 38,362,8556

Source: S&P Global

Figure 22 shows key operating ratios for the L&H sector. The L&H sector’s 2017 pre-tax 

operating margin decreased to 5.2 percent from 7.5 percent in 2017. Similarly, the decrease in 

operating income led to a drop in the sector’s pre-tax operating return on average equity to 11.7

percent from the 16.3 percent recorded in 2017, and the return on average equity slipped to 9.7 

percent from 10.9 percent.

Figure 22: L&H Sector Operating Ratios

2014 2015 2016 2017 2018

Pre-Tax Operating Margin 5.58% 6.41% 7.87% 7.50% 5.15%

Return on Average Equity 10.96% 11.17% 10.54% 10.85% 9.66%

Pre-Tax Operating Return On Average Equity 14.29% 15.08% 17.93% 16.25% 11.72%

Return on Average Assets 0.61% 0.64% 0.61% 0.62% 0.55%

Source: S&P Global

b) Condition

This section presents information on the 2018 financial condition of the L&H sector, 

highlighting financial measures and trends, which help to characterize the sector’s solvency and 

financial stability over the last decade and in the post-crisis period.397

 

397 According to the National Bureau of Economic Research, the financial crisis began in December 2007 and lasted 

until June 2009. See “U.S. Business Cycle Expansions and Contractions,” National Bureau of Economic Research, 

http://nber.org/cycles/. The post-crisis period noted throughout this section refers to the period, beginning at yearend 2009 through 2018 and calculations cited for the post-crisis period are based on this timeframe. The post-crisis 

period is synonymous with the 10-year period under review in this section, unless otherwise noted.
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i. Capital and Surplus

As Figure 23 shows, the L&H sector’s financial condition continues to be reflective of positive 

growth in general account assets and capital and surplus.

Figure 23: L&H Capital and Surplus Position ($ thousands)

2014 2015 2016 2017 2018

Capital & Surplus $ 353,968,597 $ 367,249,564 $ 380,686,099 $ 394,915,599 $ 399,291,629

Year-Over-Year Growth 6.6% 3.8% 3.7% 3.7% 1.1%

General Account Assets 3,835,978,902 3,912,020,651 4,117,531,087 4,301,328,459 4,354,994,987

Year-Over-Year Growth 4.4% 2.0% 5.3% 4.5% 1.2%

General Account Assets, 

Adjusted398

$3,800,605,627 $3,867,610,288 $4,073,722,620 $4,231,328,558 $4,279,492,867

Capital & Surplus to General

 Account Adjusted Assets 

9.31% 9.50% 9.34% 9.33% 9.33%

Source: S&P Global

In reviewing the last five years of the L&H sector’s capital position, year-over-year growth in 

capital and surplus decelerated considerably in 2018, increasing at just over one percent from the 

previous year to total $399.3 billion. The sector’s capital and surplus growth in 2018 dipped to 

its lowest level in the last 10 years, while 2009 and the onset of economic recovery from the 

financial crisis represented a high for the period with an annual growth rate of 15.5 percent. 

Growth in capital and surplus averaged 4.8 percent annually over the past decade but even when 

excluding the highs and lows for the period, the L&H sector exhibited solid growth in its capital 

and surplus base, averaging 3.9 percent on a yearly basis.

At 3.2 percent on average since 2008, annual growth in total general account assets has remained 

positive, further supporting the sector’s ability to pay policyholder claims. As Figure 23

indicates, the ratio of capital and surplus to general account adjusted assets (adjusted by 

eliminating cash and cash equivalents) averaged 9.36 percent annually over the last five years. 

By comparison, the same ratio averaged 9.1 percent annually from 2009 to 2013, resulting in a 

decade average of about 9.23 percent on a yearly basis and demonstrating that in recent years, 

the L&H sector has moved to enhance its capital levels to bear the risk exposure of the assets 

backing its obligations.

The L&H sector’s capital position can largely be attributed to sustained positive earnings over 

the last decade, with net income before capital gains contributing close to 14 percent to the 

previous year’s capital and surplus on average in the post-crisis period. Figure 24 shows key 

contributors to the L&H sector’s capital and surplus.

 

398 General Account adjusted assets refers to total general account assets less cash and cash equivalents, as such 

holdings pose little risk to the insurer.
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Figure 24: Key Contributors to L&H Sector Capital and Surplus

Source: S&P Global

Growth in the L&H sector’s capital base can be observed more clearly by eliminating the effect 

of capital contributions in the form of surplus notes. Organic growth in capital and surplus has 

averaged 4.7 percent annually in the last decade, mainly due to consistently strong underwriting 

results that have enhanced net income. Partially offsetting that growth have been stockholder 

dividends. In 2018, stockholder dividends were $38 billion, the highest that the L&H sector has 

paid in the last ten years. If there had been no dividend payments in 2018, year-over-year 

organic growth in capital and surplus would have been more than 10 percent. Overall, 

stockholder dividends have comprised 7.3 percent of prior year-end capital and surplus on 

average annually post crisis.

Contributing to the strength of the L&H sector’s capital position has been steady on-balance 

sheet leverage since the highs reached during the height of the financial crisis in 2008. The 

greater financial flexibility afforded by expected and persistent leverage ratios has enabled 

insurers to better meet two significant goals in fulfilling policyholder obligations: (1) returning a 

profit by investing the premiums received from underwriting activities; and (2) limiting the risk 

exposure created by the policies underwritten. Insurers may also cede premiums to reinsurance 

companies in order to off-load some of the risks from their own balance sheets. As Figure 25

shows, general account leverage for the L&H sector has held firm for much of the last ten years.

-15%

-10%

-5%

0%

5%

10%

15%

20%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percentage of Prior Year-End Capital & Surplus

Year

Net Income excluding Capital Gains Net Realized Capital Gains (Losses)

Net Unrealized Capital Gains (Losses) Dividends to Stockholders
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Figure 25: On-Balance Sheet General Account Leverage for the L&H Sector

Source: S&P Global

The L&H sector’s net leverage ratio399 of 11.42 at year-end 2018 was not materially changed 

from the previous two years and continued to remain below the average of 11.69 per year 

post-2008. Specifically, the liabilities-to-equity multiple of 9.91 at year-end 2018, reflecting 

general account liabilities of $4.0 trillion as a multiple of capital and surplus, was not materially 

changed from 9.90 at year-end 2017 and has averaged at a multiple of almost 10 annually in the 

past decade. Net premiums, annuities, and considerations (collectively referred to as net 

premiums in the net leverage ratio) have averaged 1.73 times capital and surplus per year postcrisis. Surplus relief through reinsurance for the L&H sector has been gradually climbing over 

the last five years, equating to 5.44 percent of capital and surplus at year-end 2018 compared to 

3.72 percent at year-end 2014.400 Cessions to reinsurers accounted for 33.2 percent of gross 

premiums at year-end 2018, climbing from 27 percent at year-end 2017 and raising the annual 

average to 23 percent for the decade.

Growing annually at 2.8 percent on average post-crisis, total policy reserves and deposit-type 

contract reserves were $3.4 trillion at year-end 2018, up by over 2 percent from $3.3 trillion at 

year-end 2017. The multiple of policy reserves and deposits to capital and surplus has held 

relatively firm over the last five years, ranging between 8.3 and 8.4. From 2009 and 2013, 

multiples ranged between 8.6 and 9; whereas 2008 was an outlier, reaching a multiple in excess 

 

399 Net leverage ratio is an indicator of the sector’s exposure to pricing and estimation errors, determined by 

calculating total liabilities and net premiums, annuities, and considerations as a multiple of capital and surplus.

400 The use of reinsurance for surplus relief is most common when an insurer begins to rapidly expand its volume of 

premiums written. The calculation in this Report involves the amount of surplus not yet reported as income from 

commissions and expense allowance on reinsurance ceded during the current year as a share of capital and surplus. 

It captures the amounts related to A&H business as well as life and annuity business for general and separate 

accounts. See generally FIO, Reinsurance Report.

 -

 2.0

 4.0

 6.0

 8.0

 10.0

 12.0

 14.0

 16.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

As a Multiple

of Capital and Surplus

Year

Net Leverage (net premium written and net liabilities)

Asset Leverage

Total Reserves & Deposits
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of 10 due to a 5.7 percent decline in capital and surplus and a 5.3 percent increase in policy 

reserves and deposits that year. The trend since 2008 has enabled the sector to alleviate capital 

strain and enhance its financial flexibility.

The asset leverage ratio aims at measuring the potential impact on the balance sheet arising from 

the volatility and credit quality of the sector’s investment portfolio, reinsurance recoverables, and 

agents’ balances, and is calculated as the sum of cash and invested assets plus reinsurance 

recoverables and agents’ balances to capital and surplus. In the past decade, the L&H sector’s 

asset leverage ratio has ranged between a low of 10.23 at year-end 2015 and a high of 10.95 at 

year-end 2011. At year-end 2018, the multiple was 10.49, not materially changed from 10.5 at 

year-end 2017, and 10.39 at year-end 2016. The steadiness of the asset leverage multiple, 

remaining close to the post-crisis annual average of 10.54, suggests that no substantial deviations 

have occurred in the sector’s exposure to investment, interest rate, and credit risks in recent 

years.

ii. Asset Base

Reinforcing the sector’s stable capital base have been positive general account asset growth and 

investment allocations consistent with policyholder obligations. General account assets rose to 

$4.4 trillion in 2018 from $4.3 trillion in 2017, averaging an annual growth rate of 3.2 percent 

over the last decade. Separate account assets dropped considerably for the first time in the last 

ten years, falling by 9.2 percent from 2017 levels and likely linked to the volatility in financial 

markets observed at the end of 2018. The annual growth rate of separate account assets has 

nonetheless been double that of general account assets, averaging 6.4 percent over the past 

decade. Total L&H sector assets, including separate accounts, were $6.8 trillion and $7.0 trillion 

for the years ending 2018 and 2017, respectively.

Figure 26 shows the composition of the L&H sector’s asset portfolio and distribution of cash and 

investments. Of total asset holdings, general account assets have averaged over 62 percent of the 

portfolio on a yearly basis over the last five years, while separate account assets have averaged 

close to 38 percent.
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Figure 26: Composition of L&H Sector

General Account Asset and Investment Portfolio

2014 2015 2016 2017 2018

General Account Assets / Total Assets 61.3% 61.8% 62.3% 61.3% 63.9%

Separate Account Assets / Total Assets 38.7% 38.2% 37.7% 38.7% 36.1%

Bonds (Long-Term) 73.9% 73.8% 73.5% 73.0% 72.5%

Preferred Stocks 0.3% 0.3% 0.2% 0.3% 0.3%

Common Stocks 2.1% 2.0% 2.2% 2.3% 2.0%

Mortgage Loans 10.3% 10.9% 11.2% 11.7% 12.6%

Real Estate 0.6% 0.6% 0.6% 0.6% 0.5%

Contract Loans 3.6% 3.4% 3.3% 3.2% 3.1%

Derivatives 1.6% 1.5% 1.6% 1.4% 1.4%

Cash & Short Term Investments 2.8% 2.8% 2.6% 2.6% 2.5%

Other Investments 4.9% 4.7% 4.7% 5.0% 5.1%

Total Cash & Invested Assets 100% 100% 100% 100% 100%

Share of General Account Assets 94.7% 94.7% 94.5% 94.7% 94.6%

Source: S&P Global

As reflected in Figure 26 for recent years, the structure of the investment portfolio has remained 

generally consistent over the last ten years. Cash and invested assets continued to account for 

nearly 95 percent of the general account asset portfolio at year-end 2018, aligned with the yearly 

trend for the last decade. About three-quarters on average of the L&H sector’s investment 

portfolio has consisted of bond holdings in each of the last ten years, reflective of the significant 

role that life insurers play in the corporate bond market. Of total bonds, almost 97 percent have 

been long-term on average—in line with the long-term nature of obligations assumed under life 

policies and contracts. This concentration is indicative of insurer risk management practices that 

match asset and liability durations, aimed at mitigating the impact of interest rate fluctuations on 

capital and surplus and providing the ability to estimate cash flows in order to meet debt and 

policyholder obligations as they fall due.

Mortgage loans remain the second largest investment class held by the L&H sector, averaging 

10.6 percent of cash and invested assets annually over the last decade.

As Figure 26 details for the past five years, the L&H sector has slowly reduced the allocation of 

its investment portfolio to bond holdings, falling by 50 basis points in each of the last three 

years. At the same time, the L&H sector raised its holdings of mortgage loans by 50 basis points 

in 2017 and another 94 basis points in 2018. The reallocation may be reflective of the residual 

effects of the low interest rate environment, which began post-crisis, and the L&H sector’s 

search for yield to mitigate the impact to investment earnings.

iii. Liquidity

The L&H sector’s sound financial health is further supported by its liquidity position, despite 

recent adverse trends. Surrender activity jumped significantly in 2017, with that same trajectory 

continuing into 2018 when the levels represented a new high for the decade both by volume and 

as a share of net premiums collected. Benefit payments similarly reached a 10-year high, as 

illustrated in Figure 27. Even with these developments, positive cash flows from operations, 
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steady growth in cash and invested assets, and a stable current liquidity ratio suggest that the 

L&H sector continues to possess the capacity to fulfill its ongoing business needs.

Figure 27: Cash Flows from Operations for the L&H Sector

Source: S&P Global

Benefit payments as a share of premiums collected, net of reinsurance, have shown an upward 

trend since 2015. In 2018, benefit payments of $667.9 billion exceeded net premiums receipts, 

resulting in a ratio of 106.1 percent, up from $612.7 billion and 99.1 percent in 2017. On 

average, benefit payments have consumed 90.5 percent of net premiums collected on a yearly

basis over the past decade. 

Surrenders, before 2017, comprised 42.5 percent of net premium receipts on average annually in 

the post-crisis period compared to 48.1 percent in 2008. In 2017, the ratio reached 50 percent as 

illustrated in Figure 27 and peaked as a new decade high in 2018 at 55.6 percent. Surrenders 

were $350.2 billion, a 13.3 percent increase from $308.9 billion in 2017. By contrast, 

year-over-year growth in net premiums collected was considerably lower. Net premium receipts 

were $629.2 billion in 2018, a 1.8 percent increase from $618.2 billion in 2017.

A number of factors could be at work in the recent trends. Of note is the continued interest rate 

hikes in the last two years. As such, expectations of higher interest earnings could be driving 

market participants to seek out other investment opportunities.

With an average annual growth rate of 3.2 percent over the last decade, cash and invested assets 

were $4.1 trillion at year-end 2018, rising by 1.2 percent from the prior year-end and nearly 

mirroring the 1.4 percent year-over-year growth in general account liabilities. As a result, the 

ratio of general account liabilities to cash and invested assets has remained steadfast—at 96.1 

percent as of year-end 2018 compared to 95.9 percent as of year-end 2017 and averaging at 96 

0%

20%

40%

60%

80%

100%

120%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Share of Net Premiums Collected

Year

Surrenders Benefit Payments
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percent yearly for the decade. Bonds have steadily made up the bulk of cash and investments, 

totaling $3.0 trillion at year-end 2018, not materially changed from the previous year-end.

Just over 30 percent of the bond portfolio had maturities that ranged between five and 10 years in 

2018, not significantly changed from 2017. Another 37.8 percent, or $1.15 trillion of bonds, had 

maturities of greater than 10 years as of year-end 2018, not considerably changed from 38.6 

percent and $1.17 trillion as of year-end 2017—more than half of which consisted of bonds with 

maturities in excess of 20 years at both points in time. In other words, more than 60 percent of 

the entire bond portfolio has consistently been allocated to holdings that are medium to long term 

in duration in each of the last 10 years, supporting the longer time horizon of a life insurer’s 

obligations. Moreover, the L&H sector has held nearly 94 percent on average of its total bonds 

in investment-grade holdings each year since 2009, mitigating the sector’s credit risk exposure. 

There were a few signs in 2018 of a potential weakening in the quality of the L&H sector’s 

investment portfolio. As a share of capital and surplus, cash and short-term investments have 

continually declined from a high of 41.9 percent at year-end 2009 to 26.2 percent at year-end 

2018, as illustrated in Figure 28.

Figure 28: A View of L&H Sector Liquidity

Source: S&P Global

Furthermore, privately-placed bonds are accounting for a greater share of total bond holdings 

over the past decade, while publicly-traded bonds have declined from a high of nearly 75 percent 

as of year-end 2009 to just over 66 percent as a percentage of total bond holdings as of year-end 

2018. Because private-placement bonds are not assigned credit ratings, the degree of risk and 

whether the risk assumed is commensurate with the compensation received are difficult to 

ascertain. Private-placement bonds have gradually risen from a 2.1 multiple of capital and 

surplus at year-end 2009 to 2.6 at year-end 2018.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

50%

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Cash and Short-Term Invetments 

as a Share of Capital & Surplus

Current Liquidity Ratio

Public Bonds to Total Bonds

Year

Current Liquidity Ratio Public Bonds Cash and ST Investments
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Due to the generally illiquid nature of affiliated holdings—i.e., a market does not exist for such 

types of investments, making it difficult to ascertain their value—significant growth in affiliated 

investments can erode the strength of an entity’s capital base. Before 2018, the L&H sector’s 

affiliated holdings of cash and invested assets had progressively mounted in the post-crisis 

period, averaging an annual growth rate of 7.6 percent. In 2018, that trend reversed. Affiliated 

cash and invested assets of $174.9 billion as of year-end 2018 represented 43.7 percent of capital 

and surplus, down from $184.7 billion and 46.9 percent as of year-end 2017. Affiliated common 

stock accounted for 28.8 percent of all affiliated investment holdings at year-end 2018, while 

affiliated other investments401 made up another 48.5 percent. By comparison, affiliated common 

stock and affiliated other investments made up 31.9 percent and 45.7 percent of total affiliated 

holdings, respectively, at year-end 2017. It is too soon, however, to determine whether the 

reduction in affiliated holdings in 2018 represented an anomaly or the beginning of a new trend.

The few negative trends observed in liquidity in 2018 are mitigated by the L&H sector’s overall 

financial profile. Specifically, despite the downward trend in cash and short-term investments, 

the L&H sector has exhibited a current liquidity ratio ranging between 90 percent and 93.2 

percent, as shown in Figure 28, demonstrating a consistent capacity to satisfy its liabilities.402 

Second, publicly-traded and privately-placed bonds together have largely consisted of 

investment-grade bonds, averaging close to 94 percent of the entire bond portfolio each year over 

the past decade. Third, affiliated cash and investments have averaged only 4 percent of total 

cash and invested assets annually since 2009. Finally, the bulk of unaffiliated investment 

holdings is aligned with the L&H sector’s asset/liability matching philosophy, with long-term 

bonds dominating the portfolio. Unaffiliated cash and invested assets were $4.0 trillion at yearend 2018, up by 1.5 percent from $3.9 trillion at year-end 2017. The ratio of unaffiliated cash 

and invested assets to total general account liabilities has remained at a multiple of 1 in each year 

of the last ten years, while the contribution of unaffiliated investments to capital and surplus has 

remained steady and substantial. The level of unaffiliated investments has been 10 times that of 

capital and surplus on average annually since 2009, further bolstering the L&H sector’s ability to 

uphold its policyholder and funding commitments as they arise.

 

401 “Other” investments include, but are not limited to, surplus notes, limited partnerships, joint ventures, hedge 

funds, private equity funds, and direct investments.

402 Current liquidity is used to determine the amount of liabilities that can be covered with liquid assets. It is 

calculated as follows: the numerator equals net admitted cash and investments less the sum of net admitted first lien 

real estate loans, net admitted real estate loans less first liens, net admitted occupied properties, net admitted income 

generating properties, net admitted properties held for sale, affiliated long-term bonds, and affiliated preferred stock; 

the denominator equals total liabilities less the sum of net transfers to separate accounts due, asset valuation reserve, 

transfers from separate accounts, and protected cell liabilities.
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3. Property and Casualty Sector

This section presents additional analysis of the financial performance of the P&C sector in 2018, 

and then assesses the P&C sector’s overall financial condition as of December 31, 2018.

a) Performance

i. Net Premiums Written 

Figure 29 shows the level and composition of P&C sector direct premiums written by major lines 

of business, and Figure 30 shows the corresponding dollar values and a reconciliation to net

premiums earned (i.e., direct premiums written less net reinsurance premiums ceded and the 

change in unearned premiums reserve). For 2018, total P&C sector net premiums written 

reached a record level at $615 billion, marking a strong ten percent increase over 2017 levels. 

Direct premiums written for personal lines of business grew by six percent, while direct 

premiums written for commercial lines of business increased by more than four percent. Net 

reinsurance premiums ceded dropped by 30 percent, or some $29 billion, and boosted the growth 

in net premiums written. Significant intracompany reinsurance transactions among several 

Chubb Group companies contributed to the growth in net premiums written.403 Economic 

growth in the United States and rate increases continued to drive direct premiums written 

growth, while changes in reinsurance utilization generated almost half of the growth in net 

premiums written.

404 The changes in reinsurance utilization appeared to be related to the Base 

Erosion and Anti-abuse Tax provision in the Tax Cuts and Jobs Act,405 which may have led 

insurers to reduce premiums ceded to non-U.S. affiliates due to possible tax implications.406

 

403 Matthew Coppola, Best’s Special Report First Look: 2018 Property/Casualty Financial Results (2019).

404 Neil Spector and Robert Gordon, APCIA, Property/Casualty Insurance Results: 2018 (2019), 

http://www.pciaa.net/pciwebsite/common/page/attachment/81823.

405 FIO, 2018 Annual Report, 104-107.

406 Neil Spector and Robert Gordon, Property/Casualty Insurance Results: 2018.
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Figure 29: P&C Sector Direct Premiums Written ($ billions)

Source: S&P Global

Figure 30: P&C Sector Direct Premiums Written ($ thousands)

2014 2015 2016 2017 2018

Personal P&C Direct Premiums $287,272,384 $300,054,135 $317,762,245 $338,252,174 $358,001,368 

Commercial P&C Direct Premiums 271,209,044 280,072,580 284,084,864 292,322,834 304,790,673 

A&H Direct Premiums 5,766,660 6,142,327 6,565,978 7,222,990 7,099,101 

Direct Premiums Written 570,782,303 591,757,789 613,383,327 642,509,475 673,781,348 

Net Reinsurance Premiums (67,958,293) (71,247,200) (79,397,787) (84,086,607) (58,924,758)

Net Premiums Written 502,824,010 520,510,588 533,985,541 558,422,868 614,856,590 

Change in Unearned Premiums Reserve 9,093,094 8,400,547 4,801,796 12,090,135 18,402,862 

Net Premiums Earned $ 493,730,916 $512,110,041 $529,183,745 $546,332,732 $ 596,453,729

Source: S&P Global

$0

$50

$100

$150

$200

$250

$300

$350

$400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Direct Premiums Written ($billions)

Year

Personal P&C Direct Premiums Commercial P&C Direct Premiums

Accident & Health Direct Premiums
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ii. Underwriting Results

Figure 31 shows the P&C combined ratio and its construction for the past several years.407

Figure 31: P&C Sector Combined Operating Ratios

2014 2015 2016 2017 2018

Loss Ratio 57.21% 57.48% 60.68% 64.15% 60.72%

Loss Adjustment Expense Ratio 11.82% 11.83% 11.61% 11.76% 10.71%

Loss and Loss Adjustment Expense Ratio 69.04% 69.31% 72.29% 75.91% 71.44%

Net Commission Ratio 10.38% 10.55% 10.41% 10.29% 11.25%

Salaries & Benefits Ratio 8.14% 8.24% 8.32% 7.91% 7.38%

Tax, License & Fees Ratio 2.51% 2.55% 2.51% 2.47% 2.40%

Administrative & Other Expense Ratio 6.55% 6.72% 6.68% 6.67% 6.25%

Expense Ratio 27.58% 28.05% 27.92% 27.34% 27.27%

Policyholder Dividend Ratio 0.60% 0.59% 0.56% 0.61% 0.55%

Combined Ratio 97.21% 97.95% 100.76% 103.85% 99.26%

Source: S&P Global

The combined ratio for the P&C sector decreased significantly to approximately 99.3 percent in 

2018 from 103.9 percent in 2017, marking a return to an underwriting profit following two 

consecutive years of losses. A combined ratio greater than 100 percent indicates that premiums 

did not cover losses and expenses in a given period (i.e., underwriting operations made a 

negative contribution to net income). Investment income, realized capital gains/losses, and 

income taxes are not considered in the combined ratio. Natural catastrophes were less severe in 

2018 and contributed to the return to underwriting profits, but larger improvement in personal 

auto liability losses and strong workers’ compensation results were the main drivers of the lower 

combined ratio.

408 The expense ratio decreased slightly in 2018 compared with 2017.

iii. Investment Income

Net investment income for the P&C sector increased for the second consecutive year, rising a 

strong 14 percent to $57 billion in 2018 from $50 billion in the prior year. Cash and invested 

assets balances were essentially flat compared to 2017, allowing for the first increase in the net 

yield on invested assets since 2014; the net yield on invested assets rose to 3.35 percent in 2018 

from 3.03 percent in 2017. Figure 32 depicts a longer-term view of the trend in net investment 

income and net yield on invested assets for the P&C sector, and Figure 33 provides this data for 

the past five years. Realized capital gains and losses are reported separately and are not a 

component of net investment income. Because P&C insurers are less dependent than L&H 

insurers on net investment income to fund losses and expenses, net investment income accounted 

 

407 S&P Global ratios include the policyholder dividend ratio for transparency because dividends represent a cash 

outlay.

408 Tim Zawacki, “Private Auto Recovery Helps US P&C Industry back to Underwriting Profitability,” S&P Global 

Market Intelligence, March 19, 2019, 

https://platform.mi.spglobal.com/web/client?auth=inherit&overridecdc=1&#news/article?id=50595102.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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for about nine percent of total P&C sector revenues in 2018 (compared to 21 percent in the L&H 

sector).

Figure 32: P&C Sector Annual Net Investment Income ($ billions) 

and Net Yield on Invested Assets (%)

Source: S&P Global

Realized capital gains on investments also contributed to profitability in 2018, as the P&C sector 

recorded net realized capital gains of nearly $11 billion, marking a 45 percent decrease from 

2017. Realized capital gains in 2018 were more in line with historical results. Lower gains on 

common stocks and net losses on bonds were the main drivers of the decrease in net realized 

capital gains. 

Figure 33: P&C Sector Annual Net Investment Income ($ thousands)

and Net Yield on Invested Assets (%)

2014 2015 2016 2017 2018

Net Investment Income $54,904,547 $48,765,011 $47,461,805 $49,707,155 $ 56,646,731 

Total Cash & Investments 1,532,509,401 1,531,415,182 1,587,837,614 1,691,403,528 1,694,067,697

Net Yield on Invested Assets 3.64% 3.18% 3.04% 3.03% 3.35%

Source: S&P Global

iv. Net Income

The P&C sector’s net income rebounded strongly in 2018, following four consecutive years of 

decline, rising 50 percent to $61 billion from $41 billion reported in 2017, as shown in Figure 

34. The return to an underwriting profit, albeit slight, and the strong growth in investment 

income led to a 71 percent increase in pre-tax operating income, which rose to $68 billion in 

$48.4 $48.1

$50.9

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Net Yield (%)

Net Investment Income (% billions)

Year

Net Investment Income (left axis)

Net Yield on Invested Assets (right axis)
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2018, compared to $40 billion in 2017. A shift from a slight refund of federal income taxes in 

2017 to an expense in 2018 limited the gain in net income. Figure 35 provides a summary 

income statement for the P&C sector.

Figure 34: P&C Sector Net Income ($ billions)

Source: S&P Global

Figure 35: P&C Sector Summary Income Statement ($ thousands)

2014 2015 2016 2017 2018

Net Premiums Earned $493,730,916 $512,110,041 $529,183,745 $546,332,732 $596,453,729 

Losses and Loss Adjustment Expense 

Incurred 340,855,210 354,958,963 382,522,916 414,726,222 426,079,081 

Other Underwriting Expense Incurred 139,137,758 145,136,437 148,009,926 151,073,309 166,661,523 

Other Underwriting Deductions (475,218) 857,268 1,073,235 1,572,203 1,020,794 

Net Underwriting Gain (Loss) 14,213,165 11,157,373 (2,422,331) (20,799,063) 2,692,631 

Policyholder Dividends 2,943,412 3,016,579 2,943,624 3,308,785 3,272,394 

Net Investment Income 54,904,547 48,765,011 47,461,805 49,707,155 56,646,731 

Net Realized Capital Gains (Losses) 11,789,595 10,073,274 8,484,994 19,639,559 10,696,720 

Finance Service Charges 3,271,709 3,333,008 3,452,738 3,648,039 3,735,628 

All Other Income (6,158,765) (1,808,648) (2,410,912) (9,026,283) (2,376,962)

Net Income After Capital Gain

(Loss) Before Tax 75,076,697 68,503,439 51,622,428 39,860,623 68,122,353 

Federal Income Tax 10,318,207 10,188,539 7,314,767 (784,844) 6,998,027 

Net Income $64,757,509 $58,314,974 $44,307,882 $40,645,466 $61,124,326 

Source: S&P Global

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Figure 36 displays key measures of returns for the P&C sector. Consistent with the 

improvements on the income statement, each of these metrics increased in 2018 after four 

consecutive years of decline, but remained below 2015 levels. The 2018 return on average 

equity of 8.1 percent was well above the 5.5 percent mark in 2017, but below the average of nine 

percent for the past ten years.

Figure 36: P&C Sector Operating Ratios (%)

2014 2015 2016 2017 2018

Pre-Tax Operating Margin 11.60% 10.39% 7.47% 3.42% 8.77%

Return on Average Equity (Capital & Surplus) 9.56% 8.47% 6.33% 5.50% 8.05%

Pre-Tax Operating Return on Average Equity 9.34% 8.49% 6.16% 2.74% 7.57%

Return on Average Assets 3.66% 3.24% 2.40% 2.10% 3.05%

Source: S&P Global

b) Condition

This section analyzes the financial condition of the P&C sector at the end of 2018, focusing on 

surplus, assets, and liquidity.

i. Surplus as Regards Policyholders

The robustness of the P&C sector’s capital position is reflective of growth in the asset base and 

reduced stresses to the balance sheet.

Policyholder surplus for the P&C sector was $752.6 billion at year-end 2018, down from $765.4 

billion at year-end 2017. Despite the almost two percent year-over-year decrease, surplus annual 

growth has averaged at over five percent during the last decade. Removing capital infusions in 

the form of surplus notes did not materially change the average annual growth rate in 

policyholder surplus for the last 10 years. Organic surplus growth for the P&C sector can mainly 

be attributed to positive earnings including net realized and unrealized capital gains, offset in 

part by stockholder dividends. Specifically, the P&C sector paid stockholder dividends of $32.1 

billion and $29.4 billion in 2018 and 2017, respectively. As a share of prior year-end 

policyholder surplus, stockholder dividends have averaged 4.9 percent annually over the last 

decade, less than the L&H sector average due to the P&C sector’s larger surplus base. With the 

exception of 2009, in the post-crisis period the P&C sector has generated capital year after year 

from net realized capital gains.409 As a share of prior year-end policyholder surplus, net realized 

capital gains have averaged 1.4 percent annually post-crisis. After two consecutive years of 

considerable net unrealized capital gains, the P&C sector reported significant net unrealized 

capital losses of $45.4 billion in 2018. Because of the volatility in the financial markets at the 

end of 2018, net unrealized capital gains only contributed 1.8 percent to prior year-end 

policyholder surplus on average each year in the last decade, bringing the post-crisis annual 

average down from 2.6 percent in 2017.

 

409 The P&C sector reported net realized capital losses of $7.8 billion in 2009. 
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As shown in Figure 37, and similar to observations for the L&H sector, leverage ratios for the 

P&C sector have been unwavering, enhancing the sector’s financial capacity. Though they 

measure different exposures, the asset and net leverage ratios presented in Figure 37 had nearly 

converged to a single point before widening in 2018. The recent uptick in the two ratios was 

more material for the net leverage ratio, stemming from significant growth in net writings in 

2018 compared to previous years while growth in policyholder surplus fell that same year.

Figure 37: Stable Leverage Ratio Improving Financial Flexibility of P&C Sector

Source: S&P Global

Balance sheet strength can be affected by the volatility and credit quality of the investment 

portfolio, reinsurance recoverables, and agents’ balances. Reduced leverage on the balance sheet 

has generated greater financial flexibility, enabling the P&C sector to use its capital more 

efficiently in mitigating such potential risk exposures as investment, interest rate, and credit. 

Specifically, the P&C sector’s asset leverage has remained steady for the last six years, ranging 

between 2.35 and 2.40, while averaging at 2.43 annually over the last ten years. The combined 

liabilities-to-equity ratio and the operating leverage ratio (together representing the net leverage 

ratio) was 2.49 at year-end 2018, rising from 2.34 at year-end 2017. Though the sector 

experienced an increase in the net leverage ratio in 2018, the upturn contributed to raising the 

annual post-crisis average only to 2.47 from 2.46 in 2017.

Liabilities were 1.7 times surplus at year-end 2018, not changing significantly since year-end 

2010 and compared to 1.9 at year-end 2009.

Until 2018, reinsurance activity over the last decade has generally been stable, primarily 

characterized by positive year-over-year growth in cessions.

410 That trend reversed in 2018 

when cessions decreased considerably by nearly 29 percent from the prior year. Cessions were 

 

410 Aside from 2018, in the last decade the P&C sector reported a drop in cessions only in 2010 (3.2 percent).

0.0

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Share of Policyholder Surplus

Year

Total Loss and LAE Reserves Asset Leverage Net Leverage (net writings and liabilities)
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$60 billion and $84.1 billion in 2018 and 2017, respectively. The P&C sector was ceding 

premiums at an annual rate of 4.2 percent on average but with the significant drop in 2018, the 

post-crisis average declined to 0.9 percent on a yearly basis. The resulting increase in net 

writings boosted the sector’s operating leverage to 0.82 at year-end 2018 from 0.73 at year-end 

2017, and largely contributed to the rise in the net leverage ratio. On average, net premiums 

written have comprised about 0.76 times policyholder surplus each year post-crisis, indicating 

that the P&C sector has been able to cover the business being underwritten.

At year-end 2018, the ratio of loss and loss adjustment reserves to policyholder surplus was 0.87, 

rising from 0.85 at year-end 2017. Loss and loss adjustment reserves were $661.3 billion and 

$646.9 billion in 2018 and 2017, respectively. The ratio has averaged at a multiple of less than 

one annually over the last 10 years, demonstrating that the P&C sector in the aggregate has 

remained consistent in its estimation of reserves to cover potential liabilities arising from claims 

made on policies underwritten.

ii. Asset Base

Contributing to the soundness of the P&C sector’s capital position has been the growth and 

composition of asset holdings. Total assets of $2.0 trillion as of year-end 2018, rising slightly 

from the previous year-end, have been growing at an annual rate of 3.4 percent on average over 

the last decade, helping the sector maintain a stable capital base relative to the risk exposure 

from its asset holdings. Policyholder surplus covered 38.3 percent of the sector’s asset holdings 

exposed to risk411 as of year-end 2018 compared to 39.3 percent and 38.5 percent as of the years 

ending 2017 and 2016, respectively, and in comparison to an annual average of 37.8 percent each 

year post-crisis.

The configuration of the sector’s asset portfolio has remained virtually constant for the last 

decade, with the bulk of holdings allocated to cash and investments. Figure 38 illustrates the 

composition of the P&C sector’s assets at year-end 2018, which largely mirrors the distribution 

of assets in previous years.

 

411 Because the risk exposure related to cash and cash equivalents is negligible to the insurer, asset holdings exposed 

to risk refer to total assets less cash and cash equivalents.
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Figure 38: 2018 Composition of Asset Portfolio for P&C Sector

Source: S&P Global

On average, cash and invested assets have accounted for nearly 85 percent of total assets each 

year over the last decade, while premiums and considerations due have averaged in excess of 8 

percent annually.

The P&C sector has allocated more than 60 percent to bonds on average annually in recent years, 

as detailed in Figure 39, while common stock holdings have averaged in excess of 22 percent of 

the sector’s investment portfolio.

Figure 39: Composition of Investment Portfolio for P&C Sector

2014 2015 2016 2017 2018

Bonds (Long-Term) 61.5% 62.1% 61.3% 57.9% 60.3%

Preferred Stocks 1.0% 0.9% 0.7% 0.3% 0.3%

Common Stocks 21.5% 21.1% 21.7% 24.2% 23.0%

Mortgage Loans 0.7% 0.8% 0.9% 1.0% 1.2%

Real Estate 0.7% 0.8% 0.8% 0.8% 0.8%

Contract Loans 0.0% 0.0% 0.0% 0.0% 0.0%

Derivatives 0.0% 0.0% 0.0% 0.0% 0.0%

Cash & Short Term Investments 5.9% 5.8% 5.8% 6.9% 5.9%

Other Investments 8.7% 8.5% 8.7% 8.9% 8.5%

Total Cash & Invested Assets 100% 100% 100% 100% 100%

Source: S&P Global

This composition of investment holdings aligns with the risk management practices employed by 

the P&C sector to address both the shorter-term obligations of some P&C lines (such as auto 

liability) as well as longer-tailed liabilities (such as medical malpractice and workers’ 

compensation). Annual growth in total bonds has been firm, averaging 2.1 percent in the last 

decade, whereas common stocks have grown by 8.4 percent on average. Total bonds, both shortterm and long-term combined, were $1.1 trillion in 2018, not materially changing from the 

Cash and Invested 

Assets (84.1%)

Premiums and 

Considerations Due 

(9.3%)

Reinsurance 

Recoverable (2.6%)

Receivable from Parent, 

Subsidiary or Affiliates (1.1%)

All Other Admitted 

Assets (2.9%)
Annual Report on the Insurance Industry (September 2019)

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previous four years. Of the entire bond portfolio, more than 92 percent has consistently been 

comprised of long-term bonds in each of the last five years, while close to 71 percent of all bond 

holdings had durations ranging between one and ten years on average. 

The P&C sector has been allocating an increasing share of its bond holdings to private 

placements over the last ten years. Private placements comprised 15.1 percent of the aggregate 

bond portfolio at year-end 2018, up from 13.2 percent at year-end 2017 and 10 percentage points 

higher than at year-end 2009. Despite the growth in privately-issued bond holdings, 

publicly-traded bonds still comprised nearly 90 percent of total bonds on average annually since 

year-end 2009. In addition to the shift between public and private bond holdings, the P&C sector 

showed a steady rise in the share of its investment portfolio allocated to equities, in particular for 

the years from 2011 through 2017. At year-end 2018, the sector reduced its exposures to equities 

with common stock investments of $388.9 billion accounting for 23 percent of cash and 

investments, decreasing from $409.5 billion and 24.2 percent at year-end 2017. Since year-end 

2011 through 2018 year-end, bond holdings as a share of cash and investments declined by 

nearly seven percentage points, while common stock holdings rose by almost six. Figure 39

displays this trend between 2014 and 2018.

As the percentage of common stock investments dropped in 2018, the P&C sector raised its 

mortgage loan holdings. Though still a small percentage of total cash and invested assets, the 

value of mortgage loans has shown consistent year-over-year growth since 2010. Total mortgage 

loans were $19.9 billion as of year-end 2018, accounting for 1.2 percent of cash and invested 

assets but 4.7 times the value of mortgage holdings of $4.2 billion at year-end 2010.

As with the L&H sector, the P&C sector has been demonstrating a gradual repositioning of its 

investment holdings, which can be attributed to both market performance and the search for 

yield. The effects of a prolonged low interest rate environment have caused insurers, in their 

quest for desired yield, to move an increased percentage of investment holdings towards

alternative investments and away from more traditional bond and equity holdings.

iii. Liquidity

The P&C sector has managed its liquidity effectively in meeting the day-to-day needs of its 

business operations, thereby maintaining a sound liquidity position over the past decade. With 

benefits and loss-related payments consuming significantly less of total net premiums collected 

annually, the sector has reported positive net cash flows from operations in each of the last 10 

years. Recent net cash flows from operations were $84.4 billion and $52.4 billion in 2018 and 

2017, respectively. On a cash basis, net premium receipts have averaged an annual growth rate 

of 3.4 percent, covering benefit and loss-related payments by 1.7 times on average each year

since 2009. As Figure 40 illustrates, premiums collected, net of reinsurance, exceeded benefit 

and loss-related payments by 74 percent and 65 percent at years ending 2018 and 2017, 
Annual Report on the Insurance Industry (September 2019)

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respectively. Moreover, the current liquidity ratio412 hit a high of 141.4 percent in 2014 and has 

remained within a close range of 137 and 141 percent for the last six years, improving from 131 

percent at year-end 2009.413

Figure 40: P&C Sector Cash Flows from Operations

Source: S&P Global

Positive net cash flows from operations have contributed to an average annual growth rate of 3.5 

percent in cash and invested assets over the last ten years, expanding the P&C sector’s financial 

flexibility. Despite the negative growth in cash and short-term investments of more than 12 

percent in 2018, pulling down the average annual growth rate of this asset class to 1.2 percent for 

the decade, liquid assets (the numerator of the current liquidity ratio) have represented at least 

2.2 times the level of aggregate policyholder surplus each year since 2009.

Certain concentrations of risk within the sector’s investment portfolio have evolved since 

year-end 2009, likely indicative of the P&C sector’s response to a sustained low interest rate 

 

412 Current liquidity is used to determine the amount of liabilities that can be covered with liquid assets. It is 

calculated as follows: the numerator equals net admitted cash and investments less the sum of net admitted first lien 

real estate loans, net admitted real estate loans less first liens, net admitted occupied properties, net admitted income 

generating properties, net admitted properties held for sale, affiliated long-term bonds, and affiliated preferred stock; 

the denominator equals total liabilities less ceded reinsurance premium payable.

413 This liquidity analysis is based on cash inflows and outflows—premiums that were collected as well as benefit 

and loss-related payments made during the year. The combined ratio referenced in the income statement discussion 

refers to premiums earned and written, and captures dividends and other expenses. These include commissions, 

salaries and benefits, administrative expenses, and taxes, in addition to incurred loss and loss adjustment expenses.

 $-

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Net Cash Flows ($billions)

Ratio

Year

Net Cash Flows from Operations (right axis)

Premium Collected / Benefit and Loss-Related Payments (left axis)

Current Liquidity Ratio (left axis)

Cash, Common Stock, and Investment-Grade Bonds / Liabilities (left axis)
Annual Report on the Insurance Industry (September 2019)

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environment in the post-crisis period and the search for yield. Within the bond portfolio, 

private-placement bonds have been taking up a larger share of aggregate surplus over the last ten 

years. The percentage stood at a high of 21.6 at year-end 2018, more than doubling from 9.2 

percent at year-end 2009. Annual growth in private placements averaged 16.8 percent over the 

decade, whereas annual growth in publicly-traded bonds averaged 0.6 percent.

Nearly 30 percent of the P&C sector’s bond portfolio has consistently been comprised of 

securities issued by U.S. federal, state, and municipal governments. More than two-thirds of 

bond holdings have consisted of some form of revenue bond investments, including special 

revenue and industrial revenue bonds. While revenue bonds can often be issued by local or 

municipal governments, the debt service is typically paid by a private company. Thus, the credit 

risk exposure for these types of bond holdings is heightened for the bondholder, i.e., repayment 

becomes a risk exposure to the insurer if the entity responsible for repayment becomes 

distressed. At year-end 2018, revenue bond holdings were $744.4 billion, up from $720.9 billion 

at year-end 2017. Revenue bond investments by the P&C sector grew at a yearly rate of 2.6 

percent on average in the last decade, while the average annual growth rate of government bond 

holdings turned negative.

In addition, there has been a continued rise in the P&C sector’s holdings of structured securities. 

Total structured securities held by the P&C sector were $169.4 billion in 2018, up from $150.1 

and $144.4 billion in 2017 and 2016, respectively. Structured holdings in 2018 reached a decade 

high, even surpassing levels in 2008 of $152.2 billion. Of the structured securities portfolio, 

mortgage-backed securities (MBS) issued by the Federal National Mortgage Association (Fannie 

Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have largely dominated 

over the past decade, averaging a third of the portfolio each year, while Government National 

Mortgage Association (Ginnie Mae) MBS have comprised about seven percent on average. 

Collateralized mortgage obligations and real estate mortgage investment conduits issued by 

Fannie Mae, Freddie Mac, and Ginnie Mae together averaged 23 percent of structured holdings

each year. In total, pass-thru securities issued by the government-sponsored enterprises and 

Ginnie Mae accounted for nearly 63 percent on average of the P&C sector’s structured portfolio 

on an annual basis over the last ten years. Fannie Mae and Freddie Mac are both under 

government conservatorship and operate in accordance with written capital support agreements 

with Treasury. As such, Fannie Mae and Freddie Mac MBS are not explicitly guaranteed by the 

federal government. By contrast, there is a full faith and credit guarantee of the U.S. government 

on Ginnie Mae MBS.

Between 2009 and 2017, affiliated holdings had been on an upward trajectory, exposing the 

sector to another of source of liquidity risk. Declining in 2018, affiliated investments were 

$195.4 billion compared to $202.2 billion in 2017. Whether the decrease in 2018 was an 

anomaly or the beginning of another trend is yet to be determined. Affiliated cash and 

investments represented 11.5 percent of total cash and invested assets and 25.8 percent of 

policyholder surplus at year-end 2018, down from 12 percent and 26.4 percent at year-end 2017 

but up from 7.8 percent of cash and investments and 19.1 percent of policyholder surplus at yearend 2009. Figure 41 shows the growth and shift in the composition of affiliated investments 

over the past decade.
Annual Report on the Insurance Industry (September 2019)

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Figure 41: P&C Sector's Affiliated Investments

Source: S&P Global

Other types of investments have come to dominate affiliated holdings, doubling their share of 

total affiliated investments from year-end 2009. Affiliated other investments in Figure 41

captures affiliated preferred stock, mortgage loans, and cash and invested assets in addition to 

other types of affiliated investments.

414 In the last four years, affiliated preferred stock, 

mortgage loans, and cash and invested assets have comprised less than two percent of affiliated 

other investments.

Several factors mitigate the P&C sector’s vulnerability to these risk exposures in the event of 

worsening market conditions. First, when observing financial trends over the decade, it becomes 

apparent that high quality bonds continue to make up the bulk of the sector’s portfolio of 

fixed-income securities, including MBS. Investment-grade bonds have averaged 96 percent of 

the P&C sector’s bond portfolio and about 61 percent of cash and invested assets annually over 

the last ten years. Second, the ratio of investment-grade bonds to policyholder surplus has been 

at a 1.4 multiple on average each year, enhancing the sector’s quality of capital. Third, bond 

holdings at or near default have accounted for a declining share of surplus since 2012; at 

year-end 2018, the share stood at 0.54 percent. Fourth, unaffiliated bond holdings have 

accounted for close to 70 percent of the unaffiliated investment portfolio on average each year, 

while unaffiliated common stocks have averaged 17 percent annually. Finally, unaffiliated cash 

and invested assets have been at least twice the level of policyholder surplus each year since 

2009. All of these factors have contributed to a healthy capital base for the P&C sector.

 

414 Affiliated other investments include, but are not limited to, surplus notes, limited partnerships, joint ventures, 

hedge funds, private equity funds, and direct investments.

$0

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$225

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Investments ($ billions)

Year

Bonds Common Stock Other Investments
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4. Market Performance

Stock price movements are indicators of investors’ perceptions about the recent financial results 

and future financial prospects of a firm, an industry sector, or in a broader context, the general 

economy. The discussion that follows considers the price performance of stock indices for the 

L&H and P&C sectors, as compared to the performance of the Standard and Poor’s 500 Index 

(S&P 500).

Over the ten-year period from December 31, 2008 through the end of 2018, the P&C sector 

performed essentially in-line with the S&P 500, as shown in Figure 42. On the other hand, the 

L&H sector stock index underperformed the S&P 500 during this period. The P&C sector

generally slightly underperformed, and at times tracked, the broad market, since the financial 

crisis. The L&H sector’s performance has been more volatile, both underperforming and 

outperforming the S&P 500 since the financial crisis; however, the sector has underperformed

since the end of 2015. Since the end of 2008, the P&C stock index gained 173 percent and the 

L&H stock index increased 119 percent; over the same period, the S&P 500 gained 179 percent. 

In the short-term, for 2018 the P&C stock index slightly outperformed the S&P 500, declining by 

five percent versus a nearly seven percent decline for the S&P 500, and the L&H stock index 

significantly underperformed the S&P 500, losing 22 percent (see Figure 42).

Figure 42: Insurance Sector Stock Price vs. S&P 500

 Source: S&P Global

The price-to-book value multiple, which compares on a per share basis the market value of a 

firm to its book value (i.e., reported equity on its balance sheet), is a popular metric by which to 

measure valuation. If a share of an insurer’s stock is selling for less than its book value per 

share, the market is valuing the firm at less than its assets minus its liabilities (net worth); the 

 -

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Stock Price

Month and Year

SNL U.S. Insurance L&H SNL U.S. Insurance P&C S&P 500
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133

opposite is true if the stock is trading at a premium to its book value. Figure 43 compares L&H

and P&C sector price-to-book value ratios from year-end 2008 through year-end 2018. After a 

significant increase over 2017, the premium of L&H sector stocks to book value reversed in 

2018, settling at a multiple of 1.01 times book value at the end of the year, down meaningfully 

from the 1.21 multiple at the end of 2017. P&C sector stocks likewise experienced a decline in

the market premium over book value increase, ending 2018 at a multiple of 1.39 times book 

value compared to a multiple of 1.53 times book value at the end of 2017.

Figure 43: Insurer Price/Book Value Ratios

Source: S&P Global

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SNL U.S. Insurance L&H SNL U.S. Insurance P&C
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

134 

Box 2: Collateralized Loan Obligations in the Insurance Industry

Collateralized loan obligations (CLO) are structured securities that are collateralized primarily 

with below-investment-grade business loans, called leveraged loans.415 In this sense, CLOs are

similar to collateralized debt obligations (CDOs) and private-label MBS that played a role in the 

financial crisis.416 By the first quarter of 2019, the outstanding U.S. CLOs market was over $605 

billion.417

Investors in the CLO market include investment funds, insurers, pension funds, hedge funds, and 

banks, with investor involvement varying by CLO tranche.418 Banks generally invest primarily 

in the highest credit rate tranches. Hedge funds generally focus on the higher yielding 

mezzanine and equity security investments. Insurers invest, to some degree, in a variety of credit 

qualities, including investment grade, mezzanine, and equity securities. In all, U.S. insurers hold 

an estimated $122 billion in CLOs, the majority of which were of high credit quality, with 

approximately 80 percent of the assets rated single-A or higher.419 According to the NAIC, P&C 

insurers held approximately 20 percent of these investments and life insurers held approximately 

80 percent.420 Additionally, the NAIC noted that “despite a steady increase in exposure,” CLOs 

“continue to represent a small proportion of total assets [of insurers], at nearly 2% of total cash 

 

415 See, e.g., NAIC, U.S. Insurance Industry’s Exposure to Collateralized Loan Obligations as of Year-End 2018

(2019), 1, https://www.naic.org/capital_markets_archive/special_report_190618.pdf. See also Federal Reserve, 

“Who Owns U.S. CLO Securities?” FEDS Notes, July 19, 2019, https://www.federalreserve.gov/econres/notes/fedsnotes/who-owns-us-clo-securities-20190719.htm. The use of leveraged loans has grown rapidly since the financial 

crisis, with an increasing share of such loans securitized into CLOs. See, e.g., Federal Reserve, “Who Owns U.S. 

CLO Securities?” See also “Leveraged Loan Primer,” S&P Global, 

https://www.spglobal.com/marketintelligence/en/pages/toc-primer/lcd-primer. The Bank of England reports that 

gross issuance of leveraged loans reached pre-crisis levels in 2018, but subsequently slowed; it estimates that there 

are $3.2 trillion in leveraged loans outstanding globally. Bank of England, Financial Stability Report (2019), 24, 

https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2019/july-2019.pdf. See also SIFMA, 

Leverage Lending FAQ & Fact Sheet (February 2019), https://www.sifma.org/wpcontent/uploads/2019/03/Leverage-Lending-FAQ.pdf. 

416 Like CDOs, CLOs issue several classes of securities representing different claims on the CLO that are structured 

into investment grade notes, mezzanine grade debt securities, and equity. Unlike CDOs, they do not rely on 

financial guarantees from monoline insurance companies or credit default swaps.

417 “U.S. ABS Issuance and Outstanding,” SIFMA, last updated September 6, 2019, 

https://www.sifma.org/resources/research/us-abs-issuance-and-outstanding/. 

418 See, e.g., Federal Reserve, “Who Owns U.S. CLO Securities?” A CLO includes the issuance of tranches of 

securities, including several classes of senior investment grade securities rated AAA, AA, A or BBB; one or more 

classes of mezzanine debt securities rated BB or B; and equity securities (representing ownership and control of the 

CLO) which absorb the first loss from default on the underlying loan pool. Guggenheim, Understanding 

Collateralized Loan Obligations (2019), 4, https://www.guggenheiminvestments.com/perspectives/portfoliostrategy/collateralized-loan-obligations-clo.

419 NAIC, U.S. Insurance Industry’s Exposure to Collateralized Loan Obligations as of Year-End 2018, 1, 7.

420 NAIC, U.S. Insurance Industry’s Exposure to Collateralized Loan Obligations as of Year-End 2018, 1.
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and invested assets as of year-end 2018.”421 As a proportion of capital and surplus in the 

insurance sector, CLOs constitute approximately 10 percent.422

Financial market supervisors and other authorities have recently highlighted issues regarding the 

CLO market. In its 2018 Annual Report, the Council noted “increasing demand for securitized 

products, such as collateralized loan obligations . . . .in the corporate debt market.”423 

Additionally, in a letter to the G-20, the FSB chair identified “riskier credit instruments,” 

including leveraged loans, directly and through CLOs, as an emerging vulnerability.

424

Supervisors have also pointed to risky features in the CLOs themselves.425 Notably, new CLO 

innovations—such as combo CLOs and enhanced CLOs—produce riskier assets.426 NAIC staff 

has proposed rule changes to “ratchet up oversight” on combo CLOs by prohibiting the use of 

external ratings to determine statutory capital for principal-protected notes, and require them to 

be evaluated in-house by regulators.

427

B. Capital Markets Activity

The U.S. domestic insurance industry continued to access the equity market for new capital, 

mostly through those first nine months. During the year, 18 insurance-related public equity 

 

421 NAIC, U.S. Insurance Industry’s Exposure to Collateralized Loan Obligations as of Year-End 2018, 1.

422 See NAIC, U.S. Insurance Industry’s Exposure to Collateralized Loan Obligations as of Year-End 2018 (noting 

U.S. insurers hold $122 billion in CLOs); Section VI.A.1 of this Report (noting that, in the aggregate, U.S. insurer 

capital and surplus is $1.1 trillion).

423 Council, 2018 Annual Report (2019), 27, 

https://home.treasury.gov/system/files/261/FSOC2018AnnualReport.pdf.

424 Letter from Randal K. Quarles, FSB, to G20 Leaders (June 24, 2019), https://www.fsb.org/wpcontent/uploads/P250619-1.pdf.

425 EIOPA, Financial Stability Report (2019), 52-54, 

https://eiopa.europa.eu/Publications/Reports/EIOPA_FSR_June2019.pdf (identifying risk factors including credit 

risk and potential loss to cash flow and valuation of CLO investments).

426 Combo CLOs are notes that are comprised of highly rated CLO tranches combined with equity shares. Enhanced 

CLOs—while a small share of the CLO market—are versions of leveraged loan-backed securities that have 

covenants allowing the underlying assets in the CLO capital structure to have a much higher share of very low rated 

loans. See, e.g., SEC Admin. Proceeding No. 3-18689 (Order Instituting Cease and Desist Proceedings) (August 28, 

2018), https://www.sec.gov/litigation/admin/2018/34-83966.pdf (addressing Moody’s failure to properly factor 

equity risk into its method for assigning credit ratings to combo CLOs); Sam Goldfarb, “Wall Street’s Answer to 

Risks in Loan Market: Bundle Lower-Rated Loans,” Wall Street Journal, July 16, 2019, 

https://www.wsj.com/articles/wall-streets-answer-to-risks-in-loan-market-bundle-lower-rated-loans-11563269403.

427 “Insurance Regulators Mull Crackdown on Ratings of CLO ‘Combo’ Notes,” S&P Global Market Intelligence,

July 29, 2019, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/leveraged-loannews/insurance-regulators-mull-crackdown-on-ratings-of-clo-combo-notes.
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offerings were completed, with an aggregate value of $11.5 billion.428 This level of activity was 

higher in terms of both the number of deals and the aggregate value compared to 2017, when 

there were 14 offerings valued at $4.4 billion. Of the offerings in 2018, only two transactions,

valued at $3.3 billion, were initial public offerings (IPOs), marking a significant increase in 

aggregate value from the four IPOs valued at $137 million in 2017. The largest single public 

equity offering by an insurer in 2018 was the $3.2 billion IPO by AXA Equitable Holdings, Inc.; 

the company also conducted a follow-on offering of $1.2 billion in common stock later in the 

year. Another large equity market transaction in 2018, although not an IPO, was Centene 

Corp.’s sale of $2.9 billion of common stock.

Debt markets continued to be the preferred source of additional capital for insurers in 2018, 

despite a gradual rise in interest rates over the first eleven months of the year, followed by a 

sharp decline late in the fourth quarter. During the year, U.S. insurers raised an aggregate $72.9 

billion in 118 separate debt offerings.429 Debt issuance increased from the $54.3 billion raised in 

116 offerings in 2017. Approximately 44 percent of 2018 debt sales were transacted in public 

markets, with the remaining 55 percent coming from private placements. Cigna Corporation was 

the largest issuer of debt in 2018, raising $20 billion (27 percent of the industry total) through ten

separate offerings. The second-largest issuer of debt in 2018 was MetLife and its consolidated 

subsidiaries, which raised $10.3 billion. In the aggregate, the funds raised by the top five issuers 

of debt accounted for 63 percent of the 2018 industry total. The largest single offering during 

2018 was a $7.5 billion issue sold by Metropolitan Life Insurance Company (a subsidiary of 

MetLife, Inc.).

1. Mergers & Acquisitions of U.S. Insurers

In 2018, there were 90 merger and acquisition (M&A) transactions announced involving U.S. 

insurers, with a total value of $27.6 billion.430 The number of deals was little changed from the 

93 transactions in 2017, but the aggregate value of the 2018 deals fell well short of the $87.1 

billion in 2017, which included the $70 billion acquisition of health insurer Aetna Inc. by CVS 

Health Corporation, announced late in 2017. The aggregate value of 2018 M&A activity was 

more in line with other recent historical figures. The largest transaction in 2018 was the January

announcement of the acquisition of Validus Holdings, Inc. by American International Group, a 

deal valued at approximately $5.5 billion. The second-largest deal announced in 2018 was the 

acquisition of Liberty Life Assurance Company of Boston by an investor group, valued at $2.8

billion. Other notable deals announced in 2018 included the $2.6 billion acquisition of Aspen 

Insurance Holdings Ltd. by Apollo Global Management, LLC, and the $2.5 billion acquisition of 

Meridian Health Plan of Michigan by WellCare Health Plans, Inc.

 

428 All data in this section with respect to capital markets and mergers and acquisitions are sourced from S&P 

Global, as collected and calculated by FIO. The data includes Bermuda-based holding companies for which primary 

insurance underwriting subsidiaries are domiciled in the United States.

429 Foreign currency-denominated transactions converted to U.S. dollars by S&P Global.

430 Transactions were announced between January 1, 2018 and December 31, 2018, and were either completed 

during the year or remained pending at the end of 2018. S&P Global did not report transaction values for all deals.
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2. Alternative Risk Transfer Insurance Products

The U.S. insurance market includes a small but innovative segment that employs alternative risk 

transfer (ART) financial instruments in order to augment risk shifting in insurance markets. The 

most widely known ART instrument is the catastrophe bond, but the market also includes ILS, 

collateralized reinsurance, industry loss warranties (ILWs), reinsurance sidecars, longevity 

swaps, and catastrophe futures.

There were two noteworthy changes to the ART market over the past year. First, the pace of 

ART growth has slowed. Volume leveled off over the past few quarters and may possibly 

decrease in 2019 overall if the trends in the first half of this year continue. One observer

attributed the decrease in the first half of 2019 to loss payments and redemption requests.431 

Fewer issuances and lower outstanding amounts also reflect a slower inflow of new capital in 

conjunction with existing collateral being tied up in settling large losses from 2017 and 2018,

including California wildfires and hurricanes and related flooding in the Carolinas, Florida, and 

Puerto Rico.432

Second, the composition of the perils handled through the ART market continues to evolve. 

Historically, ILS transactions focused on natural catastrophe perils from wind, flood, and 

earthquake. The past three years, however, have seen a sharp rise in a relatively new asset class: 

the reinsurance of mortgage credit risk.433 Additional ART coverage introduced over the past 

decade includes longevity risk, credit risk (guarantees for mortgages and municipal debt 

securities), and operational risk. Moreover, the range of participants in the markets has 

broadened and now includes, among others, the federal government with the NFIP catastrophe

bonds (discussed in Section III.A.2.d of this Report). One 2019 catastrophe bond involves both a 

new peril and a new participant. In February 2019, Pool Reinsurance Co. Ltd. (Pool Re), the 

government-backed mutual terrorism reinsurance facility in the United Kingdom, brought the 

first-ever terrorism risk catastrophe bond to market as part of its general retrocessional program 

for its terrorism risk exposures. In addition to being the first terrorism risk catastrophe bond, the 

transaction is also the first transaction accomplished under the United Kingdom’s 2017 Risk 

Transformation Regulations. 434

 

431 Aon Benfield, Reinsurance Market Outlook: June and July 2019 (2019), 1, 

http://thoughtleadership.aonbenfield.com//Documents/20190701_reinsurance_market_outlook.pdf.

432 See Aon Benfield, Reinsurance Market Outlook: June and July 2019, 4. See also Guy Carpenter, “Reinsurance 

Rate Movement Limited at January 1 Despite Uncertainty over Pricing Adequacy and Available Capital,” 

GCCapitalIdeas.com, January 14, 2019. https://www.gccapitalideas.com/2019/01/14/reinsurance-rate-movementlimited-at-january-1-despite-uncertainty-over-pricing-adequacy-and-available-capital/.

433 In the first half of 2019, mortgage ILS deals accounted for almost half of the $3.675 billion issuance total. Steve

Evans, “Cat Bond and Related ILS Risk Capital Outstanding Hits $40B for First Time,” Artemis, August 20, 2019. 

https://www.artemis.bm/news/cat-bond-related-ils-risk-capital-outstanding-hits-40bn-for-first-time/.

434 “Pool Re Sponsors First Terrorism Risk Catastrophe Bond, Baltic PCC,” Artemis, January 14, 2019, 

https://www.artemis.bm/news/pool-re-sponsors-first-terrorism-risk-catastrophe-bond-baltic-pcc/; Matthew Lerner, 
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By using the capital and derivatives markets to attract investors from outside the insurance 

industry, ART markets increase the capacity for reinsurance and retrocession, and thereby 

increase the U.S. insurance industry’s ability to supply insurance.

435

The current composition of the ART market reflects not only that ILS is a large share of the 

market, but also that the ILS segment is continuing its rapid growth. Collateralized reinsurance 

remains the largest—and still growing—segment of the ART market: collateralized reinsurance 

grew eight percent between September 2017 and September 2018.436 ILWs are not the largest 

segment of the ART market, but continue to serve a key function in the price discovery 

process.437

C. International Insurance Marketplace Overview

The United States remained the world’s largest single-country insurance market in 2018, 

maintaining a 28 percent market share of global direct premiums written (see Figure 44).438 This 

market share was flat compared to 2017, but represents a one percentage point increase over 

2013. When viewed as a single market, the EU’s share of global direct premiums written (27

percent), including the United Kingdom, is closely comparable to the market share of the United 

States. China remained the second-largest single-country insurance market, with 11 percent of 

global direct premiums written. Globally, direct premiums written increased only 1.5 percent in 

real terms (adjusted for inflation) in 2018, held back by slowing in the life sector.

439 Growth in 

non-life premiums of 3.0 percent outpaced the 0.2 percent increase in life premiums.440 Both 

overall and sectoral premiums growth trailed the 3.2 percent gain in global gross domestic 

product in 2018.

441 It is notable, though, that 2018 world direct premiums written surpassed the 

$5 trillion mark for the first time.

 

“Terrorism Reinsurer Makes First Cat Bond Purchase,” Business Insurance, February 26, 2019, 

https://www.businessinsurance.com/article/20190226/NEWS06/912326918?template=printart.

435 FIO, 2018 Annual Report, 98.

436 Aon Benfield, Insurance Linked Securities: Alternative Capital Fortifies Its Position (2018), 18, 

http://thoughtleadership.aonbenfield.com/Documents/20180905-securities-ils-annual-report.pdf. For more 

information on collateralized reinsurance, see FIO, 2018 Annual Report, 100-101.

437 For more on ILWs, see FIO, 2018 Annual Report, 101.

438 Swiss Re sigma, World Insurance: The Great Pivot East Continues (2019), 

https://www.swissre.com/institute/research/sigma-research/sigma-2019-03.html. Swiss Re sigma examines 

insurance and macroeconomic data from 147 countries sourced through Swiss Re Institute. Growth rates are 

presented in real terms, i.e., adjusted for inflation as measured by local consumer price indices. Swiss Re sigma 

separates the insurance industry into “life” and “non-life” sectors according to standard EU and OECD conventions; 

under these conventions, the “non-life” sector includes health insurance.

439 See Swiss Re sigma, World Insurance, 1.

440 Swiss Re sigma, World Insurance, 1-2.

441 Swiss Re sigma, World Insurance, 1.
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Consistent with the past several years, emerging markets exhibited a considerably greater rate of 

premium growth than advanced markets, in total and in both the life and non-life sectors. The 

modest growth in global life premiums was driven mainly by a 2.0 percent drop in life premiums 

in emerging economies, and less than 1 percent growth in advanced economies. The figures for 

non-life premiums were considerably stronger, with advanced economies recording non-life 

premiums growth of 1.9 percent and emerging economies recording non-life premiums growth 

of 7.1 percent.442

Figure 44: Gross Premiums Written and Market Share by Country, 2013 vs. 2018

2013 

Rank

2018 

Rank Country

2013 

Premium 

Volume ($ 

millions)

2013 

World 

Market 

Share (%)

2018 

Premium 

Volume ($ 

millions)

2018 

World 

Market 

Share (%)

Change in 

World 

Market 

Share (%)

1 1 United States 1,259,255 27.13% 1,469,375 28.29% 4.28%

4 2 PR China 277,965 5.99% 574,877 11.07% 84.82%

2 3 Japan 531,506 11.45% 440,648 8.49% -25.91%

3 4 United Kingdom 329,643 7.10% 336,510 6.48% -8.77%

5 5 France 254,754 5.49% 257,963 4.97% -9.51%

6 6 Germany 247,162 5.33% 241,485 4.65% -12.69%

8 7 South Korea 145,427 3.13% 179,024 3.45% 10.01%

7 8 Italy 168,554 3.63% 170,273 3.28% -9.72%

9 9 Canada 125,344 2.70% 127,903 2.46% -8.81%

11 10 Taiwan 90,977 1.96% 121,908 2.35% 19.75%

15 11 India 65,576 1.41% 99,838 1.92% 36.06%

10 12 Netherlands 101,140 2.18% 84,348 1.62% -25.47%

13 13 Australia 78,309 1.69% 79,098 1.52% -9.73%

14 14 Spain 72,510 1.56% 74,062 1.43% -8.72%

18 15 Ireland 55,780 1.20% 73,162 1.41% 17.21%

12 16 Brazil 88,931 1.92% 72,840 1.40% -26.80%

21 17 Hong Kong 36,075 0.78% 65,912 1.27% 63.28%

16 18 Switzerland 62,597 1.35% 59,384 1.14% -15.22%

17 19 South Africa 54,121 1.17% 48,269 0.93% -20.30%

20 20 Belgium 39,008 0.84% 37,253 0.72% -14.66%

World 4,640,941 5,193,225

Source: Swiss Re sigma, World Insurance

D. Domestic Insurance Market Outlook

Full year 2019 insurance industry results will be reviewed by FIO in next year’s Annual Report 

on the Insurance Industry. Based on financial results reported by insurers through the first half

of 2019, the outlook for the U.S. insurance industry appears to be an extension of the trends 

 

442 Swiss Re sigma, World Insurance, 1-2. Swiss Re sigma’s country classifications of “advanced” and “emerging” 

generally follows the International Monetary Fund’s classification system.
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observed in 2018. At the end of the first quarter 2019, both the L&H and P&C sectors reported 

growth in surplus, positive earnings, and stable liquidity coverage for on-balance obligations.443

Recent quantitative easing actions either taken or announced by monetary authorities around the 

world may have a heightened effect on the financial position of insurers in 2019 compared to 

2018. The Federal Reserve lowered its benchmark rate by 25 basis points in July 2019 for the 

first time in a decade to insure against a downturn, while the European Central Bank has 

indicated that it may resurrect its bond-buying program. The International Monetary Fund 

forecasts global growth at 3.2 percent in 2019, with downside risks that include technology and 

trade tensions that will slow investment.444 Economic uncertainty has contributed to an inverted 

yield curve in the United States, which from past experience has preceded the onset of an 

economic slowdown,445 and has factored into a slide of interest rates into negative territory for 

overnight deposits and 30-year and 50-year bonds in Europe.

With the current monetary policy in the United States, insurers are likely to continue to 

experience tight interest margins in 2019. For L&H insurers, a low interest rate environment 

will be challenging as their business lines are typically of longer duration than available assets, 

compelling them to reinvest in lower-yielding assets, exacerbating the earnings spread 

compression and making it increasingly difficult to match their asset and liability cash flows to 

meet liquidity demands. In search of yield, both L&H and P&C will continue to revamp their 

investment portfolios or diversify into asset classes outside of stocks and bonds. Though still 

comprising a relatively small share of cash and investment assets, CLOs have been on the rise 

for both sectors.446 While the majority of insurers’ CLO holdings are of high credit quality, 

equivalent to an S&P rating of A or higher, those ratings may deteriorate in an economic 

downturn, potentially resulting in considerable investment losses.

On the other hand, surrenders reached a decade high in 2018. A pause in monetary tightening 

could mitigate disintermediation risk, as policyholders could be less motivated to pursue greater 

yield elsewhere.

Bond markets are exhibiting the beginnings of widening debt spreads. Financing costs currently 

remain low, but if spreads were to expand due to market concerns about a potential global 

slowdown, insurers and other firms will find it costlier to refinance their debt, reducing their 

financial flexibility and potentially exposing them to rating downgrades. Moreover, if spreads 

were to widen considerably, finding highly rated bond investments will become challenging for 

 

443 S&P Global.

444 The International Monetary Fund, World Economic Outlook, July 2019 (2019), 

https://www.imf.org/en/Publications/WEO/Issues/2019/07/18/WEOupdateJuly2019.

445 Although an inverted yield curve has preceded almost every economic recession in the United States since the 

World War II, there has been one occasion when it occurred and a recession did not follow — in the mid-1960s.

446 NAIC, “U.S. Insurance Industry’s Exposure to Collateralized Loan Obligations as of Year-End 2018.” For more 

information on CLO, see Box 2 in this Report.
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insurers. Against that backdrop, insurers would likely have to seek out other investment avenues 

that may include illiquid, alternative assets, such as infrastructure finance, private equity, and 

private placements in order to support their liabilities.447 The resulting increased credit and 

liquidity risk exposures will stress insurers’ financial profile.

 

447 For the L&H sector, private placements made up 33.6 percent of total bonds and represented a 2.6 multiple of 

capital and surplus at year-end 2018, up from 31.3 percent of bonds and 2.4 times capital and surplus at year-end 

2017. For the P&C sector, private placements accounted for 15.1 percent of total bonds and made up 21.6 percent 

of policyholder surplus at year-end 2018 compared to 13.2 percent of bond holdings and 18.2 percent of 

policyholder surplus at year-end 2017. See S&P Global.