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 2017
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Table of Contents

I. Executive Summary.......................................................................................1

Insurance Industry Financial Overview ...................................................................... 1

Domestic Regulatory and Market Developments ....................................................... 2

U.S. Competitiveness in Global Insurance Markets.................................................... 3

II. Introduction....................................................................................................5

Structure of Report ...................................................................................................... 5

Federal Insurance Office ............................................................................................. 5

III. Insurance Industry Financial Overview....................................................11

Domestic Insurance Marketplace Overview ............................................................. 12

1. Financial Performance and Condition....................................................................... 13

Box 1: The Effect of Auto Claims on P&C Insurer Performance ........................... 35

2. Market Performance .................................................................................................. 46

3. Infrastructure Investments......................................................................................... 48

4. 2017 Insurance Market Outlook................................................................................ 49

Capital Markets Activity ........................................................................................... 50

1. Mergers & Acquisitions of U.S. Insurers.................................................................. 51

2. Regulatory Review of Foreign Acquisitions............................................................. 52

IV. Domestic Regulatory and Market Developments.....................................54

The Cyber Insurance Market and Insurance Sector Cybersecurity........................... 54

1. The Cyber Insurance Market..................................................................................... 54

Box 2: Ransomware ..................................................................................................... 55

2. Insurance Sector Cybersecurity................................................................................. 58

Innovation and Technology in the Insurance Industry.............................................. 63

1. The Growth of InsurTech.......................................................................................... 63

Box 3: The Emergence of Blockchain Technology.................................................... 64

Box 4: Life Insurance Underwriting and Technology .............................................. 65

2. Big Data, Price Optimization, and Insurance Rates.................................................. 68

3. Insurance Response to the Sharing Economy ........................................................... 70

Box 5: Autonomous Automobiles................................................................................ 71

Natural Hazards and Insurance.................................................................................. 73

1. Natural Hazards in the United States and the Role of Insurance .............................. 73
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Box 6: Hurricane Harvey ............................................................................................ 75

Box 7: State Insurance Regulatory Response to Natural Disasters......................... 76

2. Insurance and Mitigation........................................................................................... 76

3. Mitigation Framework Leadership Group................................................................. 77

4. Flood Insurance and NFIP Reauthorization .............................................................. 78

Financial Stability Oversight Council ....................................................................... 79

Terrorism Risk Insurance Program ........................................................................... 79

1. Regulations and Guidance......................................................................................... 80

2. 2017 Data Call........................................................................................................... 81

3. Small Insurer Study................................................................................................... 82

4. Advisory Committee on Risk-Sharing Mechanisms................................................. 82

The Department of Labor Fiduciary Rule ................................................................. 82

Long-Term Care Insurance ....................................................................................... 83

Box 8: Penn Treaty American Corporation .............................................................. 85

Additional State-Level Regulatory Developments.................................................... 88

1. Domestic Regulatory Capital Initiatives ................................................................... 89

2. Life Insurance Reserving Requirements ................................................................... 90

3. Unclaimed Death Benefits......................................................................................... 91

4. NAIC Activities and State Adoption of Model Laws ............................................... 92

V. U.S. Competitiveness in Global Insurance Markets ................................94

Global Insurance Markets ......................................................................................... 94

Covered Agreement................................................................................................... 96

IAIS Activities........................................................................................................... 98

1. Coordination and Stakeholder Engagement.............................................................. 99

2. Common Framework for the Supervision of Internationally Active Insurance 

Groups and Insurance Core Principles.................................................................... 100

3. Development of International Capital Standards for Insurance Groups ................. 103

4. Cross-Border Resolution Planning.......................................................................... 105

5. Combating Financial Crime in Insurance................................................................ 106

6. IAIS Systemic Risk Task Forces............................................................................. 107

7. Other IAIS Working Group and Task Force Developments................................... 107

Financial Stability Board......................................................................................... 108

Box 9: Global Systemically Important Insurers Identified by the FSB in 2016... 109
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Glossary

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

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

B3i .......... Blockchain Insurance Initiative

BICE .......... DOL Best Interest Contract Exemption

CFIUS .......... Committee on Foreign Investment in the United 

States

CIPR .......... NAIC Center for Insurance Policy and Research

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

IAIGs

CSO .......... Commissioners’ Standard Ordinary Table

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

CPMI .......... Committee on Payments and Marketing 

Infrastructure

DHS .......... U.S. Department of Homeland Security 

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

Protection Act of 2010

DOJ .......... U.S. Department of Justice

DOL .......... U.S. Department of Labor

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

Authority

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

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

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

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

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

FDIC .......... Federal Deposit Insurance Corporation

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

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

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

FSAP .......... Financial Sector Assessment Program

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

GAAP .......... Generally Accepted Accounting Principles

GDP .......... Gross Domestic Product

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

HHS .......... U.S. Department of Health and Human Services

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

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

IASB .......... International Accounting Standards Board

IBHS .......... Insurance Institute for Business & Home Safety

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

Insurers

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

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

IFRS .......... International Financial Reporting Standards

IFTRIP .......... International Forum of Terrorism Risk Insurance 

Pools

IGWG .......... Insurance Groups Working Group

IMF .......... International Monetary Fund

IMO .......... Independent Marketing Organization

IOSCO ........... International Organization of Securities 

Commissions

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

IRA .......... Individual Retirement Account or Individual 

Retirement Annuity

Key Attributes .......... FSB, Key Attributes for Effective Resolution 

Regimes for Financial Institutions

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

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

M&A .......... Merger and Acquisitions

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

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

NCOIL .......... National Conference of Insurance Legislators

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

NIST .......... National Institute of Standards and Technology

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

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

Development

P2P .......... Peer-to-Peer 

P&C .......... Property and Casualty
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PBR .......... Principles-Based Reserving

PDI .......... Pennsylvania Department of Insurance

Penn Treaty .......... Penn Treaty American Corp.

PRA .......... United Kingdom’s Prudential Regulation Authority

RBC .......... Risk-Based Capital

Report .......... FIO, 2017 Annual Report on the Insurance Industry

ReWG .......... IAIS Resolution Working Group

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

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

SMRTF .......... Supervisory Materials Review Task Force

SNL Financial .......... SNL Financial, LC

SRATF .......... IAIS Systemic Risk Assessment Task Force

TFBI .......... IAIS Task Force on Systemically Important Banks 

and Insurers

TNC .......... Transportation Network Company 

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

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

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

WGCR .......... CPMI and IOSCO Joint Working Group on Cyber 

Resilience
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I. EXECUTIVE SUMMARY

Insurance Industry Financial Overview

The 2017 Federal Insurance Office (FIO) Annual Report on the Insurance Industry (Report)

begins by describing its structure and summarizing FIO’s establishment, authorities, and 

activities. The Report then provides an overview of the 2016 financial condition and 

performance of both the life and health (L&H) and property and casualty (P&C) sectors of the 

U.S. insurance industry.

In 2016, the U.S. insurance industry reported a year of mixed financial performance, but in the 

aggregate remained in sound financial condition. Positive net income again raised the reported 

surplus of the L&H sector to a record level of $380.7 billion at the end of 2016. Despite 

experiencing underwriting losses in 2016, the P&C sector was also profitable, with surplus 

increasing to $712.3 billion as of year-end 2016.

L&H sector aggregate net premiums written decreased six percent to $600 billion in 2016, 

compared to $638 billion in 2015. This decline was caused by a large drop in premiums in all 

categories except for A&H products. In 2016, P&C sector net premiums written increased 2.5 

percent from the previous year to a new record high of $534 billion, driven by modest economic 

growth in the United States and premium rate increases. Premiums written in personal lines of 

insurance grew slightly faster than those in commercial lines.

The P&C and L&H sectors were both profitable in 2016. Net income for the L&H sector 

decreased to $39 billion from $40 billion in 2015, largely due to an increase in net realized 

capital losses. The P&C sector reported net income of $44 billion in 2015, lower than the $58 

billion reported in 2015 and the $65 billion reported in 2014. Underwriting losses of $2 billion –

as compared to underwriting gains of $11 billion in 2015 – primarily caused the overall decline 

in net income.

The Report also discusses the role the insurance sector can play in supporting investment in 

national infrastructure, and outlines regulatory and private sector initiatives that may enhance 

these opportunities. The Report also states that, based on financial results reported by insurers in 

the first six months of 2017, the outlook for the U.S. insurance industry appears stable for the 

rest of 2017.

The insurance industry remained active in the capital markets in 2016. In the aggregate, the 

industry raised $5.4 billion of new equity capital through 22 offerings in 2016. Debt financing 

remained attractive, and the insurance industry issued $64.7 billion in new debt through 96 

separate debt offerings. Merger and acquisition (M&A) activity continued in 2016, but at a 

significantly lower total value than transactions announced in 2015. There were 91 insurance 

M&A deals, valued at $21.6 billion, announced in 2016. In comparison, the 77 transactions 

announced in 2015 were valued at $143 billion. The Report also provides a brief overview of 

regulatory review of foreign acquisitions.
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Domestic Regulatory and Market Developments

Next, the Report addresses a number of regulatory and market developments in the United States 

relating to insurance.

The cyber insurance market continues to develop although it faces challenges, including lack of 

historical and actuarial data as well as an incomplete understanding of insurers’ exposure to 

accumulation risk. This section also addresses increasing regulatory interest in cyber insurance, 

and examines state, federal, and international initiatives relating to insurance sector 

cybersecurity.

The Report also discusses the evolving role of innovation and technology in the insurance 

industry. Reliance on InsurTech, or the innovative use of technology in insurance, is growing,

with increased funding for innovations such as big data, blockchain, telematics, and peer-to-peer 

(P2P) insurance. These technologies present both potential opportunities and challenges for 

insurers, consumers, and regulators. The Report also examines the relationship between the 

sharing economy and insurance as an example of how the insurance industry responds to 

technological innovations in other sectors.

Storms, wildfires, flooding, earthquakes, and other natural disasters cause significant annual 

losses in the United States. The Report examines the way that insurance supports recovery from 

such hazards, and the important role the insurance industry plays in supporting hazard mitigation

through innovation. The federal government also plays a role in reducing the risk of, and 

supporting recovery from, natural hazards. Two examples highlighted in the Report are the 

Mitigation Framework Leadership Group (MitFLG), which coordinates mitigation efforts across 

the federal government, and the National Flood Insurance Program (NFIP), a federal insurance 

and risk management program.

The Financial Stability Oversight Council (Council) monitors potential risks to U.S. financial 

stability and serves as a forum for discussion and coordination among its member agencies. In 

April 2017, President Trump issued a Presidential Memorandum directing the U.S. Department 

of the Treasury (Treasury) to review the process established under the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) by which the Council 

determines that a nonbank financial company could pose a threat to the financial stability of the 

United States, as well as the process by which the Council designates financial market utilities as 

systemically important.

The Terrorism Risk Insurance Program (TRIP), administered by the Secretary of the Treasury

(Secretary) with the assistance of FIO, was reauthorized in 2015. In December 2016, following a 

request for public comment, Treasury issued an interim final rule concerning the process for 

certification of an “act of terrorism,” and a final rule concerning the balance of the program. In 

2017, FIO conducted its first mandatory data call to analyze the overall effectiveness of TRIP. 

In June 2017, FIO relied upon information from this data call to submit a report to Congress on 

the competitiveness of small insurers in the terrorism risk insurance marketplace. This section of 

the Report also reviews the activities of the Advisory Committee on Risk-Sharing Mechanisms
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(ACRSM), which provides FIO with advice, recommendations, and encouragement with respect 

to the creation and development of non-governmental risk-sharing mechanisms to protect against 

losses arising from acts of terrorism. The ACRSM met three times in 2017.

The Report next addresses the U.S. Department of Labor (DOL) rule expanding the types of 

retirement investment advice covered by the fiduciary provisions of the Employee Retirement 

Income Security Act of 1974 (ERISA).

The Report also discusses challenges facing the private long-term care insurance (LTCI) market, 

highlighting the potential impact of the failure of Penn Treaty American Corp. (Penn Treaty). 

Persistently low interest rates, longer lifespans, and lower than expected policy lapses have 

eroded the profitability of LTCI and led to significant financial losses for some insurers and 

contraction in the market. State insurance regulators, federal policymakers, and the insurance

industry continue to focus on addressing challenges in this market.

This section of the Report concludes with an update on several state-level regulatory 

developments. First, the Report discusses the importance of capital in the context of insurance 

regulation, and outlines the current U.S. regulatory treatment of capital and ongoing 

developments at the state and federal levels. Second, the Report discusses life insurance 

reserving requirements, focusing on the states’ recently adopted principles-based reserving rules

and the 2017 Commissioners’ Standard Ordinary Table (CSO). Third, the Report discusses 

developments concerning unclaimed death benefits from life insurance policies. Finally, this 

section provides an update on activities of the National Association of Insurance Commissioners

(NAIC), including accreditation requirements effective in 2017, model law developments, and 

consideration of the standard of care applicable to annuity recommendations.

U.S. Competitiveness in Global Insurance Markets

In view of the internationalization of the insurance industry, and the benefits of global risk 

diversification, the Report’s final section surveys and summarizes key developments with respect 

to global insurance markets, including FIO’s engagement with international standard-setting and 

other international prudential insurance matters.

First, this section of the Report compares the U.S. insurance industry size and market penetration 

to that of various global jurisdictions. While the United States remains the world’s largest

single-country insurance market by direct premiums written ($1.3 trillion in 2016), with 29 

percent of the global market, the figures for the European Union (EU) are similar when viewed 

as a single market. Insurance is growing rapidly in emerging markets; China is now the third 

largest insurance market, after the United States and Japan. These growing markets present 

attractive business opportunities for U.S. insurers and reinsurers.

The Report highlights U.S. progress in concluding the negotiation of a “covered agreement” with 

the EU. A covered agreement is an international agreement that relates to the recognition of 

prudential measures with respect to the business of insurance or reinsurance that achieves a level 

of protection for insurance or reinsurance consumers that is substantially equivalent to the level 
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of protection achieved under state insurance or reinsurance regulation. Treasury, through FIO,

and the Office of the United States Trade Representative (USTR) successfully concluded 

negotiations of a U.S.-EU covered agreement addressing important areas of regulatory 

cooperation between these two large insurance markets: group supervision; reinsurance

(including collateral and local presence requirements); and exchange of information between 

regulatory authorities. The agreement, which was signed by the United States and the European 

Union on September 22, 2017 will deliver lasting benefits to the United States by providing 

regulatory certainty for U.S. insurers and reinsurers operating in the EU, and is expected to 

reduce costs for insurers and personal and commercial policyholders in the United States, while 

preserving important U.S. consumer protection provisions. In conjunction with signing the 

agreement, the United States issued a policy statement to provide additional clarity for U.S. 

insurance regulators and industry participants with respect to implementation of the agreement.

The United States participates in a number of initiatives in various international forums, 

including the International Association of Insurance Supervisors (IAIS) and the Financial 

Stability Board (FSB). FIO participates in a leadership role at the IAIS, as do other U.S. 

representatives from state insurance regulators, the NAIC, and the Board of Governors of the 

Federal Reserve System (Federal Reserve). The Report highlights FIO’s increasing and 

improved efforts to engage with U.S. stakeholders, as well as to better consult with the other 

U.S. representatives to the IAIS, to ensure that the United States speaks at the IAIS with a 

unified voice and with the benefit of advice from the U.S. insurance community. The Report 

then discusses IAIS and other international work during 2016, including: (1) Common 

Framework for the Supervision of Internationally Active Insurance Groups and Insurance Core 

Principles; (2) ongoing development of international capital standards for insurance groups; 

(3) cross-border resolution planning; and (4) combating financial crime in insurance.

In January 2017, the IAIS Systemic Risk Assessment Task Force (SRATF) was created to assess 

and measure systemically-risky activities through an activity-based approach, and improve crosssectoral consistency in systemic risk measurement. Relatedly, the Report notes that jointly with 

the Basel Committee on Banking Supervision, the IAIS created the Task Force on Systemically 

Important Banks and Insurers (TFBI) in 2017, which will address inconsistencies between the 

assessment methodology framework for Global Systemically Important Banks (G-SIBs) and that 

for Global Systemically Important Insurers (G-SIIs). The Report also discusses the work of the 

IAIS’s Governance Working Group, Insurance Groups Working Group, Supervisory Materials 

Review Task Force, and Reinsurance Task Force.

Finally, the Report summarizes certain recent FSB activities. Working with the IAIS, in 2016 

the FSB identified nine companies (including three U.S. companies) as G-SIIs using an updated 

assessment methodology released by the IAIS in 2016. The three U.S. insurers identified as 

G-SIIs by the FSB using the revised assessment methodology were American International 

Group Inc., MetLife Inc., and Prudential Financial Inc.
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II. INTRODUCTION

This Report is submitted by the Federal Insurance Office pursuant to Section 502(a) of the 

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 [FIO] Director or requested by such committees.”1

Structure of Report

The Report begins with an overview of the financial performance and condition of two key U.S. 

insurance industry sectors: (1) life and health; and (2) property and casualty. This section also 

includes a brief preview of industry financial performance and trends for 2017 based on interim 

results reported through June 30, 2017; full-year 2017 results will be more fully addressed in 

FIO’s 2018 annual report.

The Report next addresses a range of developments – at the state, federal, and international 

levels – which have occurred over the past year, and which will or may have implications for the 

U.S. insurance sector. Discussions of domestic activities include updates on: (1) cybersecurity 

and the cyber insurance market; (2) innovation and technology in the insurance industry; (3) 

natural hazards and mitigation; (4) the Financial Stability Oversight Council; (5) TRIP; (6) the 

DOL Fiduciary Rule; (7) LTCI; and (8) additional state-level regulatory developments, including 

with respect to capital.

The Report proceeds to discuss U.S. competitiveness in global insurance markets, including a 

review of 2016 and 2017 developments in concluding a bilateral agreement with the EU

regarding prudential insurance and reinsurance measures (known in the United States as a 

covered agreement). The international section also addresses FIO’s engagement with the IAIS

and FSB. FIO’s work on the EU-U.S. Insurance Project, and its role at the Organisation for 

Economic Co-operation and Development (OECD) are also addressed below in the discussion of 

FIO activities.

Federal Insurance Office

Title V of the Dodd-Frank Act established FIO within Treasury.

2

 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 Council, FIO is authorized to:

 1 Federal Insurance Office Act of 2010, 31 U.S.C. § 313(n)(2) (2015).

2 Federal Insurance Office Act of 2010, 31 U.S.C. § 313(a) (2015). Title V also designates the Secretary as advisor 

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

insurance except health insurance.” 31 U.S.C. § 321(a)(9).
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• 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 Federal Reserve;

• assist the Secretary in the administration of 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 IAIS and assisting the Secretary in negotiating covered agreements;

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

• 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.3

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

appointment of the Federal Deposit Insurance Corporation (FDIC) 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.4

 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.5

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.

In August 2016, FIO hosted a Long-Term Care Insurance Roundtable for stakeholders, including 

insurers, trade associations, state and federal regulators, industry experts, and consumer groups. 

Topics covered included the need for long-term care services, the state of the private market and 

public programs, and state review of proposed rate increases.

 3 Federal Insurance Office Act of 2010, 31 U.S.C. § 313(c)(1) (2015).

4 Dodd-Frank Act, 12 U.S.C. § 5383(a)(1)(C) (2015).

5 12 U.S.C. § 5365(i)(1)(A).
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In September 2016, FIO hosted an Insurance Supervision in the Americas forum and invited 

leading insurance authorities from North, Central, and South America to attend. Lead

supervisors from 16 countries attended. The United States was represented by FIO, state 

insurance regulators, the NAIC, and the Federal Reserve. Participants addressed topics including 

natural catastrophes, financial stability, cybersecurity, and retirement security.

FIO partnered with the Federal Emergency Management Agency (FEMA) to jointly host 

stakeholder meetings about flood insurance and the NFIP in September and October 2016 with 

private sector, public sector, consumer advocate, and academic participants. Topics covered 

included the customer experience and incentivizing community resilience, as well as the NFIP’s 

“mandatory purchase requirement” which requires the purchase and retention of flood insurance

by homeowners who live in designated high flood risk areas, and have either federally-backed or 

federally-insured loans.

In November 2016, FIO published a Report on Protection of Insurance Consumers and Access to 

Insurance, presenting topics related to insurance and consumer protection, including:

(1) insurance and technology; (2) environmental hazards and insurance; (3) fairness in insurance 

practices; (4) fairness in state insurance standards; (5) retirement; and (6) related issues.

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Treasury issued an interim final rule with a request for public comment on December 7, 2016,

reforming the process for certifying an act of terrorism under TRIA.7 On December 21, 2016,

Treasury issued a final rule updating TRIP regulations to reflect additional changes included in 

the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIP Reauthorization 

Act).8

Treasury also published guidance in December 2016 confirming that stand-alone cyber liability 

insurance policies written in lines of insurance covered by TRIP and not otherwise excluded 

from the program are subject to all aspects of TRIP, including its mandatory offer and disclosure 

requirements.

9

 6 FIO, Report on Protection of Insurance Consumers and Access to Insurance (2016), 

https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2016_FIO_Consumer_Report.pdf.

7 Treasury, Terrorism Risk Insurance Program; Interim Final Rule, Certification, 81 Fed. Reg. 88592 (December 7, 

2016), https://www.federalregister.gov/documents/2016/12/07/2016-29313/terrorism-risk-insurance-programcertification.

8 Treasury, Terrorism Risk Insurance Program; Final Rule, 81 Fed. Reg. 93756 (December 21, 2016) (to be codified 

at 31 C.F.R. pt. 50), https://www.federalregister.gov/documents/2016/12/21/2016-29987/terrorism-risk-insuranceprogram.

9 Treasury, Guidance Concerning Stand-Alone Cyber Liability Insurance Policies Under the Terrorism Risk 

Insurance Program, 81 Fed. Reg. 95312 (December 27, 2016), 

https://www.federalregister.gov/documents/2016/12/27/2016-31244/guidance-concerning-stand-alone-cyberliability-insurance-policies-under-the-terrorism-risk.
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In January 2017, FIO released a Study on the Affordability of Personal Automobile Insurance, 

providing quantifiable information on auto insurance affordability for traditionally underserved 

communities and consumers, minorities, and low- and moderate-income persons.10

In furtherance of FIO’s statutory duty to assist the Secretary in administering TRIP, in June 

2017, FIO participated in the annual meeting of the International Forum of Terrorism Risk 

Insurance Pools (IFTRIP). IFTRIP is an international organization of national terrorism risk 

pools that provides a forum for members to discuss best practices and issues of common interest 

in the provision of terrorism risk insurance. The annual meeting considered a range of topics, 

including the provision of insurance for cyber attacks by terrorists and gaps in terrorism risk 

insurance coverage.

Pursuant to the TRIP Reauthorization Act, in June 2017, FIO published a Study of Small Insurer 

Competitiveness in the Terrorism Risk Insurance Marketplace, analyzing small insurers 

participating in TRIP.

11 This study was based in part on the first phase of FIO’s first mandatory

TRIP data call of insurers, conducted between January and May 2017. The second phase of the 

TRIP data call will be completed on October 1, 2017.

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

recommendations to FIO in performing its duties and authorities, convened in January, May, and 

August 2017.

12 These meetings addressed a variety of topics (some of which are discussed in 

further detail in this Report), including auto insurance, blockchain technology, big data, IAIS 

initiatives, cyber insurance, InsurTech, infrastructure, and the insurance market.

In addition, the ACRSM, which provides advice and recommendations to FIO with respect to 

private market risk-sharing mechanisms for protection against losses arising from acts of 

terrorism, met in December 2016, as well as in March, June, and July 2017.13

Throughout 2016 and 2017, 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 “ComFrame,” the Common Framework for the 

Supervision of Internationally Active Insurance Groups (IAIGs); the evaluation of systemic risk;

and on its work developing an Insurance Capital Standard (ICS) – including its adoption of a 

 10 FIO, Study on the Affordability of Personal Automobile Insurance (2017), 

https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/FINAL%20Auto%20Affordability%20Study_web.pdf.

11 FIO, Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (2017), 

https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/Study_of_Small_Insurer_Competitiveness_in_the_Terrorism_Risk_Insurance_Marketplace_(Jun

e_2017).pdf.

12 “Initiatives, Federal Advisory Committee on Insurance (FACI),” Treasury, 

https://www.treasury.gov/initiatives/fio/Pages/faci.aspx. Presentation materials are available on the FACI website.

13 “Initiatives: Advisory Committee on Risk-Sharing Mechanisms (ACRSM),” Treasury, 

https://www.treasury.gov/initiatives/fio/acrsm/Pages/default.aspx.
Annual Report on the Insurance Industry (September 2017)

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

9

Version 1.0 and related plans for field testing. FIO also continued its involvement with working 

groups and task forces at the IAIS and FSB on a variety of issues, including resolution, financial 

crimes, and governance.

FIO has taken numerous actions to coordinate U.S. efforts on international insurance matters to

ensure that U.S. stakeholders have regular U.S.-based opportunities to meet and work with all 

U.S. participants at the IAIS: FIO; state insurance regulators; the NAIC; and the Federal 

Reserve. FIO will continue to improve and expand its engagement efforts going forward, in 

order to ensure that FIO and other U.S. members of the IAIS receive input from a wide range of 

U.S. stakeholders and advocates for U.S. interests. FIO also has improved its coordination with 

the U.S. members of the IAIS in order to promote a unified “Team USA” position at the IAIS.

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

(IPPC) at the OECD. The OECD serves as a source of advice for the Group of Twenty (G-20)

and the public on various policymaking and implementation matters, and collects and publishes 

statistical data and analyses on various topics.14 The Department of Commerce leads the official 

delegation from United States to the IPPC, which also includes Treasury and the NAIC. The 

IPPC has recently conducted research on the cyber risk insurance market, which is discussed 

further in Section IV.A.

FIO has continued its work with the EU-U.S. Insurance Project, which was established in 2012 

as a collaborative effort among U.S. and EU authorities in the insurance sector to “contribute to 

an increased mutual understanding and enhanced cooperation between the EU and the United 

States to promote business opportunity, consumer protection, and effective supervision.”15 On 

October 19, 2016, the Project Steering Committee hosted its fourth public event in Frankfurt, 

Germany to discuss supervisory cooperation, consumer trends and their impact on the insurance 

industry, and to consider the direction of the Project’s future work.16 In January 2017, the 

Project convened a teleconference to discuss cybersecurity efforts in the financial services sector, 

and to enhance transatlantic coordination on these and related issues.

17 In the remainder of 2017 

and in 2018, the Project will focus on: insurer cybersecurity and cyber risk insurance products;

 14 OECD, Secretary-General’s Report to Ministers (2017), 12, http://www.oecd.org/publications/secretary-generals-report-to-ministers-22223843.htm.

15 The Project was first convened by FIO as a Steering Committee in 2012. In addition to FIO, its members now 

include the European Insurance and Occupational Pensions Authority (EIOPA), the European Commission, the 

Bank of England, the NAIC, and the Federal Reserve. See EU-U.S. Dialogue Project, EU-U.S. Dialogue Project: 

The Way Forward, Objectives and Initiatives for the Future (2012), 

http://www.naic.org/documents/eu_us_dialogue_wayforward_121220.pdf.

16 EIOPA, “The Steering Committee of the EU-U.S. Insurance Project Defines Priority Areas for the Coming Year,” 

news release, October 19, 2016, https://eiopa.europa.eu/Publications/Press%20Releases/2016-10-19%20EUUS%20Insurance%20Project%20Public%20Forum.pdf.

17 EIOPA, “The EU-U.S. Insurance Project Addresses Cyber Risk,” news release, January 17, 2017,

https://eiopa.europa.eu/Publications/Press%20Releases/2017-01-

17%20THE%20EU%20%e2%80%93%20U.S.%20INSURANCE%20PROJECT%20ADDRESSES%20CYBER%20R

ISK.doc.pdf.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

10

the use and implications of big data in insurance underwriting; and building increased 

cooperation and understanding on insurance-related intracompany transactions.

FIO, working with USTR, continued negotiations with the EU during 2016 on a covered 

agreement addressing certain prudential insurance and reinsurance measures, and in January 

2017 notified Congress that the Parties had reached agreement on a final legal text and submitted 

that text.

18 In July 2017, Treasury and USTR announced the intention of the United States to 

sign the agreement,19 and the parties signed the agreement on September 22, 2017.

20

 18 See Treasury and USTR, “Treasury, USTR Successfully Complete Negotiations for a Covered Agreement with 

the European Union,” news release, January 13, 2017, https://www.treasury.gov/press-center/pressreleases/Pages/jl0705.aspx. The final legal text also appeared in the Federal Register. See Treasury and USTR,

Notice of Availability of Bilateral Agreement Between the European Union and the United States of America on 

Prudential Measures Regarding Insurance and Reinsurance, 82 Fed. Reg. 8488 (January 25, 2017), 

https://www.federalregister.gov/documents/2017/01/25/2017-01638/notice-of-availability-of-bilateral-agreementbetween-the-european-union-and-the-united-states-of.

19 Treasury and USTR, “Treasury, USTR Notice of Intent to Sign,” news release, July 14, 2017, 

https://www.treasury.gov/press-center/press-releases/Pages/sm0124.aspx.

20 For more on the covered agreement, see Section V.B. of this Report.
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III. INSURANCE INDUSTRY FINANCIAL OVERVIEW

This Report provides financial data and analysis about two key U.S. insurance sectors: (1) life 

and health; and (2) property and casualty. 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. L&H insurers may offer products to 

individuals or groups (such as employers for use in their employee benefits plans).

Insurers in the P&C sector also generally offer products in two segments: (1) personal lines, 

which protect individuals and families against the risk of financial loss associated with damage 

to property or exposure to liability; and (2) commercial lines, which protect against the risk of 

financial loss for businesses. P&C insurers may offer products in both lines, or focus on just 

one.

The third U.S. insurance sector is the health sector. The health sector includes companies 

licensed solely as health insurers or Health Maintenance Organizations. Detailed analysis of the 

health sector is not included in this Report; however, some high-level information is provided for 

comparative purposes.

In the aggregate, the U.S. insurance industry, i.e., those U.S.- or foreign-owned, regulated 

insurance entities operating in the United States, reported a year of mixed financial performance, 

but remained in sound financial condition through 2016.21 The industry continues to be affected 

by the low interest rate environment. While the low interest rate environment has been a factor

for a number of years, its negative effect on the industry’s financial performance has become 

more visible in the past two years. Investment income for both L&H and P&C insurers has 

stagnated, and net yields on invested assets have continued to decline, reaching their lowest 

levels of the past ten years in 2016. Insurers, particularly life insurance and annuities 

underwriters, face increased reinvestment risk – the inability to reinvest funds from maturing 

investments at rates of return equal to those which existed when the maturing investments were 

originally purchased – making it difficult to match asset and liability cash flows. Insurers have 

taken measured steps to address the effect of low interest rates, but those steps may not be 

adequate if interest rates continue to remain historically low. 

 21 Except as otherwise indicated, data cited in Section III of the Report are as of December 31, 2016, as derived from 

SNL Financial, LC (SNL Financial) on May 1, 2017. These data are reported on a statutory accounting basis. SNL 

Financial continuously updates its data for corrections in filings; 2015 data in this Report are based on updated data 

available as of May 1, 2017, and thus may be different in some respects from corresponding figures reported in 

FIO’s 2016 Annual Report on the Insurance Industry. Due to certain conventions used by SNL Financial for 

aggregation of industry data, some columns in the accompanying tables may not sum to the totals which have been 

separately accumulated by SNL Financial from individual legal entity data. In addition, some figures may not add 

to 100 percent due to rounding. See SNL Financial (as of May 1, 2017), https://www.snl.com.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

12

Economic conditions guide the Federal Reserve as it works to meet its mandate of maximizing

employment in the United States, stabilizing U.S. prices, and achieving moderate long-term 

interest rates.

22 Higher interest rates in the future should beneficially affect liquidity levels and 

other aspects of the financial health of the L&H sector. At the end of 2015, the Federal Reserve 

began to gradually raise the target Federal Funds rate, which had remained close to zero since the 

2007-2008 financial crisis. That year the Federal Reserve raised the benchmark rate by 25 basis 

points. The Federal Reserve has since raised the benchmark rate an additional 75 basis points 

(25 basis points on one occasion in December 2016, and on two occasions in 2017), with the 

latest hike occurring in June 2017.23

Domestic Insurance Marketplace Overview

For 2016, total direct premiums written for the combined L&H and P&C sectors were $1.29 

trillion, marking a two percent increase over 2015 levels, as shown in Figure 1.

Figure 1: Total Direct Premiums Written for L&H and P&C Sectors

($ thousands)

Source: SNL Financial

 22 See Federal Reserve, The Federal Reserve System: Purposes and Functions (October 2016), 23, 

https://www.federalreserve.gov/aboutthefed/files/pf_complete.pdf. 

23 See Federal Reserve Reform Act, Pub. L. 95-188, 91 Stat. 1387 (1977); “Policy Tools: Open Market Operations,” 

Federal Reserve, June 14, 2017, https://www.federalreserve.gov/monetarypolicy/openmarket.htm.

950,000,000

1,000,000,000

1,050,000,000

1,100,000,000

1,150,000,000

1,200,000,000

1,250,000,000

1,300,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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1. Financial Performance and Condition

This section focuses on the financial performance and condition of the 780 L&H insurers and

2,655 P&C insurers in the United States, and provides high-level data on the 1,095 health 

insurers licensed in the United States as well.

24

Net premiums written for the L&H sector were approximately $600 billion in 2016, or 34 

percent of net premiums written for the combined L&H, P&C, and health sectors.25 For the 

P&C sector, net premiums written were approximately $534 billion, or 30 percent of net 

premiums written for the combined L&H, P&C, and health sectors. The health sector reported 

$631 billion of net premiums written for 2016, or 36 percent of the combined total for the three 

sectors. At the end of 2016, the L&H sector held approximately $6.6 trillion of total assets 

(including $2.5 trillion held in separate accounts), the P&C sector held approximately $1.9 

trillion, and the health sector held approximately $377 billion. As of December 31, 2016, capital

and surplus in the L&H sector stood at approximately $381 billion, the P&C sector reported 

capital and surplus of approximately $712 billion, and the health sector reported approximately 

$164 billion.

Figures 2 and 3 present snapshots of the L&H sector market in the United States, showing the ten 

largest L&H insurance groups measured by direct premiums written and market share for the life 

and annuities subsector and for A&H lines of business, respectively. Premiums shown in 

Figures 2 and 3 aggregate all L&H sector products and all geographies of the United States. The 

data presented in Figures 2 and 3 for the life and annuities subsector, 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.

 24 SNL Financial; A.M. Best, Best’s Aggregates & Averages (2016), 

http://www3.ambest.com/aggavg/toc/archive.aspx.

25 Net premiums written are the net amounts of an insurer’s premiums after taking into account direct premiums 

written and net reinsurance premiums.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

14

Figure 2 below shows A&H premiums written by insurers authorized to conduct life and 

annuities insurance business.

Figure 2: L&H Insurance Groups by 2016 U.S. Life and Annuities Subsector Direct 

Premiums Written

2015 

Rank

2016 

Rank Insurance Group

2015 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

2016 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

1 1 MetLife Inc. $ 102,487,074 16.42 $ 95,110,811 15.22

2 2 Prudential Financial Inc. 43,134,670 6.91 45,902,327 7.34

3 3 New York Life Insurance Group 29,647,519 4.75 30,922,462 4.95

7 4 Principal Financial Group Inc. 23,416,059 3.75 28,186,098 4.51

8 5 Massachusetts Mutual Life Insurance Co. 23,117,904 3.70 23,458,883 3.75

6 6 American International Group 24,976,781 4.00 22,463,202 3.59

4 7 Jackson National Life Group 27,457,195 4.40 22,132,278 3.54

10 8 AXA SA 19,478,236 3.12 21,920,627 3.51

5 9 AEGON NV 24,983,201 4.00 21,068,180 3.37

9 10 Lincoln National Corp. 22,676,916 3.63 19,441,555 3.11

Combined Top 10 $ 341,375,555 54.68 $ 330,606,423 52.89

Combined Top 25 $ 497,410,941 79.70 $ 492,133,340 78.74

Combined Top 100 $ 615,636,993 98.62 $ 616,338,749 98.63

Total U.S. Life Insurance Lines $ 624,175,403 $ 624,950,037 

Source: SNL Financial [includes Life Insurance (No Annuity), Annuity Considerations, Deposit-type Contracts 

(State Page), Other Considerations (State Page)]

In reviewing the market share rankings of the five largest writers of life insurance and annuities 

in 2016, the rankings for the top three positions remained unchanged from 2015. MetLife Inc. 

remained the largest writer of life insurance products in the United States. Increased premiums 

at Principal Financial Group Inc. elevated the firm to fourth place in 2016 from its 

seventh-largest position in 2015. Continued growth at Massachusetts Mutual Life Insurance Co. 

raised the firm to the fifth-largest writer of life insurance products from its eighth place position 

in 2015, marking its second consecutive year of notable market share increase. Additionally, 

continued growth from AXA SA’s U.S. businesses (primarily AXA Equitable Life Insurance 

Company and MONY Life Insurance Company of America) raised it into the eighth-largest spot 

from tenth place in 2015, also marking the second year of market share gains for the firm.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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Figure 3 below 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 7 below).

Figure 3: L&H Insurance Groups by 2016 U.S. A&H Lines Direct Premiums Written

2015 

Rank

2016 

Rank Insurance Group

2015 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

2016 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

1 1 UnitedHealth Group Inc. $ 43,817,056 25.79 $ 46,669,151 26.44

2 2 Aetna Inc. 24,962,250 14.69 28,358,852 16.07

3 3 Cigna Corp. 14,795,932 8.71 15,505,890 8.78

4 4 Aflac Inc. 13,643,143 8.03 14,872,435 8.43

5 5 MetLife Inc. 6,979,479 4.11 7,407,695 4.20

6 6 Unum Group 5,528,316 3.25 5,739,627 3.25

7 7 Mutual of Omaha Insurance Co. 3,473,325 2.04 3,740,570 2.12

8 8 Guardian Life Insurance Co. of America 3,413,472 2.01 3,629,131 2.06

10 9 Genworth Financial Inc. 2,637,316 1.55 2,676,522 1.52

11 10 AEGON NV 2,150,211 1.27 2,079,926 1.18

Combined Top 10 $ 122,308,095 71.98 $ 130,679,799 74.05

Combined Top 25 $ 145,756,216 85.79 $ 153,742,118 87.13

Combined Top 100 $ 164,856,966 97.00 $ 173,688,976 98.41

Total U.S. A&H Lines $ 169,895,327 $ 176,522,262 

Source: SNL Financial

Thus, for example, the data presented in Figure 3 for UnitedHealth Group Inc. does 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 Inc. also 

writes health insurance business through subsidiaries that offer only health insurance, and those 

premiums are reflected in Figure 7.

There was little change in the top ten writers of A&H lines of business in 2016. United Health 

Group Inc. remained the largest writer of A&H lines in 2016. Genworth Financial Inc. rose one 

spot to ninth from tenth, and AEGON NV entered the top ten in tenth position.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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As noted above, P&C insurers underwrite a variety of products, generally categorized as either 

personal lines or commercial lines. Figure 4 reports market share information on a combined 

P&C sector basis (including all lines of P&C business).

Figure 4: P&C Insurance Groups by 2016 U.S. Combined Lines Direct Premiums Written

2015 

Rank

2016 

Rank Insurance Group

2015 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

2016 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

1 1 State Farm Mutual Automobile Insurance $ 59,361,685 10.03 $ 62,189,311 10.19

3 2 Berkshire Hathaway Inc. 29,967,354 5.06 33,300,439 5.46

4 3 Liberty Mutual Group 29,848,412 5.04 31,077,066 5.09

2 4 Allstate Corp. 30,180,756 5.10 30,875,771 5.06

6 5 Progressive Corp. 21,383,662 3.61 23,951,690 3.93

5 6 Travelers Companies Inc. 23,200,304 3.92 23,918,048 3.92

7 7 Chubb Ltd.26 20,671,147 3.49 20,728,330 3.40

8 8 Nationwide Mutual Group 19,577,849 3.31 19,756,093 3.24

9 9 Farmers Insurance Group of Cos. 19,050,733 3.22 19,677,601 3.22

11 10 USAA Insurance Group 16,744,764 2.83 18,273,675 2.99

Combined Top 10 $ 271,249,081 45.82 $ 283,748,024 46.50

Combined Top 25 $ 383,385,662 64.76 $ 397,042,076 65.08

Combined Top 100 $ 506,847,957 85.61 $ 524,967,972 86.04

Total U.S. P&C Sector $ 591,757,790 $ 610,166,276 

Source: SNL Financial (including all lines of business)

On a combined basis, State Farm Mutual Automobile Insurance Co. remained the largest writer 

of P&C business in 2016. Berkshire Hathaway, Inc. and Liberty Mutual Group each rose one 

position, to second and third, respectively, while Allstate Corp. slipped to fourth place from its 

second place ranking in 2015. There was little change among the remaining six insurers.

 26 2015 data for The Chubb Corp. is provided on a combined basis with ACE Ltd. In January 2016, ACE Ltd. 

acquired The Chubb Corp. and changed the name of the combined insurer to Chubb Ltd. See “ACE Limited 

acquires Chubb Corporation,” SNL Financial, 

https://www.snl.com/web/client?auth=inherit#mna/dealOverview?id=203560.
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

17

Figures 5 and 6 reflect market share information for P&C commercial lines (Figure 5) and P&C 

personal lines (Figure 6). Market share rankings did not change significantly among the top ten 

writers of commercial lines or the top ten writers of personal lines.

Figure 5: P&C Insurance Groups by 2016 Commercial Lines Direct Premiums Written

2015 

Rank

2016 

Rank Insurance Group

2015 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

2016 Direct 

Premiums 

Written

($000)

Share 

of 

Total 

(%)

1 1 Chubb Ltd. $ 16,675,155 5.71 $ 16,482,259 5.61

2 2 Travelers Companies Inc. 16,347,492 5.60 16,463,566 5.60

4 3 Liberty Mutual Group 13,801,267 4.73 14,049,356 4.78

3 4 American International Group 15,921,080 5.45 13,080,949 4.45

5 5 Zurich Insurance Group 13,403,445 4.59 12,554,597 4.27

6 6 CNA Financial Corp. 9,203,419 3.15 9,763,122 3.32

7 7 Nationwide Mutual Group 8,401,984 2.88 8,335,275 2.83

8 8 Hartford Financial Services Group Inc. 7,635,701 2.61 7,679,737 2.61

9 9 Berkshire Hathaway Inc. 7,056,856 2.42 7,650,236 2.60

10 10 Tokio Marine Group 5,956,554 2.04 6,248,195 2.13

Combined Top 10 $ 114,402,953 39.18 $ 112,307,292 38.20

Combined Top 25 $ 174,171,894 60.62 $ 174,555,327 59.37

Combined Top 100 $ 249,529,480 85.40 $ 252,269,401 85.81

Total U.S. P&C Commercial Lines $ 291,999,817 $ 294,021,050 

Source: SNL Financial

Figure 6: P&C Insurance Groups by 2016 Personal Lines Direct Premiums Written

2015 

Rank

2016 

Rank Insurance Group

2015 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

2016 Direct 

Premiums 

Written 

($000)

Share 

of 

Total 

(%)

1 1 State Farm Mutual Automobile Insurance $ 54,340,977 18.53 $ 57,083,833 18.43

2 2 Allstate Corp. 27,963,957 9.54 28,717,388 9.27

3 3 Berkshire Hathaway Inc. 22,828,453 7.78 25,553,714 8.25

4 4 Progressive Corp. 18,463,485 6.30 20,559,851 6.64

6 5 USAA Insurance Group 15,562,507 5.31 17,032,072 5.50

5 6 Liberty Mutual Group 16,039,932 5.47 17,026,207 5.50

7 7 Farmers Insurance Group of Cos. 15,270,479 5.21 15,819,900 5.11

8 8 Nationwide Mutual Group 11,163,343 3.81 11,414,637 3.68

9 9 Travelers Companies Inc. 6,852,414 2.34 7,454,481 2.41

10 10 American Family Insurance Group 6,420,260 2.19 6,980,730 2.25

Combined Top 10 $ 194,905,807 66.48 $ 207,642,813 67.04

Combined Top 25 $ 233,942,544 79.78 $ 249,171,554 80.46

Combined Top 100 $ 273,734,365 93.34 $ 290,588,723 93.79

Total U.S. P&C Personal Lines $ 293,257,615 $ 309,778,137 

Source: SNL Financial
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FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

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Figure 7 shows A&H premiums written by insurers authorized to offer only health insurance.

Figure 7: Health Insurance Groups by 2016 U.S. Health Lines Direct Premiums Written

2015 

Rank

2016 

Rank Insurance Group

2015 Direct 

Premiums 

Written ($000)

Share 

of 

Total 

(%)

2016 Direct 

Premiums 

Written

($000)

Share 

of 

Total 

(%)

1 1 UnitedHealth Group Inc. $ 68,041,707 11.69 $ 79,473,071 12.46

2 2 Anthem Inc. 54,715,501 9.40 58,748,993 9.21

3 3 Humana Inc. 51,405,175 8.83 53,601,025 8.40

4 4 HealthCare Services Corp. a Mutual 32,644,621 5.61 32,157,585 5.04

5 5 Aetna Inc. 24,417,307 4.19 24,414,237 3.83

6 6 Centene Corp. 20,261,187 3.48 24,070,523 3.77

8 7 Independence Health Group Inc. 13,869,064 2.38 17,013,754 2.67

7 8 Kaiser Foundation Health Plan Inc. 15,155,609 2.60 16,166,834 2.53

10 9 Molina Healthcare Inc. 11,918,163 2.05 15,317,439 2.40

9 10 WellCare Health Plans Inc. 13,072,554 2.25 13,451,891 2.11

Combined Top 10 $ 305,500,887 52.48 $ 334,415,351 52.42

Combined Top 25 $ 421,926,055 72.48 $ 459,615,681 72.05

Combined Top 100 $ 554,167,344 95.20 $ 607,899,577 95.30

Total U.S. Health Insurance Lines $ 582,097,176 $ 637,902,483 

Source: SNL Financial

Market share rankings among the top six health insurance groups were unchanged from 2015. 

Independence Health Group and Kaiser Foundation Health Plan swapped seventh and eighth 

places, while Molina Healthcare and WellCare Health Plans likewise swapped ninth and tenth 

places. Similarly, the overall market concentration among the top 10, 25, and 100 groups was 

little changed in 2016 compared to 2015.

a. Life and Health Sector

This section presents additional analysis of the financial performance of the L&H sector in 2016,

followed by an analysis of the L&H sector’s overall financial condition.

L&H sector net premiums written decreased by six percent, including the negative effect on 

sector aggregates of a large, one-time reinsurance transaction.27 Absent this transaction, the 

comparison to 2015 net premiums written would have still been negative, but less so, continuing 

the decline from the record level reached in 2014. Investment yield continued to decline as a 

result of the current low interest rate environment because of a higher invested asset base, 

however net investment income showed a slight increase for the year. Total expenses decreased 

 27 In December 2016, Hannover Life Reassurance Company of America and American International Group Inc. 

(AIG) entered into a series of reinsurance transactions for $23 billion, in which Hannover Re assumed liability for 

certain AIG in-force term and universal life business; AIG characterized the deal as part of a “strategic 

restructuring.” See Tim Zawacki, “US Life Industry Results Also Impacted by Large AIG Reinsurance Deal,” SNL 

Financial, March 17, 2017, https://www.snl.com/web/client?auth=inherit#news/article?id=39852796.
Annual Report on the Insurance Industry (September 2017)

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

19

slightly, while total revenues were essentially flat, leading to an increase in operating income 

compared to 2015. An increase in realized capital losses primarily brought 2016 L&H sector net 

income and return on average equity to a slight decrease from 2015 levels. Nonetheless, capital 

and surplus reached a record high, and leverage increased slightly as growth in total general 

account assets exceeded growth in capital and surplus.

Performance

The following section discusses the financial performance of the L&H sector in 2016, with a 

detailed analysis of the aggregated income statement for the L&H sector.

(a) Net Premiums Written

Net premiums written is a principal measure of the size and growth of the insurance industry. 

Net premiums written accounted for over 70 percent of total L&H sector revenues, a level 

slightly lower than the historical average. Figures 8 and 9 show aggregate L&H sector 

premiums, considerations, and deposits.

Figure 8: L&H Sector Net Premiums Written ($ billions)

Source: SNL Financial

$0

$50

$100

$150

$200

$250

$300

$350

$400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

 Life Insurance Premiums Annuity Premiums & Deposits Accident & Health Premiums
Annual Report on the Insurance Industry (September 2017)

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Figure 9: L&H Sector Net Premiums, Considerations, and Deposits ($ thousands)

2012 2013 2014 2015 2016

Life Insurance Premiums $ 130,546,216 $ 125,958,978 $ 133,902,121 $ 151,399,614 $ 115,034,616

Annuity Premiums & Deposits 339,914,846 279,434,360 352,823,672 324,041,791 318,539,291

A&H Premiums 151,396,375 153,305,130 156,605,802 158,826,518 162,856,484

Credit Life & Credit A&H Premiums 1,556,674 1,445,214 1,388,591 1,379,933 1,261,511

Other Premiums & Considerations 2,247,325 2,345,600 2,554,797 2,497,634 2,192,329

Total $ 625,664,756 $ 562,585,964 $ 647,274,984 $ 638,191,067 $ 599,884,231

Share of Total 2012 2013 2014 2015 2016

Life Insurance Premiums 21% 22% 21% 24% 19%

Annuity Premiums & Deposits 54% 50% 55% 51% 53%

A&H Premiums 24% 27% 24% 25% 27%

Credit and Other 1% 1% 1% 1% 1%

100% 100% 100% 100% 100%

Source: SNL Financial

Aggregate net premiums written growth has recently reflected a downward trajectory, declining 

in both 2016 and 2015; however, on an annual basis, growth in net premiums has averaged 3.2 

percent since year-end 2009. In 2016, L&H sector net premiums written were $600 billion, 

marking a 6.0 percent decrease from the $638 billion reported in 2015. Net premiums written

declined in all categories except A&H, led by a 24.0 percent drop in life insurance premiums and 

a 1.7 percent decrease in annuity considerations and deposits. It should be noted, however, that a

large, one-time reinsurance transaction between American International Group subsidiaries and 

Hannover Life Reassurance Company of America negatively skewed the industry measure by 

approximately $20 billion.28 Still, even adjusting for this transaction, net premiums written 

comparisons to 2015 for the sector would have remained negative.

In 2016, annuity premiums and deposits still represented the majority (53 percent) of total net 

premiums written for the L&H sector, an increase from the 51 percent reported in 2015, as 

shown in Figures 8 and 9. Sales of traditional life insurance products declined to 19 percent of 

2016 L&H sector net premiums written from 24 percent in 2015, while A&H premiums largely 

made up the remainder with a 27 percent share in 2016 compared to 25 percent in 2015.

(b) Policyholder Contract Benefits, Surrenders, and Other Expenses

Policyholder contract benefits are claims or obligations of L&H insurers under life insurance, 

annuity, or 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 

receive its accumulated cash value. Contract benefits payments and contract surrenders 

comprise the majority of total expenses for L&H insurers. Expenses unrelated to benefits

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.

 28 See also footnote 27, Zawacki, “US Life Industry Results.”
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Figures 10 and 11 show total L&H sector benefit payments, total surrenders, and total reserve 

increases for recent years.

Figure 10: L&H Sector Expenses ($ billions)

Source: SNL Financial

Figure 11: L&H Sector Expenses ($ thousands)

2012 2013 2014 2015 2016

Total Benefits Payments $ 241,773,268 $ 250,650,267 $ 251,752,460 $ 263,910,125 $ 271,374,749

Total Surrenders Payments 245,728,327 248,702,088 281,532,892 272,998,652 265,095,155

Total Increase in Reserves 83,760,841 86,223,072 108,734,429 80,546,645 133,126,573

Total Transfers to Separate Accounts 61,550,446 (771,523) (16,464,689) 36,922,715 (38,046,582)

Commissions 52,614,950 53,015,154 52,063,514 55,501,271 64,569,215

General & Administrative Expenses 57,208,315 58,465,900 58,950,563 60,074,097 62,361,621

Insurance Taxes, Licenses, and Fees 8,039,539 8,194,034 9,981,158 10,481,379 10,827,970

Other Expenses 6,681,631 (373,487) 65,993,619 (4,916,529) (2,715,556)

Total $ 757,357,317 $ 704,105,504 $ 812,543,945 $ 775,518,356 $ 766,593,145

Source: SNL Financial

Total L&H sector expenses decreased by 1.2 percent in 2016. Transfers between general and 

separate accounts shifted from a net transfer to separate accounts in 2015, to a net transfer from

separate accounts in 2016.

29 Though partially offset by a 65.3 percent increase in additions to 

 29 Separate accounts, as the name implies, are held apart from an insurer’s general investment account. These 

accounts hold and invest proceeds from the sales of products for which contract holders retain the investment risks. 

For statutory accounting in the United States, a transfer from an insurer’s general account to a separate account is 

not eliminated as an intracompany transaction, because the separate account is viewed as a separate entity for 

reporting purposes.

$0

$50

$100

$150

$200

$250

$300

$350

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Benefits Payments Total Surrenders Total Reserve Increases
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reserves and increased commissions of 16.3 percent, this shift in net transfers was a significant 

contributor to reduced total expenses in 2016. A 2.8 percent increase in benefits was offset by a 

2.9 percent decrease in surrenders, allowing for the overall net decrease in total expenses. The 

benefit ratio rose to 45.2 percent at year-end 2016 from 41.4 percent at year-end 2015, primarily 

caused by an increase in the benefit ratio for the ordinary life business.30 The benefit ratio for 

the ordinary life business line was 61.4 percent at the current year-end, increasing by over 19 

percentage points from the prior year-end, in large part due to a considerable reduction in net 

premium growth in this business line (as discussed above, a large one-time reinsurance 

transaction skewed net premiums in this line of business lower). Total benefits of $53.0 billion 

and $51.1 billion were reported for the ordinary life business in 2016 and 2015, respectively. 

Largely driven by increased commissions and lower net premiums, the total expense ratio for the 

L&H sector was slightly higher at year-end 2016, increasing to 23 percent, compared to 19.8 

percent at year-end 2015.

Figure 12 below describes the L&H sector’s underwriting performance over the last decade.

Figure 12: L&H Sector Underwriting Performance

Source: SNL Financial

As illustrated above, recent underwriting performance appears to be under growing strain, as 

reduced net premium growth, stemming mainly from growth in cessions, has been a primary 

factor in exerting upward pressure on the L&H sector’s benefit and total expense ratios.

 30 Ordinary life insurance policies are guaranteed to remain in force for the policyholder’s entire lifetime, or until the 

contractual maturity date, provided required premiums are paid.

-25%

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-5%

0%

5%

10%

15%

20%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Benefit Ratio (left axis)

Total Expense Ratio incl. commissions & taxes (left axis)

Premiums, Considerations & Deposits Growth (right axis)
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(c) Investment Income

Investment income is derived from interest payments, dividends, capital gains collected on the 

sale of a security or other assets, and any other profit made through an investment vehicle of any 

kind. Net investment income refers to income received from investment assets (before taxes) 

such as bonds, stocks, mutual funds, loans and other investments (less related expenses). Net 

investment income represented about 20.3 percent of aggregate L&H sector revenues in 2016, 

slightly below the annual average for the post-crisis period. Figures 13 and 14 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 13: L&H Sector Annual Net Investment Income ($ billions) and Net Yield on 

Invested Assets

Source: SNL Financial (Net Yield based on Average Net Admitted Invested Assets)

Figure 14: L&H Sector Investment Income ($ thousands) and Net Yield

2012 2013 2014 2015 2016

Net Investment Income $ 166,522,938 $ 167,085,528 $ 171,733,049 $ 170,753,967 $ 172,890,313

Total Cash & Investments 3,403,292,657 3,482,338,468 3,631,569,037 3,703,860,635 3,888,186,773

Net Yield on Invested Assets 4.92% 4.85% 4.83% 4.66% 4.55%

Source: SNL Financial (Net Yield based on Average Net Admitted Investment Assets)

Despite falling during the first half of 2016, longer-term interest rates rose sharply in the fourth 

quarter and closed slightly higher by the end of 2016 compared to the year-end 2015 rate (see 

Figure 15); nonetheless, the L&H sector continued to experience lower investment yields, which 

declined to 4.56 percent in 2016 and marked the lowest level in the past ten years. Net 

investment income actually increased by 1.30 percent, but solid growth in total invested assets 

(up 5.10 percent) led to the decline in yield. The continued low interest rate environment 

$168

$162

$157

$164

$167 $167 $167

$172 $171

$173

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

$130

$135

$140

$145

$150

$155

$160

$165

$170

$175

$180

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Investment Income (left axis) Net Yield on Invested Assets (right axis)
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continued to present risks to the L&H sector, as previously discussed in FIO’s 2016 Annual 

Report on the Insurance Industry.

31

Figure 15 below shows the percentage yield on 10-year U.S. Treasury bonds.

Figure 15: Percentage Yield on 10-Year U.S. Treasury Bonds

Source: SNL Financial

In 2016, the L&H sector recorded net realized capital losses of $11 billion, more than triple the 

$3.5 billion in net realized capital losses reported in 2015, and the second consecutive year of a 

significant increase in losses. Increased losses on derivative securities (almost exclusively used 

for hedging transactions) were the primary cause of the increase in net realized capital losses.

(d) Net Income and Return on Equity

Figure 16 presents a summary income statement for the L&H sector. Total revenues in the L&H 

sector were $852 billion in 2016, an essentially flat comparison to the $848 billion reported in 

2015. The decrease in net premiums written (discussed above) and a 32 percent drop in “other 

income” were somewhat offset by an 80 percent decrease in the reinsurance allowance, i.e., 

reserve adjustments on reinsurance ceded. Total expenses decreased by 1.2 percent to $767 

billion, leading to a 23 percent gain in pre-tax operating income. Net income decreased by 2.1

percent to $39 billion in 2015, largely due to the increase in net realized capital losses.

 31 See FIO, 2016 Annual Report on the Insurance Industry (2016), https://www.treasury.gov/initiatives/fio/reportsand-notices/Documents/2016_Annual_Report_FINAL.pdf.

0%

1%

2%

3%

4%

5%

6%

Dec-06

Jun-07

Dec-07

Jun-08

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
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Figure 16: L&H Sector Net Income ($ thousands)

2012 2013 2014 2015 2016

Premiums, Considerations & Deposits $ 625,664,756 $ 562,585,964 $ 647,274,984 $ 638,191,067 $ 599,884,231

Net Investment Income 166,522,938 167,085,528 171,733,049 170,753,967 173,024,361

Reinsurance Allowance (30,779,711) (21,247,568) (14,987,927) (86,443,933) (16,975,046)

Separate Accounts Revenue 29,516,587 31,425,593 34,270,975 35,197,929 34,652,744

Other Income 41,547,171 42,814,138 39,700,564 90,478,871 61,318,965

Total Revenue 832,471,742 782,663,655 877,991,645 848,177,900 851,905,255

Total Expenses 757,357,317 704,105,504 812,543,945 775,518,356 766,593,145

Policyholder Dividends 15,211,990 15,660,306 16,430,515 18,271,884 18,230,320

Net Gain from Operations before Tax 59,568,028 62,897,846 49,012,243 54,389,094 67,081,791

Federal Income Tax 9,865,190 8,553,612 10,106,154 10,566,567 16,279,836

Net Income before Capital Gains 49,709,026 54,344,234 38,905,344 43,825,635 50,801,955

Net Realized Capital Gains (Losses) (9,448,488) (12,026,928) (1,306,441) (3,543,569) (11,378,697)

Net Income $ 40,260,418 $ 42,317,305 $ 37,605,615 $ 40,278,063 $ 39,423,258

Source: SNL Financial

Figure 17 shows key operating ratios for the L&H sector, indicators of the sector’s profitability 

over the last five years.

Figure 17: L&H Sector Operating Ratios 

2012 2013 2014 2015 2016

Pre-Tax Operating Margin 7.16% 8.04% 5.58% 6.41% 7.87%

Return on Average Equity 12.64% 12.85% 10.96% 11.17% 10.54%

Pre-Tax Operating Return On Average Equity 18.70% 19.10% 14.29% 15.08% 17.94%

Return on Average Assets 0.73% 0.73% 0.61% 0.64% 0.61%

Source: SNL Financial

The L&H sector’s 2016 pre-tax operating margin improved to 7.9 percent from 6.4 percent in 

2015. The increase in operating income led to an increase in the sector’s pre-tax operating return 

on average equity to 17.9 percent from 15.1 percent in 2015. Reduced net income, however, 

contributed to the drop in the return on average equity to 10.5 percent in 2016 from 11.2 percent 

in 2015.

Condition

This section presents information on the 2016 financial condition of the L&H sector, 

highlighting common industry metrics associated with solvency and financial stability.

(a) Capital and Surplus

Figure 18 shows the financial condition of the L&H sector as represented by its assets, capital 

and surplus, and its financial leverage ratio.
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Figure 18: L&H Sector Financial Leverage ($ thousands)

2012 2013 2014 2015 2016

Capital & Surplus $ 326,647,273 $ 331,982,056 $ 353,968,597 $ 367,237,674 $ 380,645,678

General Account Assets 3,587,753,293 3,675,915,856 3,835,978,902 3,912,008,760 4,117,425,775

General Account Assetsto-Surplus Ratio 10.98x 11.07x 10.84x 10.65x 10.82x

Source: SNL Financial

In 2016, the L&H insurance sector demonstrated an improved surplus base, with capital and 

surplus growing by 3.7 percent to $380.7 billion from the previous year-end and exhibiting an 

average annual growth rate of 3.9 percent over the post-crisis period.

32

Figure 19 shows key contributors to the L&H sector’s capital and surplus position, with positive 

earnings primarily enhancing the sector’s capital position.

Figure 19: Key Contributors to L&H Sector Capital and Surplus

Source: SNL Financial

 32 The recent 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 of 2010 through 2016 and percentage changes are calculated 

from year-end 2009.

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0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percentage of Prior Year Capital & Surplus

Net Income excluding Capital Gains Net Realized Capital Gains

Net Unrealized Capital Gains Dividends to Stockholders
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Eliminating the effect of capital contributions in the form of surplus notes, organic growth in 

capital and surplus has averaged 4.4 percent annually in the post-crisis period, mainly due to 

consistently strong underwriting results that have boosted net income. Partially offsetting that 

growth have been stockholder dividends, which reached a post-crisis high of $32.9 billion in 

2016, rising by 30.6 percent from 2015. Though peaking in 2016, stockholder dividends 

comprised less than 9 percent of prior year-end capital and surplus and have not exceeded that 

percentage in any of the previous post-crisis years.

Insurers balance two goals: (1) returning a profit by investing the premiums received from 

underwriting activities; and (2) limiting the risk exposure created by the policies that insurers

underwrite. Insurers may cede premiums to reinsurance companies in order to move some of the 

risks off of their balance sheets. Stable general account leverage ratios are further evidence of 

the L&H sector’s resilient capital position throughout the post-crisis period. Figure 20 shows 

general account leverage ratios for the L&H sector holding steady.

Figure 20: General Account Leverage for the L&H Sector

Source: SNL Financial

The net leverage ratio33 for the L&H sector stood at 11.4 at year-end 2016, unmoved from the 

prior year-end and declining from a post-crisis high of 12.3 at year-end 2011. Specifically, the 

liabilities-to-equity multiple of 9.8 at year-end 2016, reflecting general account liabilities of $3.7 

trillion as a multiple of capital and surplus, was slightly up from 9.7 at year-end 2015 and has 

averaged at a multiple of 10 annually over the past seven years. Net premiums written have 

averaged 1.8 times capital and surplus per year during the post-crisis period. Surplus relief 

through reinsurance for the L&H sector has increased recently, rising to 5.0 percent at year-end 

 33 Net leverage ratio is an indicator of the sector’s exposure to pricing and estimation errors, determined by 

calculating net liabilities and net premiums written as a multiple of capital and surplus.

0

2

4

6

8

10

12

14

16

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Multiple of Capital & Surplus

Total Reserves & Deposits Asset Leverage Net Leverage (net premiums written and net liabilities)
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2016 from 3.7 percent at year-end 2014.34 Cessions to reinsurers accounted for 24.7 percent of 

gross premiums at year-end 2016, climbing from 22.9 percent at year-end 2015 and surpassing 

the post-crisis average of 20.3 percent.

Exhibiting an annual growth rate of 3 percent on average since year-end 2009, general account 

policy reserves and deposit-type contract reserves were $3.2 trillion at year-end 2016, up by 5

percent from $3.0 trillion at year-end 2015. The multiple of reserves and deposits to capital and 

surplus, however, has held firm, standing at 8.4 and 8.3 for the years ending 2016 and 2015, 

respectively, declining from a high of 9.0 in the post-crisis period.

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. The L&H sector’s asset leverage 

multiple has ranged between 10.3 and 11.0 during the post-crisis period, averaging 10.6

annually, suggesting that no substantial deviations have occurred in the sector’s exposure to 

investment, interest rate, and credit risks in the last seven years.

(b) Asset Base

The L&H sector’s capital position has been supported by growth in total assets as well as 

consistency in the composition of the sector’s asset portfolio. Total L&H insurance sector assets, 

including separate accounts, were $6.6 trillion and $6.3 trillion for the years ending 2016 and 

2015, respectively, growing annually by 4.5 percent on average post-crisis. The annual growth 

rate of separate account assets has exceeded that of general account assets over the post-crisis 

period, averaging 6.5 percent versus 3.5 percent.

Figure 21 shows the composition of the L&H sector’s asset portfolio. General account assets 

have averaged about 63 percent of total asset holdings annually over the post-crisis period, while 

separate account assets have made up the remainder.

 34 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, The Breadth and Scope of the Global Reinsurance Market and the Critical Role Such 

Market Plays in Supporting Insurance in the United States (December 2014), 

https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/FIO%20-Reinsurance%20Report.pdf.
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Figure 21: Composition of General Account Asset Portfolio for the L&H Sector

2012 2013 2014 2015 2016

Bonds 74.7% 74.7% 73.9% 73.8% 73.5%

Preferred Stocks 0.2% 0.2% 0.3% 0.3% 0.2%

Common Stocks 2.1% 2.1% 2.1% 2.0% 2.2%

Mortgage Loans 9.9% 10.1% 10.3% 10.9% 11.2%

Real Estate 0.6% 0.6% 0.6% 0.6% 0.6%

Contract Loans 3.7% 3.7% 3.6% 3.4% 3.3%

Derivatives 1.2% 1.1% 1.6% 1.5% 1.6%

Cash & Short Term Investments 3.1% 2.7% 2.8% 2.8% 2.6%

Other Investments 4.4% 4.7% 4.9% 4.7% 4.7%

Total Cash & Invested Assets 100% 100% 100% 100% 100%

Share of Total General Account 

Assets 94.9% 94.7% 94.7% 94.7% 94.5%

General Account Assets / Total Assets 63.6% 61.2% 61.3% 61.8% 62.3%

Separate Account Assets / Total Assets 36.4% 38.8% 38.7% 38.2% 37.7%

Source: SNL Financial

Nearly 95 percent of the general account asset portfolio at year-end 2016 was comprised of cash 

and invested assets, mirroring the sector’s average since 2010. At year-end 2016, and on average 

each year over the post-crisis period, approximately three-quarters of the L&H sector’s 

investment portfolio has consisted of bond holdings. Of total bonds, almost 97 percent have 

invariably been long-term – in line with the long-term nature of obligations assumed under life 

policies and contracts. This concentration reflects sound insurer risk management practices that 

match asset and liability durations with the aim of mitigating the impact of interest rate 

fluctuations on capital and surplus.

Mortgage loans remain the second largest investment class held by the L&H sector, averaging 

10.2 percent of cash and invested assets annually in the post-crisis period.

While Figure 21 captures the details for the past five years, bond investments actually decreased 

by over 2 percentage points as a share of the L&H investment portfolio in the post-crisis period, 

falling to 73.5 percent of cash and invested assets at year-end 2016 from a high of 75.8 at 

year-end 2010. At the same time, the L&H sector raised its holdings of mortgage loans by close 

to 2 percentage points over the same period. This reallocation may be indicative of the impact of 

the low interest rate environment and the L&H sector’s search for yield.

(c) Liquidity

Despite some weakening observed in the quality of the L&H sector’s investment portfolio, the 

liquidity position in aggregate has remained sound, evidenced by positive cash flows from 

operations, growth in cash and invested assets, and a stable level of surrenders during the

post-crisis period. Figure 22 below illustrates that the L&H sector’s liquidity position has 

remained steady. 
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Figure 22: Cash Flows from Operations for the L&H Sector

Source: SNL Financial

A current liquidity ratio35 that has averaged over 92 percent annually during the last seven years, 

and a ratio of surrenders to premium receipts that has not deviated beyond a high of 46.7 percent 

over that same period, have contributed toward maintaining liquidity levels. Benefit payments 

have comprised on average 86.6 percent of premiums collected each year in the post-crisis 

period. Surrenders were $265.1 billion in 2016 relative to $273.0 billion in 2015, while benefit 

and loss-related payments were $553.1 billion and $562.9 billion for the same years, 

respectively.

Cash and invested assets grew to $3.9 trillion at year-end 2016 from $3.7 trillion at year-end 

2015, resulting in a ratio of general account liabilities to cash and invested assets of 96.1 percent 

at year-end 2016, slightly up from 95.8 percent at year-end 2015 and the post-crisis annual 

average of 95.9 percent. Bonds have steadily made up the bulk of cash and investments, totaling 

$2.9 trillion at year-end 2016 and $2.8 trillion at year-end 2015. Over 70 percent of long-term 

bond holdings were publicly traded at year-end 2016, compared to about 71 percent at the prior 

year-end. Just over 30 percent of the bond portfolio had maturities that ranged between 5 and 10 

years in 2016, compared to 30.4 percent in 2015. Another 37.1 percent, or $1.1 trillion of bonds, 

had maturities of greater than 10 years as of year-end 2016, up slightly from 36.7 percent and 

$1.0 trillion as of year-end 2015 – more than half of which consisted of bonds with maturities in 

excess of 20 years at both points in time.

Some indications of weakening in the quality of the L&H sector’s investment portfolio have 

been evident over the post-crisis period. As a share of capital and surplus, cash and short-term 

 35 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 common stock, 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.

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

As a share of Premium Receipts,

net of Reinsurance

Surrenders Benefit Payments
Annual Report on the Insurance Industry (September 2017)

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31

investments have shown a continual decline from a post-crisis high of 32.6 percent at year-end 

2012 to 26.6 percent at year-end 2016. The value of mortgage loans in foreclosure or past due 

by at least 90 days accounted for 0.24 percent of capital and surplus at year-end 2016, gradually 

rising each year from a post-crisis low of 0.07 percent at year-end 2013. The share of total bonds 

rated below investment grade has gradually increased, accounting for 6.1 percent and 5.9 percent 

of total bonds as of year-ends 2016 and 2015, respectively, up from 5.8 percent at year-end 2013. 

At year-end 2016, bonds near or in default increased sharply to $17.9 billion, a 31 percent jump 

from $13.6 billion at the prior year-end, and comprised 4.7 percent and 3.7 percent of capital and 

surplus at the same points in time, respectively.

Due to the 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. The L&H sector’s affiliated 

holdings (including cash as well as invested assets) have gradually climbed in the post-crisis 

period, averaging an annual growth rate of 6.7 percent. Affiliated cash and invested assets of 

$167.7 billion as of year-end 2016 represented 44 percent of capital and surplus, up from $156.8 

billion and 42.7 percent of capital as of year-end 2015. Affiliated investments consisted of 33

percent of common stock holdings at year-end 2016, while other investments36 made up another 

43.3 percent. By comparison, affiliated common stock and affiliated other investments made up 

29.8 percent and 45.1 percent of total affiliated holdings, respectively, at year-end 2015.

These recent negative trends observed in liquidity are mitigated by the L&H sector’s overall 

financial profile. Specifically, the value of mortgage loans in foreclosure or past due by at least 

90 days accounted for 0.21 percent of the total value of mortgage loan holdings, while the value 

of mortgage loans in good standing has consistently made up more than 99 percent of the total 

value of the L&H loan portfolio. Bonds near or in default have continued to comprise less than 

1.0 percent of aggregate bond holdings and their shares of capital and surplus have dropped from 

a high of 9.7 percent at year-end 2009. Affiliated cash and investments have averaged only 3.9

percent of total cash and invested assets annually over the post-crisis period. Finally, the bulk of 

the unaffiliated investment portfolio is aligned with the L&H sector’s asset/liability matching 

philosophy, with long-term bond holdings representing the bulk of investments. Unaffiliated 

cash and invested assets were $3.7 trillion at year-end 2016, up by 5 percent from $3.5 trillion at 

year-end 2015. The ratio of unaffiliated investments to capital and surplus was at a multiple of 

9.8 at year-end 2016, rising from 9.7 at year-end 2015, while the ratio of unaffiliated cash and 

invested assets to total general account liabilities has remained at a multiple of 1 since year-end 

2009.

 36 “Other” investments include, but are not limited to: surplus notes, limited partnerships, joint ventures, hedge 

funds, private equity funds, and direct investments.
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b. Property and Casualty Sector

Total P&C insurance premiums increased to yet another record level in 2016. Underwriting 

activities in 2016, however, failed to produce positive results for the first time since 2012, as the 

combined ratio37 for the P&C sector increased significantly to approximately 101 percent from 

98 percent in 2015. The increase in the combined ratio was driven by higher catastrophe losses 

and higher loss trends in both commercial and personal automobile lines of business. Net 

investment income and investment yield also decreased in 2016, with investment yield reaching 

new lows. The P&C sector’s net income decreased for the second consecutive year, driven by 

underwriting losses. Despite the decline in net income, the P&C sector’s policyholder surplus 

reached a new record level in 2016, and leverage increased slightly.

Performance

This section presents additional analysis of the financial performance of the P&C sector in 2016.

(a) Net Premiums Written

Figure 23 shows the level and composition of P&C sector direct premiums written by major lines 

of business, and Figure 24 shows the corresponding dollar values and a reconciliation to net 

premiums earned.

Figure 23: P&C Sector Direct Premiums Written ($ billions)

Source: SNL Financial

 37 The combined ratio is an accepted metric used to compare underwriting performance in the P&C sector; it is the 

sum of the loss ratio (incurred loss divided by premiums earned) and the expense ratio (incurred expenses divided 

by premiums written).

$0

$50

$100

$150

$200

$250

$300

$350

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Personal P&C Direct Premiums Commercial P&C Direct Premiums

Accident & Health Direct Premiums
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Figure 24: P&C Sector Premiums ($ thousands)

2012 2013 2014 2015 2016

Personal P&C Direct Premiums $ 260,931,593 $ 272,367,335 $ 287,272,384 $ 300,054,135 $ 317,604,443 

Commercial P&C Direct Premiums 247,322,865 259,943,105 271,209,044 280,072,580 283,836,615 

A&H Direct Premiums 8,424,278 6,701,202 5,766,660 6,142,327 6,544,767 

Direct Premiums Written 523,914,193 546,334,118 570,782,303 591,757,789 612,313,789 

Net Reinsurance Premiums (62,759,609) (64,406,185) (67,958,293) (71,247,200) (78,643,034)

Net Premiums Written 461,154,584 481,927,933 502,824,010 520,510,588 533,670,755 

Change in Unearned Premiums 

Reserve 7,927,935 9,853,047 9,093,095 8,400,413 4,866,400 

Net Premiums Earned $ 453,226,649 $ 472,074,886 $ 493,730,916 $ 512,110,175 $ 528,804,355 

Source: SNL Financial

For 2016, total P&C sector net premiums written reached a record level at $534 billion, marking 

a 2.5 percent increase over the 2015 result. However, this growth slowed compared to 

year-over-year growth of 3.5 percent and 4.3 percent for the 2014 to 2015 and 2013 to 2014 

periods, respectively. Direct premiums written for personal lines of business grew by 5.8 

percent, while direct premiums written for commercial lines of business increased by 1.3 percent. 

Net reinsurance premiums ceded increased by 10.4 percent, but the dollar amount of this increase 

was small relative to the gain in personal lines premiums, and supported the growth in net 

premiums written. Modest economic growth in the United States and premium rate increases 

continued to drive overall premium growth, with private passenger auto liability and auto 

physical damage leading the way.38

(b) Underwriting Results

The combined ratio is a commonly accepted metric used to assess underwriting performance in 

the P&C sector. Figure 25 shows the P&C combined ratio and its components for the past 

several years.39 

 38 “A.M. Best First Look – 4Qtr 2016 U.S. Property/Casualty Financial Results,” A.M. Best, March 15, 2017, 

http://www3.ambest.com/bestweek/DisplayBinary.aspx?TY=P&record_code=259693.

39 SNL Financial ratios include the policyholder dividend ratio for transparency because dividends represent a cash 

outlay.
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Figure 25: P&C Sector Operating Ratios 

2012 2013 2014 2015 2016

Loss Ratio 61.96% 55.60% 57.21% 57.48% 60.67%

Loss Adjustment Expense Ratio 12.39% 11.94% 11.82% 11.83% 11.61%

Loss and Loss Adjustment 

Expense Ratio 74.35% 67.54% 69.04% 69.31% 72.28%

Net Commissions Ratio 10.20% 10.24% 10.38% 10.55% 10.40%

Salaries & Benefits Ratio 8.41% 8.54% 8.14% 8.24% 8.32%

Tax, License, & Fees Ratio 2.62% 2.60% 2.51% 2.55% 2.51%

Administrative & Other 

Expense Ratio 6.99% 6.78% 6.55% 6.72% 6.68%

Expense Ratio 28.22% 28.17% 27.58% 28.05% 27.91%

Policyholder Dividend Ratio 0.59% 0.64% 0.60% 0.59% 0.56%

Combined Ratio 103.15% 96.35% 97.21% 97.95% 100.74%

Source: SNL Financial

The combined ratio for the P&C sector increased significantly to 100.7 percent in 2016, rising 

above 100 percent for the first time since 2012. 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. Notably higher 

catastrophe losses in 2016, along with higher loss trends in commercial and personal automobile 

insurance, drove the increase in the combined ratio.40 

Figure 26 illustrates that the loss ratio – the largest component of the combined ratio – has also 

been affected by slower growth in net premiums earned over the last three years.

Figure 26: Recent Trends Underlying Loss Ratio

Source: SNL Financial

 40 A.M. Best, “4Qtr 2016 P&C Financial Results.”

-15%

-10%

-5%

0%

5%

10%

15%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Growth in Losses Incurred Growth in Net Premiums Earned
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Box 1: The Effect of Auto Claims on P&C Insurer Performance

Rising costs associated with increased frequency and severity of automobile accidents have 

negatively affected P&C insurer performance in recent years. This rise in the frequency and 

severity of auto claims has aggravated a ten-year downward trend for auto insurers; since 2007, 

auto insurance losses and expenses have exceeded premiums.41 Numerous insurers reported auto 

business losses in 2016, including State Farm Mutual Automobile Insurance Co. (which 

announced that it lost $7 billion on its auto insurance underwriting, contributing to a P&C pretax operating loss of $1.2 billion),42 GEICO Corp.,43 Travelers Companies Inc.,44 Allstate 

Corp.,45 and Hartford Financial Services Group Inc.46 Analysts have described U.S. commercial 

auto insurance as a “chronically underperforming product segment.”47 Exacerbating these trends 

is a low interest rate environment, which constrains investment income for automobile insurers.48

The frequency of automobile insurance claims has been on the rise for several years, with 

collision claim frequency increasing by 2.6 percent between first quarter 2014 and first quarter 

2016. Likewise, claim severity has also increased in recent years, growing 8.2 percent between 

2014 and 2016.49 Although car accidents have been decreasing for years, collision rates are now 

increasing – possibly due to factors such as lower gas prices and lower unemployment (leading 

to more drivers on the road), higher speed limits, and increases in distracted driving.50 Increases 

in claim severity have been caused, at least in part, by increased healthcare costs and car repair 

bills attributable to expensive technological features in cars, such as bumper cameras, as well as 

 41 Insurance Information Institute, Personal Automobile Insurance: More Accidents, Larger Claims Drive Costs 

Higher (October 2016), 4, http://www.iii.org/sites/default/files/docs/pdf/auto_rates_wp_092716-62.pdf.

42 “State Farm Lost $7 Billion on Auto in 2016,” Insurance Journal, March 1, 2017, 

http://www.insurancejournal.com/news/national/2017/03/01/443224.htm.

43 Susanne Sclafane, “Berkshire Hathaway’s Insurance Keeps Growing and Hiring, Despite Auto, Reinsurance 

Blips,” Insurance Journal, February 27, 2017, 

http://www.insurancejournal.com/news/national/2017/02/27/442908.htm.

44 Jordyn Holman, “Travelers’ Q3 Results Hurt by Auto, Flood Claims,” Insurance Journal, October 20, 2016, 

http://www.insurancejournal.com/news/national/2016/10/20/429912.htm.

45 “Allstate Profit Up for 2016 Despite Higher Catastrophe Losses,” Insurance Journal, February 3, 2017, 

http://www.insurancejournal.com/news/national/2017/02/03/440883.htm.

46 Susanne Sclafane, “Hartford’s Execs Make Plea to End ‘Real Issue, Real Pain’ of Distracted Driving,” Insurance 

Journal, December 16, 2016, http://www.insurancejournal.com/news/national/2016/12/16/435024.htm.

47 Andrew Simpson, “Commercial Auto Insurance Remains a Loser on the Whole: Fitch,” Insurance Journal, May 

3, 2016, http://www.insurancejournal.com/news/national/2016/05/03/407213.htm.

48 Insurance Information Institute, More Accidents, Larger Claims, 14.

49 Insurance Information Institute, More Accidents, Larger Claims, 3.

50 Distracted driving led to 3,477 deaths in 2015 alone. National Highway Traffic Safety Administration, Traffic 

Safety Facts (Research Note): Distracted Driving 2015 (March 2017), 

https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/812_381_distracteddriving2015.pdf. See also Sclafane, 

“Hartford’s Execs Make Plea.”
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other new safety technologies that can raise safety and liability issues when not properly 

maintained by drivers.51

In response to these increased losses, insurers are increasing premiums for automobile insurance. 

Commercial auto rates have increased by 25 percent since 2012, far exceeding rate increases for 

the commercial market as a whole.52 Personal lines auto insurance rates are also increasing.53

In addition, state legislators are acting to reduce one of the root causes of higher insurance 

premiums: increased claim costs from distracted driving. In 2017, at least eleven states and the 

District of Columbia advanced legislation to address distracted driving.54

(c) Investment Income

Net investment income for the P&C sector remained on a declining trend in 2016, decreasing by 

2.7 percent to $47 billion. Commensurately, the net yield on invested assets dropped 14 basis 

points to 3.04 percent, marking the lowest net yield level in the past ten years. Figure 27 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 28 provides this data for the past five years.

 51 Lisa Du and Sonali Basak, “Insurance Bills Rise as Texters Crash Cars,” Bloomberg Businessweek, February 16, 

2017, https://www.bloomberg.com/news/articles/2017-02-16/insurance-bills-rise-as-texters-crash-cars.

52 Rob Lenihan, “Auto Rates Accelerate on Rising Accidents, Costs,” Business Insurance, April 3, 2017, 

http://www.businessinsurance.com/article/20170403/NEWS06/912312706/Auto-insurance-rates-accelerate-onrising-accidents-higher-repair-costs.

53 Du and Basak, “Insurance Bills Rise.”

54 See Property Casualty Insurers Association of America, 2017 Legislation: Distracted Driving, May 30, 2017,

http://www.pciaa.net/pciwebsite/common/page/attachment/70223.
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Figure 27: P&C Sector Annual Net Investment Income ($ billions) and Net Yield on 

Admitted Invested Assets

Source: SNL Financial 

Figure 28: P&C Sector Investment Income ($ thousands) and Net Yield

2012 2013 2014 2015 2016

Net Investment Income $ 50,284,734 $ 49,280,948 $ 54,904,547 $ 48,765,011 $ 47,434,614 

Total Cash & Investments 1,389,359,572 1,483,929,648 1,532,509,401 1,531,283,525 1,586,777,369 

Net Yield on Invested Assets 3.68% 3.43% 3.64% 3.18% 3.04%

Source: SNL Financial

Realized capital gains and losses are not a component of net investment income, and are reported 

separately. P&C insurers are typically less dependent on net investment income to fund losses 

and expenses than are L&H insurers; net investment income accounted for 9 percent of total 

sector revenues in 2016 (compared to approximately 20 percent in the L&H sector).

Realized capital gains on investments also contributed to the P&C sector’s profitability in 2016, 

although to a lesser extent than in the prior year. Over 2016, the P&C sector recorded net 

realized capital gains of $8 billion, which was 16 percent less than the 2015 level. Higher 

interest rates toward the end of the year contributed to the decrease in capital gains. This marked 

the second consecutive year of declining realized capital gains.

(d) Net Income

The P&C sector’s net income decreased for the third consecutive year in 2016, dropping 24 

percent to $44 billion from the $58 billion reported in 2015, as shown in Figure 29. Figure 30 

provides a summary income statement for the P&C sector.

$56.5

$53.1

$48.4 $48.1

$50.9

$50.3

$49.3

$54.9

$48.8

$47.4

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%

4.4%

4.6%

4.8%

5.0%

$42

$44

$46

$48

$50

$52

$54

$56

$58

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Investment Income (left axis)

Net Yield on Invested Assets (right axis)
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Figure 29: P&C Sector Net Income ($ billions)

Source: SNL Financial

Figure 30: P&C Sector Net Income ($ thousands)

2012 2013 2014 2015 2016

Net Premiums Earned $ 453,226,649 $ 472,074,886 $ 493,730,916 $ 512,110,175 $ 528,804,355 

Losses and Loss Adjustment 

Expense Incurred 336,968,884 318,842,292 340,855,210 354,959,012 382,199,155 

Other Underwriting Expense 

Incurred 129,816,139 136,211,881 139,137,758 145,136,436 147,859,261 

Other Underwriting Deductions 321,969 (471,225) (475,218) 857,268 1,064,057 

Net Underwriting Gain (Loss) (13,878,425) 17,489,999 14,213,165 11,157,459 (2,318,118)

Policyholder Dividends 2,655,149 3,017,264 2,943,412 3,016,579 2,943,624 

Net Investment Income 50,284,734 49,280,948 54,904,547 48,765,011 47,434,614 

Net Realized Capital Gains (Losses) 8,681,770 18,399,919 11,789,595 10,073,274 8,482,005 

Finance Service Charges 3,287,835 3,403,200 3,271,709 3,333,008 3,452,608 

All Other (1,085,132) (1,892,032) (6,158,765) (1,808,648) (2,407,635)

Net Income After Capital Gain 

(Loss) Before Tax 44,670,672 83,663,527 75,076,697 68,503,525 51,699,849 

Federal Income Tax 6,257,395 12,038,618 10,318,140 10,188,465 7,330,710 

Net Income $ 38,415,881 $ 71,624,732 $ 64,757,509 $ 58,315,060 $ 44,369,139 

Source: SNL Financial

A $13 billion swing from an $11 billion underwriting gain in 2015 to a $2 billion underwriting 

loss in 2016 was the main cause of the decrease in net income. The decrease in investment 

results, including both investment income and realized capital gains (discussed above), also 

contributed to the overall decline in net income. Pre-tax operating income fell 25 percent, but a 

28 percent drop in federal income taxes led to the end result of the 24 percent decrease in net 

income for 2016.

-$60

-$40

-$20

$0

$20

$40

$60

$80

$100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Underwriting Gain (Loss) Net Investment Income

Net Income
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Figure 31 displays key measures of returns for the P&C sector.

Figure 31: P&C Sector Operating Ratios

2012 2013 2014 2015 2016

Pre-Tax Operating Margin 7.11% 12.48% 11.60% 10.39% 7.49%

Return on Average Equity 

(Capital & Surplus) 6.65% 11.35% 9.56% 8.47% 6.34%

Pre-Tax Operating Return on 

Average Equity 6.23% 10.34% 9.34% 8.49% 6.17%

Return on Average Assets 2.37% 4.23% 3.66% 3.24% 2.41%

Source: SNL Financial

Each of these metrics declined for a third consecutive year. The 2016 return on average equity 

of 6.3 percent was well below the recent ten-year average of 9.0 percent, and marked the 

second-lowest post-crisis measurement. As Figure 32 demonstrates, the combined ratio fell to a 

post-crisis low of 96.4 percent in 2013, contributing to a peak for return on average equity. 

Since then, however, the combined ratio has gradually trended upward, putting downward 

pressure on the sector’s earnings and return on average equity.

Figure 32: Recent Pressure on Earnings

Source: SNL Financial

0%

2%

4%

6%

8%

10%

12%

14%

85%

90%

95%

100%

105%

110%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Combined Ratio (left axis) Return on Average Equity (right axis)
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Condition

This section of the Report analyzes the financial condition of the P&C sector at the end of 2016, 

focusing on surplus, assets, and liquidity.

(a) Policyholder Surplus

The P&C insurance sector exhibited a healthy surplus position in 2016, with steady 

debt-to-equity and asset leverage ratios bolstering the balance sheet. Policyholder surplus was 

$712.3 billion at year-end 2016, up by 3.6 percent from $687.8 billion at year-end 2015, 

primarily due to an increase in net unrealized capital gains. The annual growth rate in surplus 

has averaged 4.7 percent over the post-crisis period. Removing capital infusions in the form of 

surplus notes still resulted in policyholder surplus growth of 4.9 percent on average every year 

during the post-crisis period. Like the L&H sector, organic surplus growth for the P&C sector 

can mainly be attributed to positive earnings and offset in part by stockholder dividends. 

Stockholder dividends of $28.5 billion and $38.5 billion were issued in 2016 and 2015, 

respectively. As a share of prior year-end policyholder surplus, stockholder dividends have 

averaged 5.2 percent annually since year-end 2009; less than the L&H sector average, due to the 

P&C sector’s larger surplus base. Another factor that has generated capital for the P&C sector 

has been steady net realized capital gains year after year in the post-crisis period. As a share of 

prior year-end policyholder surplus, net realized capital gains have averaged about 2 percent 

annually.

As shown in Figure 33, and similar to observations above regarding the L&H sector, leverage 

ratios for the P&C sector have shown improvement over the post-crisis period, enhancing the 

sector’s financial capacity. Though they measure different exposures, the asset and net leverage 

ratios began to converge in 2012 for the P&C sector, nearly mirroring each other in recent years.

Figure 33: Stable Leverage Enhancing Financial Capacity of P&C Sector

(Multiple of Policyholder Surplus)

Source: SNL Financial

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Total Loss and LAE Reserves Asset Leverage Net Leverage (net premiums written and net liabilities)
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Balance sheet strength can be affected by the volatility and credit quality of the investment 

portfolio, reinsurance recoverables, and agents’ balances. The P&C sector’s asset leverage ratio, 

however, has held constant at 2.4 for the last four years, suggesting that the sector’s exposure to 

investment, interest rate, and credit risks has not changed materially. The liabilities-to-equity 

ratio combined with the operating leverage ratio (together representing the net leverage ratio) has 

averaged 2.45 annually for the last seven years. Specifically, liabilities were 1.6 times surplus at 

year-end 2016 (not changing significantly since year-end 2013); for the prior three years of the 

post-crisis period, the liabilities-to-equity ratio stood at or below 1.84. Operating leverage for 

the sector has averaged less than one percent annually – that is, net premiums written have 

comprised less than 0.8 times policyholder surplus each year. A steady uptick in net reinsurance 

premiums, representing increased cessions of risk to reinsurers, has occurred over the post-crisis 

period, growing at an annual rate of 4.1 percent on average. Recently, ceded premiums were 

$79.4 billion and $71.2 billion in 2016 and 2015, respectively.

At year-end 2016, the ratio of loss and loss adjustment reserves to policyholder surplus was 0.88 

and has averaged at a multiple of less than one annually over the post-crisis period. Catastrophe 

activity in 2016, however, has led the P&C sector to benefit less from favorable prior accident 

year loss reserves development compared to recent years. As a result, reserve strengthening 

efforts have continued for the last three years, with loss and loss adjustment reserves climbing to 

$624.7 billion at year-end 2016 from $610.1 billion and $601.5 billion at year-ends 2015 and 

2014, respectively.

(b) Asset Base

Contributing to the strength of the P&C sector’s capital position has been the growth and 

consistency of asset holdings. Total assets of $1.9 trillion as of year-end 2016, slightly up from 

$1.8 trillion as of the prior year-end, have grown at an annual rate of 3.3 percent on average, and 

have represented between 2.6 and 2.8 times policyholder surplus annually, since year-end 2009. 

The composition of the sector’s asset portfolio has remained unwavering, with the bulk of 

holdings allocated to cash and investments. Figure 34 shows the sector’s asset composition at 

year-end 2016. 
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Figure 34: 2016 Composition of Asset Portfolio for the P&C Sector

Source: SNL Financial

On average, more than 84 percent of total assets has consistently been made up of cash and 

invested assets each year during the post-crisis period, while premiums and considerations due 

have averaged in excess of 8 percent.

As Figure 35 details, over the last five years the P&C sector has generally allocated nearly 

two-thirds of its investment portfolio to bonds over the post-crisis period, while common stock 

holdings have averaged almost 20 percent of cash and invested assets.

Figure 35: Composition of Investment Portfolio for P&C Sector

2012 2013 2014 2015 2016

Bonds 65.4% 62.5% 61.5% 62.1% 61.3%

Preferred Stocks 0.9% 0.8% 1.0% 0.9% 0.7%

Common Stocks 18.3% 21.4% 21.5% 21.1% 21.8%

Mortgage Loans 0.4% 0.5% 0.7% 0.8% 0.9%

Real Estate 0.7% 0.7% 0.7% 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 6.0% 5.6% 5.9% 5.8% 5.8%

Other Investments 8.3% 8.4% 8.7% 8.5% 8.6%

Total Cash & Invested Assets 100% 100% 100% 100% 100%

Source: SNL Financial

This composition of investment holdings aligns with the risk management practices in use 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 held steady, averaging 1.5 percent in the postcrisis period, whereas common stocks have grown by 7.7 percent on average. Total bonds were 

$1.0 trillion in 2016, not materially changed from 2015 and 2014, of which nearly 94 percent 

Cash and Invested 

Assets (84.6%)

Premiums and 

Considerations 

Due (8.8%)

Reinsurance 

Recoverable 

(2.3%)

Receivable from 

Parent, Subsidiary, 

or Affiliates 

(0.8%)

All Other 

Admitted Assets 

(3.5%)
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were comprised of long-term bonds with durations largely falling between one and ten years. 

With less than ten percent of total bonds on average comprised of private placements each year, 

bond holdings have largely been publicly-traded issuances. Of note is the shift from bonds to 

equities since year-end 2009. Bond holdings declined by over 7 percentage points, while 

common stock holdings rose by over 5 percentage points since year-end 2009. Figure 35 reflects 

this trend between 2012 and 2016. As with the L&H sector, the P&C sector demonstrated a shift 

in investment holdings, which can be attributable to both market performance and the search for 

yield. Specifically, the risk exposures highlighted by the financial crisis compelled insurers to 

increase their holdings of safe but low-yielding bonds. As funding gaps grew, pressure to close 

these exposures also grew, leading insurers to increase their equity holdings with the prospect of 

higher returns.

(c) Liquidity

The P&C sector has maintained a sound liquidity position during the post-crisis period, reflecting 

effective liquidity management of its business needs. The sector has sustained positive net cash 

flows from operations each consecutive year for the last decade, with recent net cash flows from 

operations of $57.5 billion and $60.2 billion in 2016 and 2015, respectively. On a cash basis, 

premium receipts have averaged an annual growth rate of 3.3 percent since year-end 2009 and 

have covered benefit and loss-related payments by 1.7 times on average. As Figure 36

illustrates, premiums collected, net of reinsurance, exceeded benefit and loss-related payments 

by more than 72 percent and 77 percent at year-end 2016 and year-end 2015, respectively.55 

Consistent net cash inflows from operations have contributed to the P&C sector’s stability.

 55 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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Figure 36: P&C Sector Cash Flows from Operations 

Source: SNL Financial

Positive net cash flows from operations have contributed to annual growth in cash and invested 

assets averaging 3.4 percent since year-end 2009, expanding the P&C sector’s financial 

flexibility. In particular, the ratio of cash and invested assets to liabilities has averaged 135 

percent each year post-crisis, while cash, cash equivalents, common stock, and investment-grade 

bonds have averaged 122.6 percent of liabilities. Furthermore, cash and invested assets have 

represented at least 2.2 times the level of aggregate policyholder surplus each year since 

year-end 2009. 

Although certain concentrations of risk exist within the sector’s investment portfolio, the credit 

risk profile has remained relatively constant. Within the investment portfolio, the proportion of 

bonds rated below investment grade has remained below five percent of total bond holdings in 

each year during the post-crisis period, averaging 6.1 percent of policyholder surplus annually 

during that period. While the P&C sector nearly tripled its holdings of bonds near or in default 

to $11.0 billion at year-end 2012 from $4.1 billion at year-end 2011, the sector has gradually 

reduced that exposure in the last three years. Bonds near or in default totaled $10.5 billion and 

$10.6 billion at year-ends 2016 and 2015, respectively. Moreover, the bulk of total bond 

holdings (at least 86 percent) have consistently been issued by U.S. government entities in the 

last seven years – that is, the federal government, municipalities, and state governments. Finally, 

total mortgages have grown by over 19 percent on average each year in the post crisis-period, 

totaling $15.1 billion at year-end 2016; however, more than 95 percent of the mortgage loan 

portfolio has consistently remained in good standing during this period. Mortgages in 

foreclosure or past due by 90 days have dropped sharply from 1.64 percent of the loan portfolio 

at year-end 2009 to just 0.02 percent at year-end 2016.

Some risk exposures have surfaced within the P&C sector’s investment portfolio. Specifically, 

municipal revenue and assessment bonds have ranged between 18 and 21 percent of total bond 

holdings in each of the last seven years. A revenue and assessment bond is a special type of 

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municipal bond distinguished by its guarantee of repayment solely from revenues generated by a 

specified entity associated with the purpose of the bonds, rather than from a tax or other 

resources of the sponsoring government entity. Unlike general obligation bonds, only the 

revenues specified in the legal contract between the bond holder and bond issuer are required to 

be used for repayment of the principal and interest due on the revenue bonds. Other revenues,

such as tax revenues and the general credit of the issuing agency, are not encumbered.

For revenue and assessment bonds, the sponsoring agency, and therefore the bond holders, are

exposed to the credit risk of the business/project that is being funded by the bonds. The 

guarantee of repayment may become a risk exposure if the specific entity responsible for 

repayment becomes distressed. The P&C sector held revenue and assessment bonds of $187.9

billion at year-end 2016 (comprising 11.8 percent of cash and investments), compared to $188.1

billion and 12.3 percent at year-end 2015.

Growth in affiliated investments presents another potential liquidity risk exposure for the P&C 

sector. Affiliated cash and investments have been on the rise in the post-crisis period, 

representing 11.7 percent of total cash and invested assets and 26.1 percent of policyholder 

surplus at year-end 2016, up from 7.8 percent of cash and investments and 19.1 percent of 

policyholder surplus at year-end 2009. Figure 37 shows the growth and shift in the composition 

of affiliated investments over the post-crisis period.

Figure 37: P&C Sector’s Affiliated Investments ($ billions)

Source: SNL Financial

Other types of investments have come to dominate affiliated holdings, more than doubling their 

share of total affiliated investments from year-end 2009 and surpassing common stock 

investments. As of year-end 2016, affiliated cash and invested assets were $185.9 billion, up 7.6 

percent from $172.7 billion as of year-end 2015.

There are several factors that mitigate the sector’s vulnerability to these risk exposures, should 

market conditions weaken. First, high quality bonds have made up the bulk of total bond 

holdings. Specifically, investment grade bonds have averaged more than 96 percent of total 

bonds and nearly two-thirds of cash and invested assets each year post-crisis. Second, 

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investment grade bonds have continued to comprise 1.4 times policyholder surplus for the last 

four years. Likewise, affiliated investments have averaged only 11 percent of cash and invested 

assets each year during the post-crisis period. Of total unaffiliated cash and invested assets, bond 

holdings have averaged 70 percent of the investment portfolio annually over the same period, 

while unaffiliated common stocks have accounted for 16.7 percent on average. Finally, 

unaffiliated cash and invested assets have remained at least twice the level of policyholder 

surplus since year-end 2009.

2. 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, 2006 through December 31, 2016, the SNL Stock 

Price Index for the P&C sector outperformed the S&P 500, as shown in Figure 38. On the other 

hand, the L&H sector stock index underperformed the S&P 500 during this period.

Figure 38: Insurance Industry’s Stock Indices vs. S&P 500

Source: SNL Financial

The P&C sector was generally a market performer leading up to the financial crisis, and has 

outperformed the S&P 500 since the crisis as well. The L&H sector slightly outperformed the 

S&P 500 leading up to the financial crisis, but has underperformed the broader market during 

and since the crisis. Since the end of 2006, the P&C stock index gained 105 percent and the 

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SNL U.S. Insurance L&H SNL U.S. Insurance P&C S&P 500
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L&H stock index increased 27 percent; over the same period, the S&P 500 gained 58 percent. 

For 2016, both the P&C stock index and L&H stock index significantly outperformed the S&P 

500, gaining 15 percent and 20 percent, respectively, compared to a 9 percent increase for the 

S&P 500 (Figure 39).

Figure 39: Insurance Sector Indexed Stock Indices vs. S&P 500

Dec – 15 Mar - 16 Jun - 16 Sep - 16 Dec - 16 Qtr/Qtr Yr/Yr

SNL L&H 106 97 95 107 127 19.50% 20.27%

SNL P&C 178 181 181 185 205 10.96% 15.28%

S&P 500 145 145 146 153 158 3.72% 8.83%

Source: SNL Financial

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 

opposite is true if the stock is trading at a premium to its book value. Figure 40 compares L&H 

and P&C sector price-to-book value ratios from year-end 2006 through year-end 2016.

Figure 40: Insurer Price/Book Value Ratios

Source: SNL Financial

The narrowing in the premium of L&H sector stocks compared to book value that began in 2014 

continued through 2016, settling at a multiple of 0.99 times book value at the end of the year, 

down slightly from the 1.03 multiple at the end of 2015. P&C sector stocks saw premium over 

book value remain essentially flat, ending 2016 at a multiple of 1.37 times book value compared 

to a multiple of 1.35 times book value at the end of 2015.

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SNL U.S. Insurance L&H SNL U.S. Insurance P&C
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3. Infrastructure Investments

Infrastructure may be defined as permanent systems that facilitate the orderly operation and 

development of the economy. Physical infrastructure includes systems relating to transportation, 

communication, water, sewer, and the generation and distribution of electrical power.56 Such 

systems are generally capital intensive and tend to have high costs, but often provide stable cash 

flows to investors because of high barriers to entry.57

The need for investment in infrastructure has become a global policy issue. For a number of 

years, the OECD has reported on this issue to the G-20 Finance Ministers and Central Bank 

Governors.58 Domestically, President Trump recently called for legislation that would produce a 

$1 trillion investment of public and private capital in the infrastructure of the United States,59

and released a Plan to Rebuild America’s Infrastructure.60

Infrastructure projects may be funded publicly, privately, or through public-private partnerships. 

In the United States, the main funding vehicle for infrastructure projects has historically been the 

municipal bond market.61 More recently, and particularly for transportation and energy projects, 

as well as some water projects, private equity investment in infrastructure projects has 

increased.62 The performance of privately-financed investment infrastructure is often related to 

the performance of the project or the strength of the established infrastructure companies.

Insurers are significant investors, and infrastructure may be particularly attractive to insurers as 

an investment class. As detailed above, the U.S. insurance industry, including the L&H 

(excluding separate accounts) and P&C sectors, had approximately $5.5 trillion in cash and 

invested assets at the end of 2016. Over the past 10 years, the net yield on invested assets 

achieved by insurers has been on a steady decline due to the persistent low interest rate 

environment. As a result, insurers have increasingly sought out higher-yielding alternatives.

Infrastructure projects present appealing opportunities to insurers in view of the higher yields 

and longer durations that may improve profitability and asset-liability management, particularly 

 56 See, e.g., Oliver Wyman, “Infrastructure as an Asset Class” (presentation, FACI, Washington, DC, May 11, 

2017), https://www.treasury.gov/initiatives/fio/Documents/3d-Oliver_Wyman_Infrastructure.pdf.

57 See, e.g., Wyman, “Infrastructure as an Asset Class.”

58 See, e.g., OECD, Infrastructure Financing Instruments and Incentives (2015), 

http://www.oecd.org/finance/private-pensions/Infrastructure-Financing-Instruments-and-Incentives.pdf.

59 See The White House, “President Trump is Working to Rebuild our Nation’s Infrastructure,” news release, 

February 28, 2017, https://www.whitehouse.gov/the-press-office/2017/02/28/president-trump-working-rebuild-ournations-infrastructure.

60 “President Trump’s Plan to Rebuild America’s Infrastructure,” The White House, June 8, 2017, 

https://www.whitehouse.gov/blog/2017/06/08/president-trumps-plan-rebuild-americas-infrastructure.

61 See, e.g., Wyman, “Infrastructure as an Asset Class.”

62 Brian Chappatta, “Obama Proposes New Muni Bonds for Public-Private Investments,” Bloomberg Business, 

January 16, 2015, https://www.bloomberg.com/amp/news/articles/2015-01-16/obama-proposes-new-muni-bondsfor-public-private-infrastructure.
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for life insurers.63 For example, when TIAA explained its infrastructure strategy to Treasury’s 

FACI, it noted that it had an infrastructure and energy portfolio of about $13 billion.64 At the 

same FACI meeting, MetLife noted that it managed $43.7 billion in infrastructure debt 

investments out of its $558.9 billion in combined managed assets.65 Infrastructure investments 

are also attractive to P&C insurers, which are historically among the largest investors in 

municipal bonds, representing 10 percent of the $3.8 trillion market.66

Other global jurisdictions have considered whether infrastructure investments deserve distinct 

treatment under their regulatory regimes. In June 2016, for example, the European Insurance 

and Occupational Pensions Authority (EIOPA) published Technical Advice to the European 

Commission in which EIOPA suggested that high quality infrastructure investments should be 

treated differently than other equity investments from a regulatory capital requirement 

perspective. 67 Specifically, EIOPA’s advice called for reduced risk charges for such 

investments.

In the United States, the NAIC is in the early stages of discussing and investigating the 

possibility of different, and incentivized, treatment for equity infrastructure investments by 

insurers.68

4. 2017 Insurance Market Outlook

Full-year 2017 industry results will be reviewed in FIO’s 2018 Annual Report on the Insurance 

Industry. Based on financial results reported by insurers in the first six months of 2017, the 

outlook for the U.S. insurance industry appears stable for the rest of 2017. The P&C sector’s 

third quarter 2017 financial performance, however, may be impacted by Hurricanes Harvey,

Irma, and Maria. In addition, interest rates are expected to continue to place pressure on insurer 

margins in the near term, as indicated by the trajectory of investment yields during the first half 

of the year.

 63 Swiss Re, Underwriting the U.S. Infrastructure Gap (March 21, 2017), 9, 

http://media.swissre.com/documents/Underwriting_the_US_infrastructure_gap.pdf.

64 TIAA, “Federal Insurance Office Federal Advisory Committee on Insurance Infrastructure Investments” 

(presentation, FACI, Washington, DC, May 11, 2017), https://www.treasury.gov/initiatives/fio/Documents/3aTIAA_ACLI_Infrastructure.pdf.

65 MetLife, “Insurance and Infrastructure Investing” (presentation, FACI, Washington, DC, May 11, 2017), 

https://www.treasury.gov/initiatives/fio/Documents/3b-MetLife_Infrastructure.pdf.

66 Sonali Basak, Romy Varghese, and Lisa Du, “Insurers Caught in Municipal Bond Slump While Awaiting Trump 

Tax Plan,” Insurance Journal, February 28, 2017, 

http://www.insurancejournal.com/news/national/2017/02/28/443053.htm.

67 EIOPA, Final Report on Consultation Paper No. 16/004 on the Request to EIOPA for Further Technical Advice 

on the Identification and Calibration of Other Infrastructure Investment Risk Categories, i.e. Infrastructure 

Corporates (June 30, 2016), https://eiopa.europa.eu/Publications/Consultations/EIOPA-16-490_FinalReport_advice_infrastructure_corporates.pdf.

68 NAIC, Valuation of Securities (E) Task Force Special Session: Infrastructure Investment (Agenda) (August 28, 

2016), http://www.naic.org/meetings1608/committees_e_vos_ssi_2016_summer_nm_agenda.pdf.
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As policyholder surplus reached an all-time high of $714.6 billion at the end of the second 

quarter of 2017, the P&C sector was challenged by excess capacity. Return on average equity 

through the second quarter of 2017 continued downward to 4.52 percent, reaching its lowest 

level in the last five years, as P&C insurers continued to compete with new and existing market 

players.

69 As of September 2017, the P&C sector’s robust capital position was expected to help 

cushion insurers from losses arising from Hurricanes Harvey, Irma, and Maria. For Hurricane 

Harvey, early projections of total insured losses were approximately $10 billion to $25 billion, 

excluding losses under the NFIP.

70 For Hurricane Irma, early projections of total insured losses 

were approximately $20 billion to $40 billion, again excluding NFIP losses.

71 At the time of 

publication, it was too early to provide an estimate of private sector insured losses arising from 

Hurricane Maria.

In addition to the ongoing implications of low interest rates, the financial performance of life and 

annuity insurers are expected to continue to be affected by moderate to modest economic 

growth72 and flat sales through the last half of 2017. During the first half of 2017, the L&H 

sector experienced reduced net premium growth compared to the same period a year ago. Net 

premiums, annuities, and considerations at the end of the current second quarter represented 47 

percent of full-year 2016 levels, an indication that premium growth may decelerate farther. 

While slowing premium growth is expected to place pressure on the sector’s profitability in 

2017, healthy real estate conditions, largely driven by an improving labor market, and a steady 

U.S. corporate bond market will likely contribute to limiting credit-related losses, easing the 

strain to earnings.

Capital Markets Activity

Generally favorable equity market conditions have afforded the U.S. domestic insurance industry 

continued access to new funds from capital markets. There were 22 insurance-related equity 

offerings completed during 2016, with an aggregate value of $5.4 billion.73 This level of activity 

was slightly lower in terms of both the number of deals and the aggregate value compared to 

2015 (27 offerings valued at $5.9 billion). Only two of these transactions (valued at $1.3 billion)

 69 Insurance industry P&C and L&H financial data for 2017 was obtained from SNL on September 12, 2017.

70 “Harvey Industry Loss Seen Up to $25bn (Ex-NFIP) by Morgan Stanley,” Artemis, September 1, 2017, 

http://www.artemis.bm/blog/2017/09/01/harvey-industry-loss-seen-up-to-25bn-ex-nfip-by-morgan-stanley/. See also

Box 6 below (Hurricane Harvey).

71 AIR Worldwide, “AIR Worldwide Updates Estimates of Insured Losses for Hurricane Irma’s Impacts in the 

United States,” news release, September 11, 2017, http://www.air-worldwide.com/Press-Releases/AIR-WorldwideUpdates-Estimates-of-Insured-Losses-for-Hurricane-Irma%E2%80%99s-Impacts-in-the-United-States/.

72 Federal Reserve, The Beige Book: Summary of Commentary on Current Economic Conditions By Federal Reserve 

District (August 2017), 1, https://www.federalreserve.gov/monetarypolicy/beige-book-default.htm.

73 All data in this section sourced from SNL Financial, as collected and calculated by FIO. This data includes 

Bermuda-based holding companies for which primary insurance underwriting subsidiaries are domiciled in the 

United States.
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were initial public offerings, but they marked a significant increase from the one initial public 

offering valued at $35 million that occurred in 2015. Private equity investors continued to cash 

out investments in the insurance industry, as seven of the equity offerings in 2016 included some 

level of selling of interests by private equity investors; this compares to 12 such transactions in 

2015.

Debt markets remained the preferred source of additional capital for insurers in 2016. During the 

year, U.S. insurers raised an aggregate $64.7 billion74 in 96 separate debt offerings, continuing to 

benefit, in that respect, from the historically low interest rate environment. Debt issuance 

increased significantly from the $46.1 billion raised in 89 offerings in 2015. Berkshire 

Hathaway, Inc. (combined with its finance subsidiary) was the largest issuer of debt in the 

insurance sector, raising $12.6 billion (20 percent of the industry total) through 14 separate 

offerings. The next largest issuer of debt was Aetna, Inc. which raised $12.3 billion, or 19 

percent of the industry total, through eight separate offerings. The remainder of the top five 

issuers of debt in 2016 included Centene Corp. ($7.9 billion), New York Life Insurance 

Company ($3.5 billion), and American International Group ($3.5 billion). Together, the funds 

raised by the top five issuers of debt accounted for 61 percent of the 2016 industry total. The 

largest single offering during 2016 was a $2.8 billion issue sold by Aetna, Inc.

1. Mergers & Acquisitions of U.S. Insurers

The remainder of this section outlines 2016 insurance M&A activity, and describes certain state 

and federal restrictions on foreign acquisitions of insurers.

Over the course of 2016, there were 91 M&A transactions announced involving U.S. insurance 

companies, with a total value of $21.6 billion.75 While the number of deals increased over the 

2015 level (77 transactions in 2015), the total value was significantly lower ($143 billion in 

2015) due to several major deals that occurred in 2015.76 The level of 2016 M&A activity was 

more consistent with recent experience other than 2015. Almost all of the largest M&A deals 

announced in 2016 were in specialty lines of insurance, rather than more “traditional” L&H or 

P&C business lines.

 74 Foreign currency exchange rates applied at date of announcement. “Currencies,” Bloomberg Markets, 

https://www.bloomberg.com/markets/currencies.

75 Transactions were announced between January 1, 2016 and December 31, 2016, and were either completed during 

the year or remained pending at the end of 2016. All information related to M&A activity obtained from SNL 

Financial, except where otherwise noted.

76 The acquisitions of Chubb Corp. by ACE Limited ($28.2 billion), Humana, Inc. by Aetna, Inc. ($35.5 billion), and 

Cigna Corp. by Anthem, Inc. ($54.2 billion) accounted for the majority of the total transaction value in 2015.
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Figure 41: 2016 Largest Completed Mergers and Acquisitions

Rank Acquiring Company Acquired Company

Transaction 

Value

1 ACE Limited Chubb Corporation $ 28.3 billion 

2 Centene Corporation Health Net, Inc. 6.3 billion

3 Exor SpA PartnerRe Ltd. 6.1 billion 

4 Meiji Yasuda Life Insurance Company StanCorp Financial Group, Inc. 5.1 billion

5 Sumitomo Life Insurance Company Symetra Financial Corporation 3.7 billion

Source: SNL Financial

2. Regulatory Review of Foreign Acquisitions

Recent years have seen an increase in M&A activity involving U.S. insurers and foreign 

companies. Such transactions are subject to approval by state insurance regulators, and also may 

be subject to a federal national security review.

State insurance regulators review all transactions involving insurance entities licensed in their 

states. State laws consistent with the NAIC Model Insurance Holding Company System 

Regulatory Act provide state insurance regulators with the authority and tools to review all 

licensed entity transactions, including those involving foreign purchase of licensed entities.77 

Any person or entity that seeks to acquire control of a U.S. insurer is required to file a PreAcquisition Notice (Form A) under oath or affirmation with the insurance regulatory authority in 

the target’s state of domicile.78 The acquisition cannot be completed until the state insurance 

regulator has approved the transaction. The regulator may disapprove a proposed acquisition if, 

for example: the regulator determines that the acquiring parties lack sufficient competence, 

experience, and integrity to successfully manage the insurer; the acquiring parties’ plans for the 

insurer are unfair or prejudicial to consumers; the acquisition might jeopardize the insurer’s 

financial condition; or other circumstances exist such that the transaction may not be in the best 

interests of consumers, owners, or the public.79 In addition, more than half of the states have 

laws prohibiting direct or indirect foreign government ownership of insurers operating in their 

states.

80

The foreign acquisition of a U.S. insurer also may be subject to review by the Committee on 

Foreign Investment in the United States (CFIUS) to evaluate the transaction’s effect on national 

security.81 CFIUS is a federal interagency committee chaired by the Secretary which is 

 77 Model Insurance Holding Company System Regulatory Act (NAIC January 2015), 

http://www.naic.org/store/free/MDL-440.pdf. 

78 See, e.g., Model Insurance Holding Company System Regulatory Act § 3(A)(3).

79 Model Insurance Holding Company System Regulatory Act § 3(D).

80 See, e.g., Ala. Code § 27-3-4(4) (2017); Cal. Ins. Code § 699.5 (West 2017); N.C. Gen. Stat. Ann. § 58-16-20 

(West 2017).

81 See Defense Production Act of 1950, 50 U.S.C. § 4565 (2015); Foreign Investment in the United States, Exec. 

Order No. 11,858, 31 C.F.R. pt. 800 (2016).
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authorized to review transactions that could result in a foreign person’s control of a U.S. 

business. Notification to CFIUS is voluntary but, in the absence of a voluntary notification,

CFIUS may initiate its own review, even after a transaction closes. If CFIUS finds that a 

transaction does not present any national security risks – or that other provisions of law 

adequately address the risks – it informs the parties in writing. If a transaction presents national 

security risks and other provisions of law do not provide adequate authority to address the risks, 

then CFIUS may enter into an agreement with, or impose conditions on, the involved parties to 

mitigate such risks, or may refer the case to the President for action.82 Information filed with 

CFIUS may generally not be made public and is not subject to Freedom of Information Act 

requests.

83

 82 “Committee on Foreign Investments in U.S.: Process Overview,” Treasury, December 1, 2010, 

https://www.treasury.gov/resource-center/international/foreign-investment/Pages/cfius-overview.aspx.

83 See Defense Production Act of 1950 § 4565(c); 31 C.F.R. § 800.702.
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IV. DOMESTIC REGULATORY AND MARKET DEVELOPMENTS

This section of the Report provides an overview of certain domestic regulatory and market 

developments in the insurance sector, including with respect to (1) cyber insurance and insurance 

sector cybersecurity; (2) insurance industry innovation and technology; (3) natural hazards and 

insurance; (4) the Financial Stability Oversight Council; (5) TRIP; (6) the DOL Fiduciary Rule; 

(7) LTCI; and (8) additional state-level regulatory developments concerning capital, life 

insurance reserving requirements, unclaimed life insurance policy benefits, the state adoption of 

model laws, and other NAIC-related activities.

The Cyber Insurance Market and Insurance Sector Cybersecurity 

Cyber risks present challenges and opportunities for the insurance sector, from both business and 

operational perspectives. From a business perspective, the market for cyber insurance products 

continues to grow, leading to additional focus by regulators. From an operational perspective, 

insurers and regulators are developing improved approaches to address cyber risk. Both cyber 

insurance and cybersecurity in the insurance sector are discussed below.

1. The Cyber Insurance Market

Cyber insurance refers to a broad range of insurance products that cover risks arising “from the 

use of electronic data and its transmission, including technology tools such as the internet and 

telecommunications networks,” as well as “physical damage that can be caused by cyber attacks, 

fraud committed by misuse of data, any liability arising from data storage, and the availability, 

integrity and confidentiality of electronic information.”84 A variety of insurance products may 

provide coverage for cyber risks, including standalone policies and policy endorsements. By one 

measure, 19 different categories of explicit cyber risk coverages are available in the insurance 

market.85 These products often provide policyholders with access to pre-claim risk mitigation 

and post-claim incident response services,86 which insurers offer through partnerships with 

cybersecurity firms.

87 In addition to coverages under specialized products, insurers also may 

have exposure to cyber-related losses under traditional P&C policies – such as commercial 

general liability policies – that do not explicitly mention cyber risk, even to exclude it. Such 

exposure is called “silent” cyber risk.88

 84 CRO Forum, Cyber Resilience: The Cyber Risk Challenge and the Role of Insurance (December 2014), 5, 

https://www.thecroforum.org/wp-content/uploads/2015/01/Cyber-Risk-Paper-version-24-1.pdf.

85 Cambridge Centre for Risk Studies and Risk Management Solutions, Inc., Managing Cyber Insurance 

Accumulation Risk (February 2016), 10, http://static.rms.com/email/documents/managing-cyber-insuranceaccumulation-risk-rms-crs-jan2016.pdf.

86 Peter Westerman, “Cyber Insurance Claims: What Happens When a Breach Occurs,” PropertyCasualty360, June 

22, 2017, http://www.propertycasualty360.com/2017/06/22/cyber-insurance-claims-what-happens-when-a-breach.

87 Sonali Basak, “How AIG Is Using Cyber Intelligence to Protect Property from Cyber Attacks,” Insurance 

Journal, July 22, 2015, http://www.insurancejournal.com/news/national/2015/07/22/375991.htm. 

88 James Evans and Judy Selby, “Urgent Need on ‘Silent’ Cyber Risks,” Insurance Thought Leadership, January 4, 

2017, http://insurancethoughtleadership.com/urgent-need-on-silent-cyber-risks/.
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Box 2: Ransomware

Ransomware is a form of cyber extortion used by cyber criminals that employs malicious 

software (“malware”) to deny access to systems or data until a ransom is paid.

89 In 2016, more 

than 4,000 ransomware infections typically occurred on a daily basis – more than a 300 percent 

increase over 2015.90 Ransomware increased from the 22nd most common variety of malware 

as reported in 2014 to the 5th most common in 2017, and accounted for 72 percent of malware 

incidents in the healthcare industry in 2016.91 This increase has been fueled by the sale of 

relatively inexpensive ransomware “kits” that make it easy for criminals to engage in such cyber 

extortion.

92 Ransomware has increasingly shown the potential for significant losses, with as 

much as $209 million lost in the first quarter of 2016 alone.93 In May 2017, hundreds of 

thousands of computers in at least 150 countries were affected by ransomware known as

“WannaCry.”94 Some have estimated that financial losses related to WannaCry will reach $4 

billion.95 

This growing risk can be managed in part through insurance solutions, yet as with other forms of 

cyber insurance, policy language regarding cyber extortion coverage varies.96 Cyber extortion 

policies often have consent requirements, which require a policyholder to obtain insurer approval 

prior to paying a ransom or incurring other costs.97 However, insurers also provide services to 

help policyholders prevent cyber extortion, such as performing threat assessments and sharing 

intelligence, identifying and repairing weaknesses that make organizations vulnerable to 

ransomware, and building relationships with vendors that can immediately respond to an 

incident.98

 89 U.S. Department of Homeland Security (DHS), Department of Justice (DOJ), and Department of Health and 

Human Services (HHS), Ransomware: What Is It and What to Do About It, https://www.justice.gov/criminalccips/file/872766/download.

90 DOJ, et al., How to Protect Your Networks from Ransomware (2016), https://www.justice.gov/criminalccips/file/872771/download.

91 Verizon, 2017 Data Breach Investigation Report (April 2017), 23, 35, http://www.verizonenterprise.com/verizoninsights-lab/dbir/2017/.

92 Alastair Sharp, “Hackers’ Ransom Demands Rise as Victims Keep Paying: Symantec,” Insurance Journal, April 

27, 2017, http://www.insurancejournal.com/news/international/2017/04/27/449147.htm.

93 SonicWall, 2017 Annual Threat Report (2017), 10, https://www.sonicwall.com/en-us/lp/2017-sonicwall-annualthreat-report.

94 Anick Jesdanun, Jill Lawless, and Aritz Parra, “Dozens of Countries Hit by Huge Cyberextortion Attack,” 

Associated Press, May 13, 2017, https://www.apnews.com/e8402f2faf934f7ab5419d4961d3dafe.

95 Jonathan Berr, “‘WannaCry’ Ransomware Attack Losses Could Reach $4 Billion,” CBS Moneywatch, May 16, 

2017, http://www.cbsnews.com/news/wannacry-ransomware-attacks-wannacry-virus-losses/.

96 James S. Carter, “The Ins and Outs of Cyber Extortion Insurance Coverage,” Risk Management, December 1, 

2016, http://www.rmmagazine.com/2016/12/01/the-ins-and-outs-of-cyber-extortion-insurance-coverage/.

97 Carter, “Cyber Extortion Insurance Coverage.”

98 William Kelly, “Move, Countermove: The Best Way to Fight Ransomware,” PropertyCasualty360.com, May 1, 

2017, http://www.propertycasualty360.com/2017/05/01/move-countermovethe-best-way-to-fight-ransomware.
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Access to cyber extortion coverage highlights the important question of whether victims should 

pay such ransoms in the first place. The Department of Justice, Department of Homeland 

Security, and Department of Health & Human Services have stated that the risks of paying 

ransom to a cyber extortionist include:

(1) paying a ransom does not guarantee renewed access to systems or data; 

(2) some victims who have paid a ransom have reported being targeted again by the same 

or different cyber criminals; 

(3) some victims have reported that the payment of a ransom has led only to demands for 

increased amounts in order to regain access to systems or data; and

(4) paying ransom creates a moral hazard that encourages the ransomware business 

model.99

Globally, the cyber insurance market reached an estimated $3 billion to $4 billion in gross 

premiums in 2016.100 Demand for cyber insurance products has been growing,

101 and significant 

future growth is expected. Studies have estimated that the global market will generate $14 

billion in premium by 2022,

102 and will reach $20 billion by 2025.103 While such projections 

should be viewed cautiously,104 this predicted growth will likely be driven in part by new 

demand from outside of the United States, which accounts for approximately 90 percent of the 

market.

105 In particular, the passage of the General Data Protection Regulation in the EU,106

 99 DHS, DOJ, and HHS, Ransomware: What Is It.

100 Rob Lenihan, “Cyber Insurance Market to See Rapid Growth Through 2022,” Business Insurance, December 7, 

2016, http://www.businessinsurance.com/article/20161207/NEWS06/912310865/Cyber-insurance-market-to-growsays-Allied-Market-Research; Richard S. Betterley, Cyber/Privacy Insurance Market Survey – 2017: Executive 

Summary, The Betterley Report (June 2017), https://www.irmi.com/online/betterley-report-free/cyber-privacymedia-liability-summary.pdf.

101 The Council of Insurance Agents & Brokers, Cyber Insurance Market Watch Survey Executive Summary (May 

2017), 2, https://www.ciab.com/wp-content/uploads/2017/05/Spring2017_CyberSurvey_ExecSummary_FINAL.pdf; 

Terri Cotton Santos, Cyber Insurance: Considerations for Businesses, RIMS (2017), 1, 

https://www.rims.org/RiskKnowledge/RISKKnowledgeDocs/2017-Cyber-Ins-Considerations-forBusiness_3212017_14345.pdf.

102 Lenihan, “Cyber Insurance Market.”

103 AIR Worldwide, Insuring Cyber Risks (July 2017), 2, https://www.air-worldwide.com/publications/whitepapers/documents/insuring-cyber-risk.

104 A.M. Best, Special Report: Cyber Line Expected to be One of the Leading P/C Growth Areas (June 22, 2017), 1, 

http://www3.ambest.com/bestweek/DisplayBinary.aspx?TY=P&record_code=263055.

105 “Looking Before They Leap: U.S. Insurers Dip Their Toes in the Cyber-Risk Pool,” S&P Global Market 

Intelligence, June 9, 2015, 

https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1403078&SctArtId=320678.

106 Council Regulation 2016/679 of April 26, 2016, General Data Protection Regulation, 2016 O.J. (L 119) (EU), 

http://ec.europa.eu/justice/data-protection/reform/files/regulation_oj_en.pdf.
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which goes into force in May 2018, is expected to lead to increased demand for cyber insurance 

products by companies active in the EU.

107

Reinsurers are also a component of the cyber insurance market, providing risk transfer 

opportunities for insurers offering cyber risk insurance products. Leading reinsurers have been

investing significantly to improve their understanding and internal capabilities related to cyber 

risk.108

Various challenges may stand in the way of continued growth in the market for cyber insurance 

products. Obstacles to increasing the supply of cyber insurance products include a lack of 

relevant data, the evolving nature of cyber risks, the threat of accumulation (e.g., the sum of 

losses resulting from the same cause, such as a cyber attack on a cloud service provider or a 

vulnerability exhibited by commonly used hardware or software), and an overreliance on 

insurance products focused on losses related to personally identifiable information.

109 At least 

one rating agency has highlighted uncertainty in pricing and underwriting cyber risks, noting that 

aggressive expansion into this market could be a credit negative for insurers.

110 

Similarly, obstacles exist to increasing the demand for cyber insurance products. These include a 

lack of understanding about cyber risk and insurance options, a lack of standardization among 

cyber insurance policies, and uncertainty about coverage gaps.111 Gaps may still exist in cyber 

insurance coverage, such as higher limits for large data aggregators, bodily injury stemming 

from cyber perils, and the value of information lost to a cyber incident or accident.112 A global 

survey of more than 2,000 individuals involved in cyber risk management or enterprise risk 

management activities found that companies remain reluctant to purchase cyber insurance. In 

that survey, 64 percent of respondents believed that exposure to cyber risk will increase over the 

next two years, but only 24 percent of respondents reported that their companies purchase cyber 

insurance coverage.113

Insurance supervisors are continuing to adapt regulatory structures in response to the growth in

the cyber insurance market. In the United States, state insurance regulators continue to collect 

 107 “Munich Re, Beazley Partner to Provide Enhanced Cover for Large Cyber Risks,” Insurance Journal, April 20, 

2017, http://www.insurancejournal.com/news/international/2017/04/20/448519.htm.

108 “Reinsurance Execs Weigh In on Cyber Risk,” Carrier Management, October 26, 2015, 

http://www.carriermanagement.com/features/2015/10/26/147025.htm.

109 Sam Friedman and Adam Thomas, “Demystifying Cyber Insurance Coverage,” Deloitte University Press, 

February 23, 2017, https://dupress.deloitte.com/dup-us-en/industry/financial-services/demystifying-cybersecurityinsurance.html.

110 “Fitch Urges Insurer Caution as Cyber Insurance Demand Grows,” Insurance Journal, May 17, 2017, 

http://www.insurancejournal.com/news/national/2017/05/17/451333.htm.

111 Friedman and Thomas, “Demystifying Cyber Insurance Coverage.”

112 Cotton Santos, “Cyber Insurance: Considerations.”

113 See Ponemon Institute LLC, 2017 Global Cyber Risk Transfer Comparison Report (April 2017), 4, 

http://www.aon.com/attachments/risk-services/cyber/2017-Global-Cyber-Risk-Transfer-Report-Final.pdf.
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and report on data regarding cyber and identity theft insurance products through the 

Cybersecurity and Identity Theft Insurance Coverage Supplement, now in its second annual 

reporting cycle. This supplement includes information regarding the number of claims reported 

and policies in force.114 In the United Kingdom, the Prudential Regulation Authority (PRA) 

released a November 2016 consultation paper, Cyber Insurance Underwriting Risk, and a 

proposed supervisory statement setting out the PRA’s expectations for the prudent management 

of cyber underwriting risk by U.K. non-life and reinsurance firms, which it finalized in July 

2017.

115 In the consultation paper, the PRA noted that its supervised firms generally lacked:

(1) an understanding of silent cyber risk (named “non-affirmative” cyber risks in the supervisory 

statement); (2) board-level strategies for managing cyber underwriting risk; and (3) sufficient 

expertise about cyber underwriting risk.116 The final supervisory statement sets regulatory 

expectations related to these issues.117

2. Insurance Sector Cybersecurity

Financial service organizations, including insurers, are the most frequent victims of reported data 

breaches, accounting for nearly a quarter of all breaches. These organizations, located around 

the world, reported 998 cyber incidents in 2016, with 471 resulting in confirmed data 

disclosures.118 Denial of service attacks were the most common incident type.119 As the 2015 

data breaches at health insurers Anthem Inc. and Premera Blue Cross illustrate,120 insurers –

which collect and manage large stores of personally identifiable information and private health 

information from consumers – are attractive targets for cyber criminals and other hackers. In 

response to the risks posed by cyber criminals to the insurance sector, regulators and policy

makers at the state, federal, and international level – including FIO – are taking steps to enhance 

the cybersecurity posture of the insurance sector. 

 114 NAIC and The Center for Insurance Policy and Research (CIPR), Report on the Cybersecurity Insurance 

Coverage Supplement (August 6, 2017), 

http://www.naic.org/documents/cmte_ex_cybersecurity_tf_rpt_cyber_ins_coverage_suppliment.pdf.

115 PRA, Cyber Insurance Underwriting Risk (Consultation Paper CP39/16) (November 2016), 

http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp3916.pdf; PRA, Cyber Insurance 

Underwriting Risk (Supervisory Statement SS4/17) (July 2017),

http://www.bankofengland.co.uk/pra/Documents/publications/ss/2017/ss417.pdf.

116 PRA, Consultation Paper CP39/16.

117 PRA, Supervisory Statement SS4/17.

118 Verizon, 2017 Data Breach Investigation, 3, 9.

119 Verizon, 2017 Data Breach Investigation, 19.

120 Anthem Insurance Companies, Inc., “Statement Regarding Cyber Attack Against Anthem,” news release, 

February 5, 2015, https://www.anthem.com/health-insurance/about-us/pressreleasedetails/WI/2015/1813/statementregarding-cyber-attack-against-anthem; “About the Cyberattack,” Premera Blue Cross, 

https://www.premera.com/wa/visitor/about-the-cyberattack.
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a. State Cybersecurity Measures

In 2017, the NAIC elevated a Cyber Security Task Force (first formed in 2014) into the 

Cybersecurity Working Group. The 2017 charges for this group include: (1) monitoring 

cybersecurity developments; (2) advising the Innovation and Technology Task Force on 

cybersecurity issues; (3) coordinating with other NAIC committees on cybersecurity issues; 

(4) continuing development of the Insurance Data Security Model Law; and (5) representing the 

NAIC before (and communicating with) other groups regarding cybersecurity issues.121

Since March 2016, the NAIC has been developing an Insurance Data Security Model Law, 

which is now in its sixth, and final, public iteration.122 Should the model law be approved by the 

NAIC as expected, states will then have the opportunity to adopt and implement laws consistent 

with the model.

123

Meanwhile, the New York Department of Financial Services (NYDFS) implemented a new 

cybersecurity regulation on March 1, 2017, called Cybersecurity Requirements for Financial 

Services Companies,

124 which is similar in content to the NAIC’s Insurance Data Security Model 

Law. The regulation requires banks, insurers, and other financial services institutions regulated 

by the NYDFS “to establish and maintain a cybersecurity program designed to protect 

consumers’ private data and ensure the safety and soundness of New York’s financial services 

industry.”125 The new requirements for covered entities include: (1) a cybersecurity program and 

policy; (2) risk assessment, testing, and compliance; (3) personnel, resources, and training; 

(4) access privileges, application security, and non-public information encryption; (5) audit and

non-public information records retention; (6) validation that third party service providers can 

meet these cyber requirements; and (7) incident notification.126 Entities with fewer than 10 

employees (including independent contractors), less than $5 million in gross revenues in each of 

the last three fiscal years, or less than $10 million in year-end total assets are partially exempted 

 121 See NAIC, “Cybersecurity (Ex) Working Group: 2017 Charges,” http://www.naic.org/cmte_ex_cswg.htm.

122 NAIC, Insurance Data Security Model Law (Preliminary Working and Discussion Draft) (August 7, 2017), 

http://www.naic.org/documents/cmte_ex_cswg_final_model_law_v6_clean.pdf; NAIC, Innovation and Technology 

(EX) Task Force: Meeting Summary Report (August 8, 2017), 

http://naic.org/meetings1708/cmte_ex_ittf_2017_summer_nm_summary.pdf. For a discussion of state insurance 

regulators’ and the NAIC’s previous cybersecurity initiatives, see FIO, 2016 Annual Report, 58-59.

123 For more on state adoption of NAIC model laws, see discussion below in Section IV.H.4.

124 N.Y. Comp. Codes R. & Regs. tit. 23, § 500 (2017), http://www.dfs.ny.gov/legal/regulations/adoptions/rf23-

nycrr-500_cybersecurity.pdf.

125 NYDFS, “Governor Cuomo Announces First-In-The-Nation Cybersecurity Regulation Protecting Consumers and 

Financial Institutions from Cyber-Attacks to Take Effect March 1,” news release, February 16, 2017, 

http://www.dfs.ny.gov/about/press/pr1702161.htm.

126 EY, Cybersecurity Requirements for Financial Services Companies (February 2017), 

http://www.ey.com/Publication/vwLUAssets/EY-cybersecurity-requirements-for-financial-servicescompanies/$FILE/EY-cybersecurity-requirements-for-financial-services-companies.pdf.
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from the regulation.127 The NYDFS has also launched an online portal for businesses to report 

cybersecurity events in New York.128

b. Federal Cybersecurity Measures

In May 2017, President Trump issued Executive Order 13800 outlining four objectives for 

enhancing cybersecurity: (1) securing federal networks; (2) working with industry to protect 

critical infrastructure; (3) strengthening deterrence and international engagement; and 

(4) promoting workforce development.129 Consistent with these objectives, Treasury, including

FIO, will continue to work in support of cybersecurity across the insurance industry.

Broadly, Treasury serves as the federal interface for matters involving cyber threats and 

cybersecurity for institutions within the domestic and international financial services sector, 

including insurers. In this role, Treasury acts as the coordinating agency with the Department of 

Homeland Security and other relevant federal agencies, including the regulatory, law 

enforcement, and intelligence communities. FIO and Treasury also coordinates with state 

government agencies and insurance regulators, the NAIC, and the private sector.

FIO and Treasury also collaborate with insurers and state regulators to help identify and adopt 

best practices and baseline protections to enhance cybersecurity. In August 2017, together with 

the Financial Services Sector Coordinating Council, Treasury led a public-private tabletop 

exercise with participants from the insurance industry, state regulators and the NAIC, and law 

enforcement community. This tabletop exercise was designed to simulate cyber incidents and 

identify key challenges for effective public-private response and coordination. The exercise, 

hosted at Treasury, furthered discussions among parties present of current areas that need 

strengthening as well as recognized particular areas that are already resilient.

The National Institute of Standards and Technology (NIST) Cybersecurity Framework Version 

1.0, released in February 2014, offers a number of best practices and outlines a multitude of 

baseline protections to assist entities in developing ways to prevent breaches of their networks, 

systems, and data, and to prevent damage if a breach occurs.

130 The Framework is an evolving 

guide, and NIST released an updated draft Cybersecurity Framework Version 1.1 in January 

2017.

131 While the Framework is not designed to serve as a regulatory standard, it can be used to 

 127 EY, Cybersecurity Requirements.

128 NYDFS, “DFS Continues Innovative Regulatory Initiatives with the Launch of New Online Cybersecurity Portal 

for Businesses Seeking to Report Cybersecurity Events in New York,” news release, July 31, 2017, 

http://www.dfs.ny.gov/about/press/pr1707311.htm.

129 Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, Exec. Order No. 13,800, 82 

Fed. Reg. 22391 (May 11, 2017), https://www.federalregister.gov/documents/2017/05/16/2017-

10004/strengthening-the-cybersecurity-of-federal-networks-and-critical-infrastructure.

130 NIST, Framework for Improving Critical Infrastructure Cybersecurity (Version 1.0) (February 12, 2014), 

https://www.nist.gov/sites/default/files/documents/cyberframework/cybersecurity-framework-021214.pdf.

131 NIST, Framework for Improving Critical Infrastructure Cybersecurity (Draft Version 1.1) (January 10, 2017), 

https://www.nist.gov/sites/default/files/documents////draft-cybersecurity-framework-v1.1-with-markup1.pdf.
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inform regulatory and supervisory processes. For example, the NAIC leveraged the 

Cybersecurity Framework to provide cybersecurity guidance to state insurance examiners in its

Financial Condition Examiners Handbook.

132

Federal supervisors are also developing rules regarding cybersecurity that, if adopted, will affect 

some insurers. In October 2016, the Federal Reserve, the Office of the Comptroller of the 

Currency, and the FDIC published an advance notice of proposed rulemaking inviting comments 

on a set of potential enhanced cybersecurity risk management and resilience standards for large 

and interconnected entities under their supervision.133 The advance notice addresses cyber risk 

governance, cyber risk management, internal dependency management, external dependency 

management, incident response, and cyber resilience, and situational awareness. The proposed 

rule would apply to bank holding companies with total U.S. assets of $50 billion or more – some 

of which own insurers subject to consolidated supervision by the Federal Reserve – and to 

nonbank financial companies supervised by the Federal Reserve.134

c. International Cybersecurity Efforts

Cybersecurity is a global challenge, and nations are increasingly working together to address 

cyber risks consistently on a national and international scale. G-7 countries (Canada, France, 

Germany, Italy, Japan, United Kingdom, and the United States) have impaneled a “cyber expert 

group” to explore ways to address cybersecurity risks in the international financial system.135 In 

October 2016, the finance ministers and central governors of the G-7 released the G-7 

Fundamental Elements of Cybersecurity for the Financial Sector, a concise set of principles on 

best practices in cybersecurity for public and private entities in the financial sector.136 The

fundamental elements address cyber risks from both entity-specific and system-wide 

perspectives. They are intended to be building blocks from which financial institutions can 

design and implement cybersecurity strategies and supervisors and other public entities can 

 132 NAIC and CIPR, Cybersecurity: Protecting Insurance Consumers in a Digital Age (April 2017), 

http://www.naic.org/documents/government_relations_issue_brief_cybersecurity.pdf.

133 Federal Reserve; the Office of the Comptroller of the Currency; and the Federal Deposit Insurance Corporation; 

Joint Advance Notice of Proposed Rulemaking, Enhanced Cyber Risk Management Standards, 81 Fed. Reg. 74315 

(October 26, 2016), https://www.federalregister.gov/documents/2016/10/26/2016-25871/enhanced-cyber-riskmanagement-standards. The comment period for this proposed rule was extended for an additional month. See The 

Board of Governors of the Federal Reserve System; the Office of the Comptroller of the Currency; and the Federal 

Deposit Insurance Corporation; Joint Advance Notice of Proposed Rulemaking; Re-opening of Comment Period,

Enhanced Cyber Risk Management Standards, 82 Fed. Reg. 8172 (January 24, 2017), 

https://www.federalregister.gov/documents/2017/01/24/2017-01539/enhanced-cyber-risk-management-standards.

134 81 Fed. Reg. at 74318.

135 FIO, 2016 Annual Report, 59.

136 See, e.g., Treasury and Federal Reserve, “Treasury and Federal Reserve Support Adoption of the G-7 

Fundamental Elements of Cybersecurity for the Financial Sector,” news release, October 11, 2016, 

https://www.treasury.gov/press-center/press-releases/Pages/jl0570.aspx (providing link to G-7 Fundamental 

Elements at https://www.treasury.gov/resource-center/international/g7-

g20/Documents/G7%20Fundamental%20Elements%20Oct%202016.pdf). 
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inform efforts to protect the financial sector from cyber incidents. These fundamental elements 

may help further national and discussions regarding insurance sector cybersecurity.

FIO is involved in international initiatives specific to addressing cybersecurity in the insurance 

sector, including through the IAIS Financial Crime Task Force (FCTF).

137 In August 2016, the 

IAIS released its Issues Paper on Cyber Risk to the Insurance Sector, which was developed by 

the FCTF.

138 The issues paper is intended to educate insurers and supervisors on “the challenges 

presented by cyber risk, including current and contemplated supervisory approaches for 

addressing these risks” and “provides background, describes current practices, identifies 

examples, and explores related regulatory and supervisory issues and challenges.”139 The IAIS 

recommended a follow-up application paper, which would provide further advice, illustrations, 

recommendations, or examples of good practices on how supervisory material may be 

implemented. Such an application paper also may provide guidance regarding cybersecurity 

examination practices for supervisors and risk management practices for insurers.140

FIO also participates in the OECD IPPC, which in 2016 began a project assessing cyber risk 

insurance and the ways that such insurance products can contribute to improved cybersecurity 

for consumers.141 The Department of Commerce leads the official delegation from the United 

States to the IPPC, which also includes Treasury and the NAIC. In May 2017, the OECD 

provided a report to the G-7 Presidency titled Supporting an Effective Cyber Insurance 

Market.

142

 137 The FCTF is further discussed in Section V.C.5.

138 IAIS, Issues Paper on Cyber Risk to the Insurance Sector (August 2016), 

https://www.iaisweb.org/file/61857/issues-paper-on-cyber-risk-to-the-insurance-sector.

139 IAIS, Cyber Risk to the Insurance Sector, 4.

140 IAIS, Cyber Risk to the Insurance Sector, 30.

141 “Cyber Risk Insurance,” OECD, April 18, 2016, http://www.oecd.org/finance/insurance/cyber-riskinsurance.htm.

142 OECD, Supporting an Effective Cyber Insurance Market: OECD Report for the G7 Presidency (May 2017), 

https://www.oecd.org/daf/fin/insurance/Supporting-an-effective-cyber-insurance-market.pdf.
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Innovation and Technology in the Insurance Industry

Advances in technology continue to affect the insurance industry. This section of the Report 

explores the relationships among innovation, technology, consumers, and insurance, focusing 

specifically on: (1) InsurTech, or the use of technology in the insurance sector; (2) big data; and 

(3) how the insurance market is developing products in response to the sharing economy.

1. The Growth of InsurTech 

“InsurTech” is the innovative use of technology in insurance, and is the insurance analog to 

FinTech.143 Recent technological developments have led to new insurance initiatives across the 

industry, from operations to marketing and product development.144 Examples of innovations 

affecting the insurance sector include digital platforms; the Internet of Things; telematics; big 

data; robo-advisors; machine learning and artificial intelligence; blockchain; and P2P, 

usage-based, and on-demand insurance.145 Innovations such as these are discussed in further 

detail below.

a. The InsurTech Market

In 2015, funding for InsurTech startups rose to $2.7 billion.146 Such funding increased in 2016 

and InsurTech accelerator programs proliferated.147 Insurers themselves have helped fund this 

growth, with some setting up units for venture capital deals or employing their own venture 

capital funds to invest in InsurTech startups.148

 143 See, e.g., “InsurTech,” NAIC and CIPR, April 25, 2017, http://www.naic.org/cipr_topics/topic_insurtech.htm; 

PricewaterhouseCoopers LLP, InsurTech: A Golden Opportunity for Insurers to Innovate (March 2016), 2, 

http://www.pwc.com/us/en/insurance/publications/assets/pwc-top-issues-insurtech.pdf.

144 David Hollander and Charlie Mihaliak, “The future of work in insurance,” PropertyCasualty360, August 1, 2017, 

http://www.propertycasualty360.com/2017/08/01/the-future-of-work-in-insurance.

145 IAIS, FinTech Developments in the Insurance Industry (February 21, 2017), 

https://www.iaisweb.org/page/supervisory-material/other-supervisory-papers-and-reports//file/65440/report-onfintech-developments-in-the-insurance-industry. See also Robert Philips, “Exploring the InsurTech-Consumer 

Disconnect,” Vertafore, March 21, 2017, http://www.vertafore.com/Resources/Blog/Exploring-the-InsurTechConsumer-Disconnect.

146 Oliver Suess, “InsurTech Startups Attract Growing List of Traditional Insurer Partners,” Insurance Journal, 

November 28, 2016, http://www.insurancejournal.com/news/international/2016/11/28/433226.htm.

147 KPMG, The Pulse of Fintech Q4 2016: Global Analysis of Investment in Fintech (February 21, 2017), 8, 

https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2017/02/pulse-of-fintech-q4-2016.pdf.

148 Suess, “InsurTech Startups Attract Growing List.”
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Box 3: The Emergence of Blockchain Technology

Blockchain – a technology that uses a distributed, decentralized ledger to maintain a list of data 

records that are certifiable, permanent, and secure from tampering and revision149 – is among the 

technologies being explored for use in the insurance sector. Blockchain fuses a ledger with a 

network, potentially reducing human error in administration, and thus increasing security, 

improving privacy, and speeding up transactions.150 The Blockchain Insurance Initiative (B3i), 

founded by several insurers, aims to explore blockchain’s potential to better serve clients through 

faster, more convenient, and more secure services and to make transactions between insurers and 

reinsurers more efficient.151 B3i, which now has 15 member insurers, is implementing a pilot 

program involving reinsurance agreements.152

Numerous industry examples demonstrate how technology is being used to develop innovative

insurance products. One such innovation is the use of P2P, or “social,” insurance, which allows 

policyholders “to pool their capital, self-organize and self-administer their own insurance,”153

generally by using crowdsourcing and social networking to create a shared insurance experience. 

For example, one P2P insurer providing homeowners’ and renters insurance uses algorithms and 

behavioral economics to drive its business, and relies on a mobile application to help 

policyholders purchase insurance and submit claims without paperwork.154 InsurTech startups 

are also operating in the auto insurance market, using new concepts and technologies such as 

usage-based insurance and telematics. Usage-based insurance, including “pay as you go” 

insurance, provides personalized policies.155 As one example, insurance may be based on 

 149 “Blockchain Technology,” NAIC and CIPR, March 31, 2017,

http://www.naic.org/cipr_topics/topic_blockchain.htm. See also Joseph S. Harrington, “The Present Use and 

Promise of Blockchain in Insurance,” Insurance Journal, May 16, 2017, available at

http://www.insurancejournal.com/news/national/2017/05/16/451177.htm.

150 See “Blockchain Technology.” See also The Institutes Griffith Foundation, “Understanding Blockchain 

Technology and its Insurance Implications” (presentation, May 29, 2017), 6, 

http://www.naic.org/documents/cipr_events_blockchain_presentation_part_one.pdf.

151 Swiss Re, “Insurers and Reinsurers Launch Blockchain Initiative,” news release, undated, 

http://www.swissre.com/reinsurance/insurers_and_reinsurers_launch_blockchain_initiative.html.

152Swiss Re, “Ten New Members Join Blockchain Initiative B3i,” news release, undated, 

http://www.swissre.com/reinsurance/ten_new_members_join_blockchain_initiative_B3i.html.

153 “Peer-to-Peer (P2P) Insurance,” NAIC and CIPR, April 3, 2017, 

http://www.naic.org/cipr_topics/topic_p2p_insurance.htm.

154 See “Lemonade Launches in New Jersey, Marks Fourth State in National Expansion,” Insurance Journal, August 

2, 2017, http://www.insurancejournal.com/news/east/2017/08/02/459715.htm. This P2P insurer had $179,855 in 

premiums written in 2016; was doing business in four states as of August 2017; and had filed applications for 

licenses in an additional 42 states and the District of Columbia. See, e.g., Thomas Mason, “Putting Lemonade’s 

Zesty Growth in Context,” SNL, February 6, 2017, 

https://www.snl.com/web/client?auth=inherit#news/article?id=39305227; Andrew Simpson, “Startup Insurer 

Lemonade is Going National; Files for Licenses Countrywide,” Insurance Journal, December 22, 2016, 

http://www.insurancejournal.com/news/national/2016/12/22/436381.htm.

155 See, NAIC, “Understanding Usage-Based Insurance: Is Tracking Technology Right for You?” April 2017, 

http://www.naic.org/documents/consumer_alert_understanding_usage_based_insurance.htm.
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mileage driven determined by a hardware device plugged into a policyholder’s car.

156 Similarly, 

telematics offer insurers a way to receive real-time data on driving habits through smartphone 

apps that gather information on acceleration, braking, swerving, tailgating, distracted driving, 

and other related data.157

Box 4: Life Insurance Underwriting and Technology

InsurTech presents opportunities and challenges for the L&H sector. Although U.S. life 

insurance ownership has increased over the past six years, market penetration has gradually 

declined since the 1960s.

158

Adoption of FinTech has generally proceeded more rapidly in the banking and securities sectors 

than in the insurance sector. However, life insurers are beginning to embrace technological 

advances to simplify the underwriting process and diversify products in an attempt to improve 

market penetration. The length, complexity, and invasiveness of traditional life insurance 

underwriting can be a deterrent to growth, particularly since such underwriting typically relies on 

sensitive personal health information provided through laboratory testing of fluid samples 

obtained from applicants.

Some life insurers have streamlined or automated the underwriting process.159 One form of 

streamlining replaces a medical examination and fluids collection with information about the 

applicant’s health obtained (with the applicant’s consent) from the Medical Information 

Bureau,160 prescription drug databases, and responses to a limited number of questions about 

health and lifestyle.161 However, technology has not replaced traditional underwriting methods, 

and, according to one study, less than 15 percent of all new life insurance policies are written 

 156 “Metromile: New App Resolves Some Claims in an Hour,” Insurance Journal, December 15, 2016, 

http://www.insurancejournal.com/news/national/2016/12/15/435419.htm.

157 Mark Hollmer, “Startup Auto Insurer Root Targets Good Drivers with Smartphones,” Insurance Journal, 

October 25, 2016, http://www.insurancejournal.com/news/national/2016/10/25/430423.htm.

158 LIMRA, U.S. Individual Life Insurance Handbook (2016), 10, 

http://www.limra.com/Research/Abstracts/2017/2016_U_S__Individual_Life_Insurance_Yearbook.aspx.; LIMRA,

Turn Up The Volume: $12 Trillion Sound Opportunities (January 12, 2017), 5, 

http://www.limra.com/Research/Abstracts/2017/Turn_Up_the_Volume__$12_Trillion_Sound_Opportunities_(2017)

.aspx. 

159 In a survey of 78 life insurers in the United States and Canada, 50 percent had some form of automated 

underwriting in place. Mary M. Art and Eric T. Sondergrad, Transforming Underwriting: Automated Underwriting 

Company Practices for Life Insurance in 2017 (2017), 5.

160 The Medical Information Bureau, a non-profit organization owned and operated for L&H insurers, uses an 

information exchange database to assess an individual’s risk and eligibility during the underwriting of life, health, 

disability income, critical illness, and LTCI policies. See “The Facts About MIB,” MIB Group, Inc., 

https://www.mib.com/facts_about_mib.html.

161 Mary M. Art, Automating Underwriting for Life Insurance: Company Practices Study (2016), 12. 
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without medical exams.162 Life insurers have also used various forms of automated underwriting 

– such as prior review by underwriters (partially automated) or a program that accepts or 

declines risks with no involvement by underwriters (fully automated) – to simplify the 

application process.163

Globally, life insurers are using new technology, such as artificial intelligence, big data, and the 

Internet of Things, to both expand markets and price risks, potentially upending long-standing 

processes for the development, marketing, and distribution of life insurance. Similarly, the U.S. 

life insurance market is engaging with the possibilities presented by emerging technologies, from 

disruptive start-ups funded by venture capital to established insurers investing in new technology 

or launching in-house innovation laboratories. For example, a recently formed California-based 

science firm offers a facial analytics technology which extracts information on the biological, 

genetic, and behavioral traits of an individual insurance applicant and links these traits to 

variations in mortality risk.164 Adapting to new technologies and changing consumer 

preferences could influence the ability of U.S. life insurers to increase their market growth.

Deployment of InsurTech may benefit insurance consumers in various ways. For example, the 

use of telematics and other “smart” devices could help to lower premiums through premium 

discounts and more tailored policies. Millennials (ages 18-34), in particular, reportedly prefer 

usage-based insurance to traditional coverage and are willing to provide information about their 

driving behavior in exchange for lower premiums.

165 Telematics and other new technologies

may speed the claims process by increasing the amount of information available to resolve 

questions of fault and liability.166 InsurTech also may help the development of new platforms 

allowing consumers to better compare companies and their products, thus increasing 

transparency as well as fostering improvements in products and a more competitive insurance 

marketplace.

InsurTech also presents potential challenges for insurers and insurance consumers. For example, 

the more reliant insurers become on data and data analytics, the more data that may potentially 

be at risk to cyber theft, or other data breaches,

167 and the more costly data errors could be to 

 162 “Accelerated Underwriting Will Bring a True Change to the Model,” PricewaterhouseCoopers LLP, January 13, 

2017, https://denovo.pwc.com/recons/accelerated-underwriting-will-bring-a-true-change-to-the-model.

163 Art, Automating Underwriting for Life Insurance, 6. 

164 Lapetus Solutions Inc., Introducing CHRONOS: Changing the Face of Insurance Underwriting,

https://www.lapetussolutions.com/wp-content/uploads/2017/07/chronos_brochure_v01_6.pdf.

165 Tammy Chen and Len Llaguno, “Millennials’ Enthusiasm for Usage-Based Insurance Will Require a Complete 

Rethink,” Willis Towers Watson, August 25, 2015, https://www.towerswatson.com/enUS/Insights/Newsletters/Americas/americas-insights/2015/millennials-enthusiasm-for-usage-based-insurance-willrequire-a-complete-rethink.

166 Lucy Hook, “50% of World’s Vehicles to be Insured with Telematics by 2030,” Insurance Business, May 26, 

2017, http://www.insurancebusinessmag.com/uk/news/breaking-news/50-of-worlds-vehicles-to-be-insured-withtelematics-by-2030-68705.aspx.

167 See Section IV.A.2 of this Report for steps insurance regulators are taking to address cybersecurity concerns.
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consumers in terms of higher premiums or denied claims.168 To the extent that InsurTech 

involves newer technologies and newer companies, there will be shorter track records on which 

consumers can judge the performance of such companies. In addition, loss of privacy and unfair 

or illegal discrimination are potential issues.

169 Lastly, InsurTech can lead to loss of human 

contact: in a survey of 1,200 consumers, the clear majority (78 percent) said that they would 

prefer to work with an actual person rather than electronically submitting claims.

170

b. Regulatory Responses to InsurTech

In response to the proliferation of new technology, regulators recognize the need to understand 

new technology and how new data is being generated and used.171 The NAIC, for example, has 

formed an Innovation and Technology Task Force – which includes the Big Data Working 

Group – to provide a forum for regulator education and discussion of new and emerging products 

and technology in the insurance sector, monitor technology developments that may impact state 

regulation, and develop regulatory guidance as needed.172 The IAIS has also begun analyzing

InsurTech, issuing a report in February 2017, FinTech Developments in the Insurance Sector, 

which provides an overview of innovations affecting the insurance industry, sets out a number of 

scenarios assessing how InsurTech may change the insurance industry in the future, and 

identifies potential supervisory challenges caused by innovation.173

Some international insurance regulators have begun experimenting with so-called “regulatory 

sandboxes” to allow for innovation.174 For example, the Monetary Authority of Singapore has 

proposed developing such a sandbox, which will allow for experimentation in technology and 

new product development by offering certain products and services to customers under relaxed 

regulatory conditions for a limited time.175 Similarly, as part of its “Project Innovate,” the 

United Kingdom’s Financial Conduct Authority has lowered administrative barriers and costs 

 168 See, e.g., Dave Collins, “Tracking Phones: Insurers Deny Claims Based on Doubtful Data,” U.S. News & World 

Report, March 29, 2017, https://www.usnews.com/news/best-states/connecticut/articles/2017-03-29/insurers-denyclaims-based-on-questionable-cell-tower-data.

169 See also discussion in Section IV.B.2 on Big Data.

170 Philips, “InsurTech-Consumer Disconnect.”

171 Julia-Ambra Verlaine, “EU Assesses Financial Industry Regulation in Era of Big Data,” Wall Street Journal, 

December 19, 2016, https://www.wsj.com/articles/eu-assesses-financial-industry-regulation-in-era-of-big-data1482157331 (quoting Gabriel Bernardino, EIOPA chairman).

172 “Innovation and Technology (EX) Task Force,” NAIC, http://www.naic.org/cmte_ex_ittf.htm.

173 IAIS, FinTech Developments.

174 See, e.g., Munich Re, “Proposal: Future Insurance Technology (FIT) Lab, a US Regulatory Sandbox Solution” 

(presentation, NAIC and CIPR, Miami, FL, December 12, 2016), 

http://www.naic.org/documents/cipr_events_fall_2016_fitlab_prop.pdf.

175 Gabriel Olano, “Singapore Backs Insuretech Innovation,” Insurance Business, June 9, 2016, 

http://www.insurancebusinessmag.com/asia/news/breaking-news/singapore-backs-insuretech-innovation49393.aspx.
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associated with testing innovative products and services while still protecting consumer 

interests.

176

2. Big Data, Price Optimization, and Insurance Rates

“Big data” has many definitions, but is commonly understood as large, complex data sets that 

traditional data processing application software cannot handle, and for which more sophisticated 

software algorithms (such as new artificial intelligence tools like machine learning) must be 

used.

177 Big data can assist nearly all aspects of the business of insurance, but it is particularly 

useful for underwriting, i.e., determining whether to accept a risk, and if so, at what amount of 

coverage and for what amount of premium.178 More tailored underwriting could mean lower 

prices for many. The use of big data by insurers, however, may present issues for consumers

relating to privacy and unfair or illegal discrimination.

Big data can involve the compilation of large amounts of personally identifiable information, as 

well as detailed information about insurance consumers’ daily habits. As a result, some

observers and consumers have expressed concerns about privacy.

179 Others contend, however, 

that such privacy concerns are outdated, because both insurers and consumers recognize and 

accept the value of “connected” insurance.180

 176 Dr. Phillip Trillmich and Katarina Jokic, “UK ‘Regulatory Sandbox’ to Foster Fintech Innovation,” White & 

Case Technology, April 22, 2016, https://www.whitecase.com/publications/alert/uk-regulatory-sandbox-fosterfintech-innovation.

177 See, e.g., Steve Lohr, “The Origins of ‘Big Data’: An Etymological Detective Story,” New York Times, February 

1, 2013, https://bits.blogs.nytimes.com/2013/02/01/the-origins-of-big-data-an-etymological-detective-story/; Gil 

Press, “12 Big Data Definitions: What’s Yours?” Forbes, September 3, 2014, 

https://www.forbes.com/sites/gilpress/2014/09/03/12-big-data-definitions-whats-yours/#7638c19e13ae.

178 “Underwriting,” IRMI, https://www.irmi.com/online/insurance-glossary/terms/u/underwriting.aspx. See also

Box 4, above; Lawrence Powell, “Big Data and Regulation in the Insurance Industry” (presentation, NAIC Big Data 

Working Group, Denver, CO, April 8, 2017), 

http://www.naic.org/meetings1704/cmte_ex_bdwg_2017_spring_nm_materials.pdf?1503680779391; North 

American CRO Council, Risk Implications of Data and Analytics to the Insurance Industry (January 2017), 

http://www.crocouncil.org/images/CROC_Risk_Implications_of_Data_and_Analytics_to_the_Insurance_Industry_2

0170106.pdf.

179 See, e.g., Mark Hollmer, “Insurers Risk Triggering Government Regulation Without Responsible Big Data 

Usage: Fitch,” Carrier Management, March 30, 2017, 

http://www.carriermanagement.com/news/2017/03/30/165737.htm (noting observers have warned that “data privacy 

laws and regulations have lagged behind rapid technological advancement”); Rob Lenihan, “Big data? No Problem 

for Current Insurance Regulations, Researchers Say,” Business Insurance, April 4, 2017, 

http://www.businessinsurance.com/article/20170404/NEWS06/912312734/Big-data-no-problem-for-NationalAssociation-Insurance-Commissioners-regulations (discussing whether regulators are fully able to protect 

consumers’ privacy). In addition, a March 2017 survey of 1,200 consumers found that only 23 percent would be 

comfortable sharing their personal data with an InsurTech startup, even if it lowered their insurance rates. Philips, 

“InsurTech-Consumer Disconnect.”

180 Hook, “50% of World’s Vehicles.”
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The more they learn about their customers, the more insurers can differentiate among 

policyholders – often to policyholders’ benefit in the form of lower prices. Insurers also need to 

ensure that the differentiation complies with the law.181 While consumers and regulators may 

also question certain pricing practices, insurers counter that such questions reflect a

misunderstanding of their ratemaking practices.182

Big data also may facilitate other forms of “price optimization,” which in the insurance context is

the practice of varying insurance rates based on non-risk related factors.183 In January 2017, 

Nevada joined at least 18 other states and the District of Columbia which have issued notices that 

limit or ban price optimization.

184 Concerns over price optimization are leading state insurance 

regulators to examine premium “caps,” policy language which limits the amount a premium can 

be increased in any one year during policy renewals for individuals and small businesses. 

Regulators generally recognize the need to carefully review whether premium rates correlate to 

the covered risk(s), and whether rating factors conform to state law and public policy.185

In the past year, some insurance regulators and legislators have taken steps to review the use of

occupation and income rating factors for auto insurance premiums, as well as premiums for other 

personal insurance policies.

186 In May 2017, New York announced a proposed regulation that

 181 State insurance laws generally prohibit “any unfair discrimination” between individuals of the same class and 

equal expectation of life with respect to life insurance, or between individuals of the same class and of essentially 

the same hazard with respect to P&C insurance. See, e.g., Model Unfair Trade Practices Act § 4(G) (NAIC 2011), 

http://www.naic.org/store/free/MDL-880.pdf. Many states also specifically prohibit discrimination based on race, 

national origin, religion, or other factors. See generally Ronen Avraham, Kyle D. Logue, and Daniel Benjamin 

Schwarcz, Understanding Insurance Anti-Discrimination Laws, Law & Economics Working Papers (2013), 

http://repository.law.umich.edu/law_econ_current/52/. Academics and others have discussed data mining’s 

potential to discriminate – intentionally or unintentionally – against persons in protected classes (such as race or 

religion). Solon Barocas & Andrew D. Selbst, “Big Data’s Disparate Impact,” 104 Calif. L. Rev. 671 (2016); 

Lauren Kirchner, “When Big Data Becomes Bad Data,” ProPublica, September 2, 2015, 

https://www.propublica.org/article/when-big-data-becomes-bad-data.

182 See, e.g., “Auto Insurers Overcharging Loyal Customers, Insurance Commissioner Says,” Insurance Business, 

July 10, 2015, http://www.insurancebusinessmag.com/us/news/breaking-news/auto-insurers-overcharging-loyalcustomers-insurance-commissioner-says-21473.aspx.

183 See, e.g., FIO, Consumer Report, 5; “Price Optimization,” NAIC & CIPR, December 20, 2016, 

http://www.naic.org/cipr_topics/topic_price_optimization.htm.

184 See State of Nevada Dep’t of Business and Industry, Div. of Insurance, Bulletin 17-001, January 26, 2017, 

http://doi.nv.gov/uploadedFiles/doinvgov/_public-documents/News-Notices/Bulletins/17-001.pdf. Other states with 

price optimization notices include: Alaska, California, Colorado, Connecticut, Delaware, Florida, Indiana, Maine, 

Maryland, Minnesota, Missouri, Montana, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington. 

See also NAIC Casualty Actuarial and Statistical (C) Task Force, Related Documents: Price Optimization 

Bulletins/News Releases, http://www.naic.org/cmte_c_catf.htm (providing links by states).

185 See, e.g., Joseph S. Harrington, “State Regulators Scrutinizing Use of Premiums Caps in Insurance Rating,” 

Insurance Journal, April 20, 2017, http://www.insurancejournal.com/news/national/2017/04/20/448436.htm.

186 Consumer advocates and others have raised similar concerns about occupation-based auto insurance discounts 

and income-based pricing. See, e.g., Samantha Masunaga, “Consumer Watchdog Raises Concerns About 

Occupation-Based Auto Insurance Discounts,” Los Angeles Times, February 10, 2017, 

http://www.latimes.com/business/la-fi-consumer-watchdog-auto-20170208-story.html; Frank Klimko, “Consumer 
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would generally forbid insurers from considering a driver’s work status or educational level 

when determining that driver’s insurance premium.187 In its multi-year investigation, NYDFS

found no correlation between driving ability and income and education level.188 In May 2017, 

Maryland enacted legislation prohibiting the use of non-driving related factors – such as credit 

history, employment or occupation, and education level – in setting auto insurance rates.189 

Similarly, in August 2017, Delaware enacted legislation prohibiting insurers from, among other 

things, relying on a credit score that uses as a factor information such as income, gender, or ZIP

code; cancelling or non-renewing a policy based on credit information alone; and using credit 

information in policy renewals, unless a review request results in a premium reduction.

190 In 

July 2016, the Governor of Alaska vetoed legislation which would have expressly permitted an 

insurer to use a consumer’s credit history or score when establishing rates during renewal of a 

personal insurance policy.191

3. Insurance Response to the Sharing Economy

Technological advancements are transforming the way that goods and services are delivered and 

used. The insurance industry is responding to these changes, particularly in the realm of the 

“sharing economy.” The sharing economy is a term used to refer to a broad range of P2P

transactions which rely heavily on technology. Transactions in the sharing economy (also called 

the “gig economy,” or “on-demand economy”) tend to exhibit similar characteristics, i.e., 

reliance on the provision of excess goods or services on an ad hoc basis (e.g., a spare room in 

one’s home or an extra seat in one’s car) rather than the maintenance of inventory; blurring of

the line between the provision of personal and commercial goods and services; and use of an 

intermediary online service or application to connect providers and consumers.192

 

Group Urges Heightened Scrutiny of Automobile Insurance Rates,” A.M. Best, September 26, 2016, 

http://www3.ambest.com/ambv/bestnews/newscontent.aspx?AltSrc=104&RefNum=194755.

187 See 39 N.Y. Reg. 8 (May 17, 2017), 

https://govt.westlaw.com/nyreg/Document/Iba058d603ae411e7bb02e28b5033f0d4 (proposed addition to N.Y. 

Comp. Codes R. & Regs. tit. 11 § 154.6 to Insurance Regulation 150).

188 See NYDFS, “Governor Cuomo Announced Action to Protect New Yorkers from Unfairly Discriminatory Auto 

Insurance Rates,” news release, May 16, 2017, http://www.dfs.ny.gov/about/press/pr1705161.htm.

189 See Maryland General Assembly, Status of All House Legislation Introduced 2017 Session, 

http://mgaleg.maryland.gov/pubs-current/current-house-status-report.pdf (Maryland HB 916).

190 State of Delaware, “Governor Carney Signs Insurance Consumer Fairness Bill into Law,” news release, August 

1, 2017, http://news.delaware.gov/2017/08/01/governor-carney-signs-insurance-consumer-fairness-bill-law/. 

191 Message from Governor Walker, 2016-11-07 Alaska Sen. J. 3125, 

http://www.akleg.gov/basis/Journal/Pages/29?Chamber=S&Bill=SB%20127&Page=03125#3125.

192 Aaron Smith, Shared, Collaborative and On Demand: The New Digital Economy, Pew Research Center (May 19, 

2016), 15, http://www.pewinternet.org/files/2016/05/PI_2016.05.19_Sharing-Economy_FINAL.pdf.
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As the sharing economy continues to grow,193 regulators are beginning to require some of the 

sharing economy companies to purchase insurance themselves. For example, state legislators 

continue to address insurance requirements for transportation network companies (TNCs, also 

known as ride-sharing companies). The majority of states and territories now have TNC laws 

that include provisions concerning insurance requirements, with at least six states enacting such 

laws since June 2016.

194

Box 5: Autonomous Automobiles

An autonomous automobile is one that can sense its environment and navigate without direct 

human input. Autonomous automobiles employ (or will employ) a variety of technologies, such 

as radar, lasers, GPS, and computer vision, to support control systems capable of analyzing 

sensory data to distinguish among different objects on or near the road. The first developments –

systems that control steering, braking, and accelerating – began to appear in cars on the road over 

the past several years. These system, however, still require drivers to keep their eyes on the road 

and hands on the steering wheel.195 Some of the world’s major auto manufacturers have

prototype cars that are fully self-driving, and have declared that within a decade they plan to 

offer for sale some form of advanced automation.196 Similarly, major technology firms are 

investing significantly in autonomous driving software.

Developments in autonomous car technology will have implications for the U.S. P&C insurance 

sector. The U.S. P&C insurance sector derived approximately $249 billion, or 40 percent, of its 

2016 direct premiums written from personal and commercial auto insurance.197 Autonomous 

technology – together with other potential changes like the leveraging of customer data by auto 

manufacturers and new business models brought on by ridesharing – could fundamentally alter

traditional personal and commercial automobile markets in coming years.198

The advent of autonomous automobiles also may raise significant questions concerning legal 

responsibility in the event of an accident. As the role of drivers in vehicle operation declines, 

 193 Niam Yaraghi and Shamika Ravi, The Current and Future State of the Sharing Economy, Brookings Institution 

and Brookings India (March 2017), 6, https://www.brookings.edu/wpcontent/uploads/2016/12/sharingeconomy_032017final.pdf

194 See Mich. Comp. Laws § 257.2101 et seq. (2017); 2017 N.J. Sess. L. Serv. Ch. 26 (Assembly 3695) (West); Pa. 

Stat. and Cons. Stat. Ann. § 2601 et seq. (West 2017); R.I. Gen. Laws Ann. § 39-14.2-1 et seq. (West 2017); Tex. 

Occ. Code Ann. § 2402.001 et seq. (West 2017); and Wyo. Stat. Ann. § 31-20-101 et seq. (West 2017). See also

Jennifer Gardner, “State Laws Relative to Transportation Network Companies” (presentation, NAIC Sharing 

Economy (C) Working Group, Denver, CO, April 8, 2017), 

http://naic.org/meetings1704/cmte_c_sharing_econ_wg_2017_spring_nm_materials.pdf?1496770271460.

195 Will Knight, “Driverless Cars are Further Away Than You Think,” MIT Technology Review, October 22, 2013. 

https://www.technologyreview.com/s/520431/driverless-cars-are-further-away-than-you-think/.

196 Knight, “Driverless Cars.”

197 Figures derived from SNL Financial data. See also Box 1, above.

198 KPMG, The Chaotic Middle: the Autonomous Vehicle and Disruption in Automobile Insurance (June 2017), 19-

20, https://assets.kpmg.com/content/dam/kpmg/us/pdf/2017/06/chaotic-middle-autonomous-vehicle-paper.pdf.
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drivers’ liability for accidents could likewise decrease. Several auto manufacturers and 

technology firms have announced that they will accept responsibility for accidents caused by 

their technology.199 Recently, the state of Michigan enacted legislation specifying that auto 

manufacturers must assume liability when autonomous vehicle systems’ failures cause losses, 

and obtain insurance for this exposure.

200

Some insurers are designing policies to address such emerging technologies. For example, one 

U.K. insurer launched a “driverless car” insurance policy in 2016.201 This new coverage applies 

to risks such as hacking of an autonomous vehicle, operating system failures, and navigational 

system and satellite outages, as well as to more traditional auto risks.

Important questions have been raised about whether and when individuals working under a P2P

model are covered by their personal homeowners or auto policies. Insurers are developing new 

products in response to potential coverage gaps created by the sharing economy business model, 

which in some cases are being marketed as add-ons to personal policies. For example, one 

insurer allows home-sharing hosts to purchase insurance covering only the specified rental 

period.

202 One ride-sharing service has partnered with insurers to offer drivers the opportunity to 

opt-in to injury protection insurance.203 Other insurers introduced optional “Ride for Hire” addon coverage in 2015 and have steadily been expanding the product into additional states, 

providing insurance coverage for drivers who have a ride-hailing application turned on but have 

not yet picked up a customer.

204

Another sharing economy issue which may have insurance implications is the classification of 

on-demand workers as employees or contractors. The effect of this distinction is significant, as a 

growing segment of the population engages in non-traditional forms of employment.

205 Sharing 

 199 KPMG, Chaotic Middle, 11.

200See 2016 Mich. Pub. Acts 333, (codified at Mich. Comp. Laws § 257.665b(4)), 

http://legislature.mi.gov/doc.aspx?mcl-257-665b).

201 Kelly Pleskot, “Insurance Company Issues First Driverless Car Policy,” Motor Trend, June 8, 2016, 

http://www.motortrend.com/news/insurance-company-issues-first-driverless-car-policy/.

202 Trevor Mogg, “Slice Insurance Aims to Provide Peace of Mind for AirBnB Hosts,” Digital Trends, June 1, 2017, 

https://www.digitaltrends.com/home/slice-insurance-airbnb/. Some insurers have chosen to exclude coverage 

entirely for home-sharing services, while others have extended coverage through policy endorsements. See, e.g., 

Becky Yerak, “Insurance for AirBnB Hosts: Allstate to Sell Home-Sharing Coverage,” Chicago Tribune, May 25, 

2016, http://www.chicagotribune.com/business/ct-home-sharing-insurance-0526-biz-20160525-story.html

203 Christian Alexandersen, “Uber Raises Rates in 8 States, Including Pa., to Fund Injury Protection Insurance for 

Drivers,” Penn Live, May 9, 2017, http://www.pennlive.com/news/2017/05/uber_raises_rates_in_eight_sta.html.

204 See e.g., Deirdre Fernandes, “Insurers Pitch Extra Coverage for Uber and Lyft Drivers,” Boston Globe, May 21, 

2017, https://www.bostonglobe.com/business/2017/05/21/insurers-offer-coverage-for-uber-lyft-drivers-but-notclear-they-pay-more/vkidYb2HhUXoKHr12aoXeN/story.html.

205 The percentage of people with “alternative work arrangements,” including but not limited to those in the sharing 

economy, increased from 10.7 percent in 2005 to 15.8 percent in 2015. Lawrence F. Katz and Alan B. Krueger, The 

Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015, National Bureau of Economic 

Research (September 2016), 2-3, http://www.nber.org/papers/w22667.
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economy companies often consider individuals providing hands-on delivery of goods or services 

as independent contractors rather than employees, under the view that the companies are merely 

providing a technology platform to connect willing contractors with consumers. Those classified 

as independent contractors may not receive workers’ compensation protection if injured on the 

job.

Natural Hazards and Insurance

Insurance can aid Americans who are vulnerable to a broad array of natural disasters, including 

floods, hurricanes, tornados, earthquakes, landslides, snowstorms, drought, and fire.206 This 

section highlights the role insurance can play in hazard mitigation by individual property owners, 

federal efforts to advance resilience through the MitFLG, and the NFIP.

1. Natural Hazards in the United States and the Role of Insurance

Natural hazards and severe weather in the United States are significant and costly, impacting all 

fifty states, the District of Columbia, and U.S. territories.207 In 2016 alone, there were 15 

separate natural disasters in the United States for which costs reached or exceeded $1 billion. In 

total, these natural disasters led to 138 deaths and $46.8 billion in losses.

208 In addition, the 

United States experienced 943 earthquakes of magnitude 3.0 or greater, over 5.4 million acres 

burned in 62,864 separate fires, and 9 winter storms.209 Future potential losses could be even 

higher.210

Insurance is an important component in disaster recovery, providing benefits directly to 

policyholders when natural disasters strike. For individual Americans, insurance can provide 

significantly greater monetary assistance than what may be available to them as federal disaster 

relief: while FEMA’s individual assistance can provide up to $33,000, the average award is 

 206 See e.g., FIO, Report Providing an Assessment of the Current State of the Market for Natural Catastrophe 

Insurance in the United States (September 2015), https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/Natural%20Catastrophe%20Report.pdf; FIO, 2016 Annual Report; FIO, Consumer Report.

207 See, e.g., “Total Number of Declared Disasters (by State/Tribal Government and by Year),” FEMA, 

https://www.fema.gov/disasters.

208 “Billion-Dollar Weather and Climate Disasters: Summary Stats,” National Oceanic and Atmospheric 

Administration, National Centers for Environment Information, https://www.ncdc.noaa.gov/billions/summary-stats.

209 CoreLogic, 2016 Natural Hazard Risk Summary & Analysis (January 2017), 

http://corelogic.maps.arcgis.com/apps/MapSeries/index.html?appid=820b887bd1b245c59c0a49e8613219a1.

210 CoreLogic, 2016 Wildfire Hazard Risk Report (October 2016), http://www.corelogic.com/aboutus/researchtrends/wildfire-risk-report.aspx#.
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much smaller.211 The difference between insurance and disaster relief can be as much as ten to 

one.212

Many natural disasters losses – particularly those arising from earthquakes and floods – are not 

insured under standard homeowners or renters policies, and the take-up rate for specialized 

coverage is relatively low.

213 Standard homeowners or renters insurance policies are multi-peril, 

meaning they include coverage for losses from various hazards, such as tornadoes, windstorms, 

hail, fire, lightning strikes, and snowstorms. Most homeowners have at least a standard 

insurance policy (93 percent),214 while the majority of renters do not have any insurance for their 

homes or belongings (59 percent).215 The number of insured millennial renters is even lower (28 

percent).216 Neither homeowners nor renters, however, are purchasing separate earthquake or 

flood insurance in large numbers. For example, although the California Earthquake Authority 

reported a seven-fold increase in policy buyers in 2016, only about 10 percent of Californians 

had earthquake coverage as of year-end. 217 Only about half of the people who live in 100-year 

floodplains purchase flood insurance – and the take-up rate is even lower outside such 

floodplains, even though the risk of flooding remains substantial.218 Some estimates suggest that 

75 percent of the $10 billion in overall losses arising from the August 2016 flooding in Louisiana 

was uninsured.

219

 211 See, e.g., FEMA, Fact Sheet: What is FEMA’s Individual Assistance Program, https://www.fema.gov/medialibrary-data/1461689021638-cfcfd7f6c263635802fa7a76a19e00ea/FS001_What_is_Individual_Assistance_508.pdf; 

“FEMA Individual Assistance: Individuals and Households,” Massachusetts Executive Office of Public Safety and 

Security, http://www.mass.gov/eopss/agencies/mema/after/assistance/after-assistance-fema-ia.html.

212 Reauthorization of the National Flood Insurance Program, Part I, Before the Senate Committee on Banking, 

Housing, and Urban Affairs, 115th Cong. (March 14, 2017) (statement of Roy E. Wright, FEMA Deputy Associate 

Administrator for Insurance and Mitigation), 

https://www.banking.senate.gov/public/index.cfm/2017/3/reauthorization-of-the-national-flood-insurance-programpart-i (noting, in connection with the August 2016 Louisiana flooding, the average payment for NFIP policyholders 

was $86,500, while the average individual assistance payment was approximately $9,150).

213 See, e.g., FIO, Consumer Report, 12; FIO, Natural Catastrophe Report, 15-17, 38-39.

214 “Homeowners and Renters Insurance,” Insurance Information Institute, http://www.iii.org/factstatistic/homeowners-and-renters-insurance. 

215 “Homeowners and Renters Insurance.”

216 Amy O’Connor, “Renters’ Insurance and Millennials: If You Make it Simple, They Will Come,” Insurance 

Journal, September 1, 2016, http://www.insurancejournal.com/news/national/2016/09/01/425071.htm.

217 Thomas Harman, “California Earthquake Authority Reports Seven-Fold Increase in Policy Buyers in 2016,” A.M. 

Best, May 1, 2017, http://www3.ambest.com/ambv/bestnews/newscontent.aspx?AltSrc=104&RefNum=199397.

218 Carolyn Kousky, “Who Holds On To Their Flood Insurance,” Resources for the Future, November 3, 2015, 

http://www.rff.org/blog/2015/who-holds-their-flood-insurance (links to multiple studies); “Flood Insurance: 

National Flood Insurance Program,” Insurance Information Institute, http://www.iii.org/fact-statistic/flood-insurance

(2016 poll found only 12 percent of homeowners had flood insurance).

219 Munich Re, “Floods in Louisiana: A Stationary Depression,” news release, January 4, 2017, 

https://www.munichre.com/en/media-relations/publications/press-releases/2017/2017-01-04-press-release/floodlouisiana/index.html.
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Box 6: Hurricane Harvey

On August 25, 2017, Hurricane Harvey made landfall on the Texas Gulf Coast as a Category 4 

storm. Over the next several days, Hurricane Harvey caused record rainfall of more than 50 

inches in the Houston region, leading to many deaths, causing significant damage, and 

devastating families, homes, and businesses.220

After leaving Texas, Hurricane Harvey, downgraded to a tropical storm, again made landfall in 

southwestern Louisiana. While some areas saw up to 22 inches of rain,221 Louisiana state 

officials did not report major damage caused by the storm.222

Insurance will be a crucial element of the process of recovery from Hurricane Harvey; however, 

the majority of Harvey-related residential flood losses (more than 70 percent) are likely 

uninsured. Homeowners’ policies typically exclude flood coverage, and only about 20 percent 

of homeowners in the region affected by Hurricane Harvey have flood insurance through the 

NFIP.

223 Auto and commercial lines insurers will also likely face significant claims. Ratings 

agencies are expecting losses from Hurricane Harvey to put pressure on regional property and 

auto insurers, but such insurers are expected to withstand these losses.224

The federal government has responded to Hurricane Harvey through immediate relief efforts, 

disaster assistance (including low-interest loans from the Small Business Administration for 

uninsured or underinsured homeowners), and through the NFIP, which may provide individual 

policyholders with up to $350,000 and commercial policyholders with up to $1 million in 

coverage. FIO has conducted outreach to state insurance regulators and industry stakeholders, 

pursuant to its monitoring authority, to understand the insurance issues raised by Hurricane 

Harvey, as well as to offer assistance with regulators’ and insurers’ interactions with the federal 

government.

 220 Jenny Jarvie and Molly Hennessy-Fiske, “As Harvey Breaks Rainfall Record, Houston Imposes a Curfew and 

Death Toll Climbs to 18,” Los Angeles Times, August 29, 2017, http://www.latimes.com/nation/la-na-texas-harvey20170829-story.html.

221 Rebecca Harrington, “Harvey Hit Louisiana with Widespread Flooding, But the State Escaped the Worst of the 

Storm – Here’s What It Looks Like on the Ground,” Business Insider (August 31, 2017), 

http://www.businessinsider.com/harvey-floods-louisiana-photos-new-orleans-2017-8.

222 “The Latest: Louisiana Officials Report Little Harvey Damage,” U.S. News and World Report, August 30, 2017, 

https://www.usnews.com/news/best-states/alabama/articles/2017-08-30/the-latest-louisiana-officials-report-littleharvey-damage.

223 Roger Yu, “Less than 20% Harvey Victims Have Flood Insurance as FEMA Braces for Tons of Claims,” USA 

Today, August 30, 2017, https://www.usatoday.com/story/money/2017/08/29/insurance-woes-await-flood-victimsunder-covered-houston-area/613239001/. The NFIP is discussed further in Section IV.C.4.

224 “Hurricane Harvey Puts Pressure on Regional Insurers in Texas, Says A.M. Best,” Insurance Journal, September 

5, 2017, http://www.insurancejournal.com/news/southcentral/2017/09/05/463100.htm. See also Section III.A.4 for 

early projections of Hurricane Harvey on insurers’ financial performance and stability in the 2017 Insurance 

Outlook.
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In addition to devastating loss of life, natural disasters can carry high economic costs not only for 

the insurance industry, but for states, local communities, and individuals. The total insured value 

of residential and commercial properties in coastal communities along the East Coast and Gulf 

Coast states – which may be vulnerable to flooding – exceeds $13.8 trillion, according to a 2016

estimate.225 Moreover, approximately 40 percent of small businesses never re-open following a 

closure due to natural disaster.226

Box 7: State Insurance Regulatory Response to Natural Disasters

State insurance regulators and the NAIC continue to focus on how they can facilitate consumer 

protection and insurers’ prompt response to natural disasters. For example, several states have 

fine-tuned their insurance regulations and emergency procedures that apply when natural 

disasters occur. After natural disasters, states may issue emergency insurance rules which allow 

policyholders more time to pay premiums and submit claim documents, or which may suspend 

certain policy provisions with which policyholders impacted by disasters may be unable to 

comply – such as those related to dwelling occupancy.227 Additionally, some states have 

streamlined licensing requirements for claims adjusters when there is an emergency, in order to 

facilitate faster claims processing.228 The NAIC is drafting an emergency response proposal for 

insurance commissioners,229 and is also engaged on issues such as the privatization of flood 

insurance and premium discounts for homeowners that engage in certain mitigation activities.230

2. Insurance and Mitigation

The insurance industry plays an important role in supporting innovation in hazard mitigation, or 

actions “to reduce loss of life and property by lessening the impact of disasters,”231 which can 

reduce the risks and costs associated with natural hazards, for both the government and 

individuals.232 The insurer-funded Insurance Institute for Business & Home Safety (IBHS) 

 225 AIR Worldwide, The Coastline at Risk: 2016 Update to the Estimated Insured Value of U.S. Coastal Properties

(2016), 6, http://www.air-worldwide.com/Publications/White-Papers/documents/The-Coastline-at-Risk-2016.

226 “Protecting Your Businesses,” FEMA, June 24, 2016, https://www.fema.gov/protecting-your-businesses.

227 See, e.g., Louisiana Department of Insurance, Office of the Commissioner, Amended Declaration of Emergency 

(Emergency Rule 27), August 12, 2016, http://www.ldi.la.gov/docs/defaultsource/documents/legaldocs/rules/rule27-cur-suspensionofcertain.pdf.

228 Memorandum from Delaware Department of Insurance to All Emergency CAT Adjusters, Notification/Licensing 

Requirements to Conduct Emergency Adjustment Work in Delaware (June 5, 2017), 

http://insurance.delaware.gov/wp-content/uploads/sites/15/2017/06/AgentBulletinNo18-Revised.pdf.

229 See, e.g., NAIC Catastrophe Response (C) Working Group, Catastrophic Event/Emergency Measures Regulatory 

Guidelines (undated draft), http://naic.org/documents/cmte_c_cr_wg_170606_emergency_measures.pdf.

230 NAIC, Property and Casualty (C) Committee, Agenda (August 8, 2017), 

http://www.naic.org/meetings1708/cmte_c_2017_summer_nm_agenda.pdf.

231 “What is Mitigation?” FEMA, March 1, 2017, http://www.fema.gov/what-mitigation. See also 44 C.F.R. § 201.2.

232 A landmark 2005 study found that “a dollar spent on hazard mitigation provides the nation about $4 in future 

benefits.” See Multihazard Mitigation Council, National Institute of Building Sciences, Natural Hazard Mitigation 
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conducts safety research which identifies and promotes “the most effective ways to strengthen 

homes, businesses, and communities against natural disasters and other causes of loss.”233 

Insurers also may offer premium discounts to homeowners who conform to IBHS FORTIFIED 

standards for resilient construction, or who otherwise take action to mitigate their exposure to 

property loss before disasters occur.

Some states mandate discounts on insurance premiums when homeowners undertake specified 

mitigation measures.234 For example, in 2016, Alabama established new mitigation discounts for 

structures meeting IBHS standards.

235 In May 2017, Oklahoma enacted legislation which 

requires insurers to make available (when actuarially justified) a premium discount or rate 

reductions to “any owner who builds or locates a new insurable property in the State of 

Oklahoma to resist loss due to tornado or other catastrophic windstorm events.”236

Some other states encourage or permit mitigation discounts, but do not mandate specific rate 

reductions.237 For example, effective January 1, 2017, New York insurers may reduce rates for 

homeowners who complete a “natural disaster preparedness, home safety and loss prevention 

course” or “for the installation of equipment, devices or other capital improvements to real 

property which can help eliminate or mitigate natural disaster damage, improve home safety or 

prevent other losses.”238

3. Mitigation Framework Leadership Group

Treasury, through FIO, participates in the MitFLG, a national structure to coordinate mitigation 

efforts across the federal government. Among other things, the MitFLG is reassessing the 

federal approach to “mitigation investments,” defined as risk management actions taken to avoid, 

reduce, or transfer natural hazard risks, including but not limited to actions involving 

insurance.

239 Over the course of the past year, the MitFLG has been preparing the Draft National 

 Saves: An Independent Study to Assess the Future Savings from Mitigation Activities, Volume 1 (2005), 

http://www.floods.org/PDF/MMC_Volume1_FindingsConclusionsRecommendations.pdf. The National Institute of 

Building Sciences is updating this study, with preliminary findings expected in late 2017. See “Multihazard 

Mitigation Council: Projects,” National Institute of Building Sciences, http://www.nibs.org/?page=mmc_projects.

233 See “About IBHS,” IBHS, https://disastersafety.org/about/.

234 See, e.g., FIO, Consumer Report, 16 (noting premium discount availability in Florida, Louisiana, Maryland, and 

Mississippi, as well as income tax credit and building permit rebates in other areas).

235 Ala. Dep’t Ins. Bulletin 2016-07 (October 31, 2016), http://www.aldoi.gov/pdf/legal/2016-07%20-

%20Modification%20to%20Ala.%20Bulletins%202013-07,%202010-03%20and2009-07.pdf.

236 Okla. H.B. 1720 (2017) (to be codified at Okla. Stat. tit. 36 § 961).

237 See, e.g., United Policyholders, State-by-State Mitigation Insurance Discount Statutes Summary, 

http://uphelp.org/sites/default/files/guides/2017.08.03_naic_mitigation_discount_handout.pdf.

238 See N.Y. Ins. Law § 2346(5)(b) (McKinney 2017). See also NYDFS, Circular Letter No. 3 (March 15, 2017), 

http://www.dfs.ny.gov/insurance/circltr/2017/cl2017_03.htm.

239 See, e.g., “Mitigation Framework Leadership Group (MitFLG),” FEMA, April 28, 2017, 

https://www.fema.gov/media-library/assets/documents/116787.
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Mitigation Investment Strategy, an initial set of proposed, voluntary recommendations to 

improve the coordination and effectiveness of mitigation investment nationwide by: (1) federal 

agencies and departments; (2) other public sector entities such as state, territorial, tribal, and 

local governments; and (3) private and non-profit sector entities such as businesses, 

philanthropies, foundations, and other non-governmental organizations. Throughout the 

remainder of 2017 and into 2018, the MitFLG will continue to solicit stakeholder feedback 

which will shape how the Investment Strategy develops.

240

4. Flood Insurance and NFIP Reauthorization

Flooding is the most common, destructive, and costly form of natural catastrophe in the United 

States: 90 percent of U.S. natural disasters involve a flood.241 In 2016, five separate 

flood-related events each exceeded $1 billion in economic losses, with total estimated 2016 flood 

losses of $17 billion.242 Residential flood losses from Hurricane Harvey are expected to exceed 

all 2016 flood losses put together, with estimates going up to $37 billion in losses. 

Approximately 70 percent of those losses are expected to be uninsured.243

The NFIP is a federal insurance and risk management program, managed by FEMA. The NFIP 

aims to reduce the impact of flooding on private and public structures by providing affordable 

flood insurance to property owners in eligible communities and by encouraging communities to 

enforce effective floodplain management practices.244 Effective January 1, 2017, and following 

a test-program in 2016, FEMA purchased reinsurance to help diversify and lessen the NFIP’s net 

exposure to catastrophic losses.245 As noted above, in 2016 FIO and FEMA jointly hosted 

stakeholder discussions about flood insurance and the NFIP.246 The NFIP is subject to periodic 

reauthorization by Congress. The next statutory deadline for reauthorization is December 8, 

2017.247

 240 See “National Mitigation Framework: National Mitigation Investment Strategy (NMIS),” FEMA, April 27, 2017,

https://www.fema.gov/national-mitigation-framework. 

241 See, e.g., FIO, Natural Catastrophe Report, 27; Reauthorization of the National Flood Insurance Program

(statement of Roy E. Wright).

242 CoreLogic, 2016 Natural Hazard Risk Summary and Analysis: Flooding (2017), 

http://www.corelogic.com/about-us/researchtrends/natural-hazard-risk-summary-and-analysis.aspx.

243 “Harvey Residential Flood Damage Up to $37 Billion: Corelogic,” Business Insurance, September 1, 2017, 

http://www.businessinsurance.com/article/20170901/NEWS06/912315587/Harvey-flood-losses-Corelogic-Texas.

244 See, e.g., FEMA, Fact Sheet: National Flood Insurance Program, 

https://www.in.gov/dhs/files/mit_natl_flood_ins.pdf.

245 See, e.g., “National Flood Insurance Program’s (NFIP) Reinsurance Program for 2017,” FEMA, January 10,

2017, https://www.fema.gov/nfip-reinsurance-program.

246 See Section II.B of this Report.

247 Continuing Appropriations Act 2018 and Supplemental Appropriations for Disaster Relief Requirements Act

2017, Pub. L. 115-56, 131 Stat. 1129 (2017).
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Financial Stability Oversight Council

The Council was established by Title I of the Dodd-Frank Act248 and, among other functions, is 

charged 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.249 The Council consists of ten voting members and five nonvoting members.

One of the Council’s purposes is to identify risks to the financial stability of the United States 

that could arise from the material financial distress or failure, or ongoing activities, of nonbank 

financial companies.250 Section 113 of the Dodd-Frank Act authorizes the Council to designate a 

nonbank financial company for supervision by the Federal Reserve and enhanced prudential 

standards if the Council determines that the company’s material financial distress – or the nature, 

scope, size, scale, concentration, interconnectedness, or mix of its activities – could pose a threat 

to U.S. financial stability.251

On April 21, 2017, President Trump issued a Presidential Memorandum to the Secretary, 

directing that Treasury prepare and submit a report to the President within 180 days.

252 The 

Memorandum calls for Treasury to review the process established under the Dodd-Frank Act by 

which the Council determines that a nonbank financial company could pose a threat to the 

financial stability of the United States, as well as the process by which the Council designates 

financial market utilities as systemically important. Treasury is conducting a review and will 

submit a report to the President in response to the Memorandum.

Terrorism Risk Insurance Program

The September 11, 2001 terrorist attacks resulted in an insurance industry loss of about $43 

billion (in 2015 dollars),253 which at the time was the largest insurance 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.254 In response, TRIA was enacted,255 which created TRIP within Treasury.256 TRIP was 

 248 12 U.S.C. § 5321(a).

249 12 U.S.C. § 5322(a)(1).

250 12 U.S.C. § 5322(a)(1)(A).

251 12 U.S.C. § 5323(a).

252 Presidential Memorandum to the Secretary of the Treasury, Financial Stability Oversight Council (April 21, 

2017), https://www.whitehouse.gov/the-press-office/2017/04/21/presidential-memorandum-secretary-treasury. 

253 See Jayleen R. Heft, “9/11 Attacks 15 Years Later: A Look at Losses by the Numbers,” PropertyCasualty360, 

September 7, 2016, http://www.propertycasualty360.com/2016/09/07/9-11-attacks-15-years-later-a-look-at-lossesby-th.

254 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 United States Code, references in this Report are identified by the sections of the Act.

255 Terrorism Risk Insurance Act of 2002, Pub. L. No. 107-297, 116 Stat. 2322 (2002).
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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 terrorism risk and build 

capacity to absorb future insurance losses.257 Under the TRIP Reauthorization Act,

258 TRIP has 

been extended through December 31, 2020.

1. Regulations and Guidance

In addition to extending the termination date of TRIP, the TRIP Reauthorization Act reformed 

several provisions of TRIA, which required changes to the regulations governing TRIP. On 

April 1, 2016, Treasury issued a notice of proposed rulemaking that: (1) proposed revisions to 31 

C.F.R. Part 50 to incorporate the new financial and operational provisions contained in the TRIP 

Reauthorization Act; (2) proposed new regulations regarding Treasury’s data collection 

authority; and (3) proposed regulations governing the certification process following Treasury’s 

2015 report on improving the certification process.259 Following consideration of public 

comments,260 in December 2016, Treasury issued an interim final rule with a request for public 

comment concerning the certification process,

261 as well as final rules concerning the balance of

TRIP’s operations.

262

The types of insurance subject to TRIP are defined, to the extent possible, with reference to the 

lines of insurance used by the NAIC in state insurance regulatory reporting.263 In December 

2016, Treasury issued guidance confirming that standalone cyber insurance – to the extent it is 

written in a line of insurance subject to TRIP – is subject to all TRIP requirements, including the 

 256 For purposes of this Report, TRIP refers to the program as it is administered through regulations found in 31 

C.F.R. pt. 50.

257 TRIA § 101(b).

258 Terrorism Risk Insurance Program Reauthorization Act, Pub. L. No. 114-1, 129 Stat. 3 (2015).

259 Treasury, Terrorism Risk Insurance Program; Notice of Proposed Rulemaking, 81 Fed. Reg. 18949 (April 1, 

2016), https://www.federalregister.gov/documents/2016/04/01/2016-06920/terrorism-risk-insurance-program; FIO, 

The Process for Certifying an “Act of Terrorism” under the Terrorism Risk Insurance Act of 2002 (October 2015), 

https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2015%20Report%20on%20the%20Certification%20Process%20under%20the%20Terrorism%2

0-%20Production%20Version.pdf. 

260 See “Terrorism Risk Insurance Program: Public Submissions,” Regulations.gov, 

https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=TRE

AS-TRIP-2016-0005.

261 Treasury, Terrorism Risk Insurance Program; Interim Final Rule with Request for Comment, 81 Fed. Reg. 88592 

(December 7, 2016), https://www.federalregister.gov/documents/2016/12/07/2016-29313/terrorism-risk-insuranceprogram-certification.

262 Treasury, Terrorism Risk Insurance Program; Final Rule, 81 Fed. Reg. 93756 (December 21, 2016) (to be 

codified at 31 C.F.R. pt. 50), https://www.federalregister.gov/documents/2016/12/21/2016-29987/terrorism-riskinsurance-program.

263 TRIA § 102(11); 31 C.F.R. § 50.4(w).
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mandatory offer provisions and potential sharing of losses.264 Treasury provided this 

clarification as a result of an update to the NAIC product matrix, which moved many cyber 

insurance policies from a line of insurance excluded from TRIP into a line of insurance generally 

subject to TRIP.

265 The guidance required insurers to be in compliance with TRIP requirements 

concerning the issuance of such policies by April 1, 2017.

2. 2017 Data Call

Under the TRIP Reauthorization Act, Treasury is required to annually collect terrorism risk 

insurance information from insurers in order to analyze the overall effectiveness of TRIP.266

FIO conducted a voluntary TRIP data call in 2016. The 2017 data call was the first mandatory 

TRIP data call conducted by FIO. FIO implemented a number of changes from the approach 

taken in the 2016 voluntary data call, with the goal of minimizing the burden upon participating 

insurers and making the reporting templates more consistent with industry operations. FIO

developed multiple templates based on insurer classification; and certain insurers were excused 

from reporting either: (1) on the basis of their small volume of TRIP-eligible lines premium 

writings; or (2) because they were classified as captive insurers that write policies in TRIPeligible lines of insurance, but did not provide any terrorism risk insurance subject to TRIP.

267 

FIO collected certain data elements through third-party workers’ compensation rating bureaus to 

minimize the burden on reporting insurers.

268

Based on a comparison with information reported to state regulators, FIO estimates that almost 

all insurers required to participate in the 2017 TRIP data call provided data in response to the 

call.269 FIO will analyze this information, along with information that will be obtained during 

the 2018 data call, in its Program Effectiveness report which is due on June 30, 2018.

 264 Treasury, Guidance Concerning Stand-Alone Cyber Liability Insurance Policies Under the Terrorism Risk 

Insurance Program, 81 Fed. Reg. 95312 (December 27, 2016), 

https://www.federalregister.gov/documents/2016/12/27/2016-31244/guidance-concerning-stand-alone-cyberliability-insurance-policies-under-the-terrorism-risk.

265 81 Fed. Reg. at 95313.

266 TRIP Reauthorization Act § 111 (TRIA § 104(h)).

267 Treasury, Data Collection and Comments in Aid of Analyses of the Terrorism Risk Insurance Program, 81 Fed. 

Reg. 95310 (December 27, 2016), https://www.federalregister.gov/documents/2016/12/27/2016-31238/datacollection-and-comments-in-aid-of-analyses-of-the-terrorism-risk-insurance-program.

268 Treasury, 2017 Data Collection under the Terrorism Risk Insurance Program, 82 Fed. Reg. 20420 (May 1, 2017), 

https://www.federalregister.gov/documents/2017/05/01/2017-08716/2017-data-collection-under-the-terrorism-riskinsurance-program. 

269 As of the date of this Report, FIO estimates that insurers reporting in the 2017 TRIP data call comprise over 94

percent, by premium, of the insurer groups or companies expected to report on the small insurer data template, and 

over 99 percent, by premium, of the insurer groups or companies expected to report on the non-small insurer data 

template.
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3. Small Insurer Study

FIO relied upon information from the 2017 TRIP data call to produce a report on the 

competitiveness of small insurers in the terrorism risk insurance marketplace. This report was 

submitted to Congress on June 30, 2017.270 In the report, FIO concluded that small insurers 

form a significant component of the market for terrorism risk insurance, but that their market 

share for the lines of insurance subject to TRIP has declined over time. Small insurers tend to 

charge less than non-small insurers for terrorism risk insurance, and experience lower take-up 

rates than do larger insurers. FIO also found that the Program Trigger271 could have the effect of

preventing TRIP reimbursement for small insurers that sustain terrorism losses in excess of their 

TRIP deductibles, and that most small insurers do not purchase private reinsurance in amounts 

sufficient to offset this exposure. In the report, FIO also addressed the special terrorism risk 

challenges presented for small insurers in the workers’ compensation line of insurance, which is 

subject to potentially unlimited losses.

4. Advisory Committee on Risk-Sharing Mechanisms

ACRSM is a federal advisory committee established by the TRIP Reauthorization Act. ACRSM 

is statutorily required to provide FIO with advice, recommendations, and encouragement with 

respect to the creation and development of non-governmental risk-sharing mechanisms to protect 

against losses arising from acts of terrorism.272 The ACRSM is comprised of nine members who 

serve as representatives of prominent insurers, reinsurers, and capital market 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).273 To date, the Committee has held three public meetings in 2017 to gather 

information from industry participants. These meetings focused 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.

The Department of Labor Fiduciary Rule

In April 2016, the DOL issued a final rule (collectively, with its related exemptions, the 

Fiduciary Rule) expanding the types of retirement investment advice covered by the fiduciary 

 270FIO, Study of Small Insurer Competitiveness.

271 The Program Trigger is the minimum amount of aggregate industry insured losses resulting from a certified act 

(or acts) of terrorism that must occur in a calendar year before any federal payments can be made.

272 TRIP Reauthorization Act § 110.

273 ACRSM, Summary of Public Meeting (March 31, 2017), 

https://www.treasury.gov/initiatives/fio/acrsm/Documents/Minutes_March_2017_ACRSM.pdf. 
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provisions of ERISA.274 One of the related exemptions is the Best Interest Contract Exemption 

(BICE) from the prohibited transactions provisions of ERISA.275 To satisfy the conditions of the 

BICE, during the transition period created by DOL, financial advisers who receive conflicted 

compensation for providing retirement advice must adhere to certain Impartial Conduct 

Standards, which include providing advice in the investor’s best interest, charging no more than 

reasonable compensation, and avoiding misleading statements.

A person who provides investment advice to employer plans or IRAs regarding annuities276 is 

subject to the fiduciary provisions of ERISA. During the transition period, DOL permitted 

transactions involving Fixed Index Annuities to continue under the insurance industry’s 

longstanding exemption, PTE 84-24, rather than the BICE, and DOL confirmed that Independent 

Marketing Organizations (IMOs) can be paid for transactions that occur under PTE 84-24.277

On January 19, 2017, the DOL issued a new proposed BICE for Insurance Intermediaries which 

would be available to insurance intermediaries such as IMOs that meet certain thresholds.

278 

The comment period for the proposed exemption closed on February 21, 2017.

Long-Term Care Insurance

Long-term care refers to the means of meeting the health or personal care needs of individuals 

who are unable to care for themselves without assistance. Federal programs currently finance 

almost two-thirds of long-term care, but since the 1970s, insurers also have offered LTCI in the 

 274 Definition of the Term “Fiduciary;” Conflict of Interest Rule-Retirement Investment Advice, 81 Fed. Reg. 20945 

(April 8, 2016), https://www.federalregister.gov/documents/2016/04/08/2016-07924/definition-of-the-termfiduciary-conflict-of-interest-rule-retirement-investment-advice.

275 Adoption of Class Exemption, Best Interest Contract Exemption, 81 Fed. Reg. 21002 (April 8, 2016), 

https://www.federalregister.gov/documents/2016/04/08/2016-07925/best-interest-contract-exemption. The 

exemption provides relief from provisions of ERISA and the Internal Revenue Code that generally would otherwise 

prohibit fiduciaries with respect to employee benefit plans and IRAs from engaging in self-dealing and receiving 

compensation from third parties in connection with transactions involving the plans and IRAs.

276 In an annuity contract, in exchange for a premium, an insurer agrees to make scheduled payments for the lifetime 

of one or more persons, or for a specified number of years. The ability of annuities to provide guaranteed lifetime 

income is a unique feature and is particularly relevant in the context of retirement planning, where individuals may 

seek to protect against the risk of outliving their assets. U.S. life insurers sold approximately $222 billion of 

individual deferred annuities in 2016, of which an estimated $138 billion, or 62 percent, were IRAs or annuities 

issued in connection with employer plans. See LIMRA, U.S. Individual Annuities 2016, 4th Quarter.

277 DOL, Employee Benefits Security Administration, Conflict of Interest FAQs (Transition Period) (May 2017), 7, 

https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period1.pdf.

278 Notification of Proposed Class Exemption, Proposed Best Interest Contract Exemption for Insurance 

Intermediaries, 82 Fed. Reg. 7336 (January 19, 2017), https://www.federalregister.gov/documents/2017/01/19/2017-

01316/proposed-best-interest-contract-exemption-for-insurance-intermediaries.
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private market to protect against the risk of needing long-term care at older ages.279 As 

illustrated in Figure 42, sales of new LTCI policies peaked in the early 2000s but have since 

experienced a steep decline which accelerated in the past five years. The compound average 

annual LTCI premium growth rate from 2011 to 2016 was negative 16 percent. Individual LTCI 

sales ($228 million) and the number of Americans purchasing LTCI (91,000) each fell by 13 

percent between 2015 and 2016.

Figure 42: Annual Number of New Individual LTCI Policies (in thousands)

Sources: LIMRA; Marc A. Cohen, “The Current State of the Long-Term Care Insurance Market” (presentation, 14th

Annual Intercompany Long-Term Care Insurance Conference, Orlando, FL, March 16-19, 2014), 

http://iltciconf.org/2014/index_htm_files/44-Cohen.pdf

Terminations of existing policies have also contributed to the reduction of LTCI policies in 

force. As of the end of 2016, an estimated 4.7 million Americans owned LTCI policies, 

representing a one percent decline from year-end 2015 and reversing a decades-long trend of 

increasing or stable policy counts.280

The number of insurers offering individual LTCI has declined from more than 100 in the early 

2000s to about a dozen as of year-end 2015.281 Seven of the ten leading carriers in 2001 have 

 279 In 2015, U.S. spending on long-term care was funded primarily by two federal programs, Medicare and Medicaid 

(63 percent), with a 20 percent contribution from direct out-of-pocket spending, and 3 percent from private LTCI. 

Peter Gallanis, et al., “State of the Long-Term Care Insurance Industry: NOLHGA Presentation to the NAIC” 

(presentation, NAIC, March 30, 2017), 

http://www.naic.org/documents/cmte_e_mlwg_related_state_of_ltc_industry.pdf.

280 LIMRA, U.S. Individual Long-Term Care Insurance (2016 Annual Review) (February 28, 2017). 

281 Bipartisan Policy Center, Initial Recommendations to Improve the Financing of Long-Term Care (February 

2016), 10, https://cdn.bipartisanpolicy.org/wp-content/uploads/2016/12/BPC-Health-Long-Term-Care-FinancingRecommendations.pdf. Of the top five insurers receiving premiums earned from existing policies in 2015, only three 

continue to offer individual LTCI. See A.M. Best, Special Report: Penn Treaty Liquidation Presents Potential 

0

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400

500

600

700

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since dropped out of the market, and market share of the top ten has increased from 66 percent in 

2001 to 92 percent in 2015.282 In November 2016, the second-largest writer of individual LTCI 

announced that it would discontinue new sales of its standalone product due to low sales 

volume.283 In June 2017, a smaller insurer with industry-leading LTCI growth rates informed 

distributors that it would discontinue sales of its current product in all states for at least the 

remainder of 2017.284

Box 8: Penn Treaty American Corporation

The failure of two operating subsidiaries of Penn Treaty could be one of the largest U.S. insurer 

insolvencies to date, based on the size of the gap between liabilities and assets. In addition to 

creating significant costs for industry participants, and in view of market conditions, this 

insolvency has caused regulators and the insurance industry to re-assess important aspects of 

both insurer insolvencies and LTCI.

Penn Treaty is the holding company for Pennsylvania-domiciled Penn Treaty Network America 

Insurance Company and American Network Insurance Company, and New York-domiciled 

American Independent Network Insurance Company of New York.285 The company began 

doing business in 1972 and quickly became one of the largest issuers of LTCI. Penn Treaty’s 

book of LTCI business peaked in 2000, with about 250,000 policies in force and $363 million in 

annual premiums written across all 50 states and the District of Columbia.286 As with most 

LTCI writers, Penn Treaty discovered that its premium rates had been set too low, based on 

faulty assumptions about interest rates, lapse rates, and policyholders’ longevity (which 

increased the cost of benefits).287 The company was not completely successful in its efforts to 

obtain regulatory approvals to raise premiums. By 2008, the Pennsylvania subsidiaries were on 

the verge of insolvency. In October 2008, Penn Treaty’s Pennsylvania operating subsidiaries 

ceased writing new business.

The Pennsylvania Department of Insurance (PDI) petitioned the Pennsylvania Commonwealth 

Court for an order of liquidation in 2008, but the judge concluded that rehabilitation was more 

appropriate, and Penn Treaty’s Pennsylvania subsidiaries were placed in run-off and continued to 

 Shock to Health Marketplace (December 1, 2016), 

http://www3.ambest.com/ambv/sales/bwpurchase.aspx?record_code=256386. 

282 Gallanis, et al., “State of the U.S. Long-Term Care Insurance Industry.”

283 “Manulife Reports 3Q16 Net Income of $1.1 Billion and Core Earnings of $1 Billion, Strong Growth in Asia, 

and Positive Net Flows in Wealth and Asset Management,” Manulife, November 10, 2016, 

http://www.manulife.com/servlet/servlet.FileDownload?file=00P5000000hybt4EAA.

284 Tim Zawacki, “2016’s Fastest-Growing Individual Long-Term Care Writer to Take a Breather,” SNL Financial, 

June 9, 2017, https://www.snl.com/web/client?auth=inherit#news/article?id=40961964.

285 The New York subsidiary is not part of the Penn Treaty liquidation.

286 See Allison Bell, “What Agents Need to Know about the Penn Treaty Liquidation,” ThinkAdvisor, March 6, 

2017, http://www.thinkadvisor.com/2017/03/06/what-agents-need-to-know-about-the-penn-treaty-liq.

287 Lapse rate refers to policies that are terminated due to the policyholder’s failure to pay the premium when due.
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pay policyholder claims. Following additional petitions for liquidation, the judge issued orders

in March 2017 allowing the PDI to liquidate the companies. By this point, the companies’ assets 

had declined to roughly $500 million, with policyholder liabilities of $4.5 billion spread over 

approximately 76,000 policyholders.288 According to the PDI’s court filings, Penn Treaty 

Network American Insurance Company is projected to run out of assets in 2018, and the smaller 

American Network Insurance Company is projected to run out of assets in 2023.289

When a national insurer such as Penn Treaty is liquidated, remaining claims are paid by the 

states’ guaranty association system, subject to benefit caps that vary by the states in which 

affected policyholders reside. The obligations of each state guaranty association are funded by

pro rata assessments against insurers licensed to conduct business in that state. Actuarial models 

estimate that approximately 50 percent of Penn Treaty’s policyholders will have claims in excess 

of the guaranty associations’ benefit caps.

290

In their first quarter 2017 results, a number of health insurers reported accruals for guaranty 

association assessments for the Penn Treaty liquidation. These accruals reduced earnings for the 

period. Sources expect the national shortfall to ultimately result in assessments on insurers as 

high as $2.7 billion on a discounted basis.

291 Moreover, because LTCI is classified as a health 

insurance product under guaranty fund statutes, the bulk of that cost will be funded by health 

insurers rather than the life insurance industry that sold most of it.292 Health insurers are 

concerned about the cost they will bear to support the liquidation of carriers that issued products

they view as not part of their lines of insurance. Insurers that are assessed by a guaranty 

association may receive a premium tax credit for the assessments, but not all states offer such a 

tax credit. A group of health insurers has intervened in the Penn Treaty liquidation proceedings 

 288 Commissioner Teresa Miller, “Penn Treaty Network America Insurance Company and American Network 

Insurance Company: Insurance Commissioner’s Statement,” official statement, Pennsylvania Insurance 

Department, March 1, 2017, 

http://www.insurance.pa.gov/Regulations/LiquidationRehab/Documents/Penn%20Treaty/PENN_TREATY_MARCH

_1_2017_INSURANCE_COMMISSIONER_STATEMENT.pdf. 

289 Verified Petitions to Convert Rehabilitation to Liquidation, at 6, In re: Penn Treaty Network America Ins. Co. in 

Rehabilitation, Docket No. 1 PEN 2009, and In re: American Network Ins. Co. in Rehabilitation, Docket No. 1 ANI 

2009 (Pa. Commw. Ct. July 27, 2016), http://www.penntreaty.com/Liquidation/CourtDocuments.aspx.

290 PDI, “Insurance Commissioner Announces Court Approval of Penn Treaty and American Network Insurance 

Companies; Assures Policyholders Claims Will Be Paid by State Guaranty Funds Pursuant to State Law,” news 

release, March 1, 2017, http://www.media.pa.gov/Pages/Insurance-Details.aspx?newsid=228.

291 See, e.g., Memorandum from Vincent L. Bodnar to Charles Gullickson (Penn Treaty/ANIC Task Force Chair) 

and Richard Klipstein (NOLHGA) (April 10, 2017), 3, 

https://www.nolhga.com/resource/file/costs/NOLHGAMemorandum20170410.pdf.

292 Life insurers may be licensed to sell both life and health insurance products. In the case of LTCI, most policies 

were sold by companies licensed in this manner. Many providers of major medical coverage are not guaranty 

association members and therefore not subject to assessments under current law.
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and may initiate litigation over some disputed coverage and administrative issues.293 

The involvement and objections of the health insurers have prompted state regulators to 

re-examine guaranty fund laws. The NAIC Executive Committee approved a request to modify 

the existing Life and Health Insurance Guaranty Association Model Act in August 2017.294 

Specifically, the NAIC is looking to revise this model act to address concerns that other LTCI 

carriers could become insolvent in the future, again leaving health insurers exposed to funding 

losses on business they did not write.

295 Regulators are considering ways to include a broader 

segment of the life insurance industry, and perhaps health maintenance organizations, in future 

assessments. Options could include aggregating the life annuity and health insurance accounts 

for LTCI assessments or requiring L&H insurers to share the assessment burdens.296

Persistently low interest rates, longer lifespans, and lower than expected policy lapses have 

eroded the profitability of LTCI and led to significant financial losses for some insurers.297 To 

improve the operating results of their ongoing and legacy LTCI businesses, many insurers 

continue to seek state regulatory approval of premium rate increases on existing policies. In the 

first quarter of 2017 alone, ten LTCI carriers filed for approval of rate increases aggregating to 

nearly $49 million and affecting approximately 87,000 policyholders.

298 Obtaining approval of 

rate increases can be a lengthy and uncertain process, as state insurance regulators weigh insurer 

solvency against consumer hardship.

Part of the industry’s response to the challenging LTCI market environment has been the 

introduction of new product designs intended to greatly reduce or eliminate the need for future 

premium rate increases. In addition, a growing number of life insurers now offer “combination” 

products featuring a life insurance policy (or, less frequently, an annuity) with a long-term care 

benefit. Consumers who dislike the “use it or lose it” element of traditional LTCI can obtain 

 293 See, e.g., Stipulation and Order of Intervention (Pa. Commw. Ct. June 19, 2015), Application of Health Insurers 

for Limited Intervention in Order to Seek Determination of Authority to Use Estate Assets to Pay “Uncovered 

Benefits” in Liquidation (Pa. Commw. Ct. February 28, 2017), In Re: Penn Treaty Network America Ins. Co. in 

Rehabilitation, Docket No. 1 PEN 2009 and In re: American Network Ins. Co. in Rehabilitation, Docket No. 1 ANI 

2009, http://www.penntreaty.com/Liquidation/CourtDocuments.aspx.

294 NAIC, Executive (EX) Committee: Meeting Summary Report. 

295 See, e.g., NAIC, Receivership Model Law (E) Working Group: Conference Call (July 10, 2017), 

http://www.naic.org/meetings1708/cmte_e_mlwg_2017_summer_nm_materials.pdf?1503006981789. 

296 NAIC, Receivership Model Law (E) Working Group: Conference Call.

297 See, e.g., Genworth Financial, Inc., “Genworth Financial Announces Third Quarter 2016 Results,” news release, 

November 3, 2016, http://investor.genworth.com/investors/news-releases/archive/archive/2016/GenworthFinancial-Announces-Third-Quarter-2016-Results/default.aspx ($435 million pre-tax charge based on review of 

LTCI claim reserves); Manulife Financial Corp., “Manulife Reports 2016 Net Income of $2.9 Billion and Core 

Earnings of $4.0 Billion (Up 34% and 17%, Respectively, Compared with 2015), Strong Top Line Growth and a 

Dividend Increase of 11%,” news release, February 9, 2017, 

http://www.manulife.com/servlet/servlet.FileDownload?file=00P5000000kXAdgEAG (reserve strengthening of $453 

Canadian post-tax including the impact of updated actuarial assumptions for John Hancock LTCI business).

298 Jason Woleben, “Northwestern Mutual Led the Way in Long-Term Care Rate Increases in Q1,” SNL Financial, 

May 8, 2017, https://www.snl.com/InteractiveX/articleabstract.aspx?id=40579694.
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protection that provides life insurance benefits even if the long-term care benefit is never 

triggered, while the insurer is less exposed to the financial risks plaguing the standalone product. 

Combination products have overtaken traditional LTCI, with premiums for combination products 

totaling over $3.6 billion and more than 340,000 new lives covered in 2016.

299

State insurance regulators and the NAIC are actively reviewing a range of LTCI issues and 

potential policy changes to stabilize and potentially grow the private market. Insurance 

departments in Florida, Maryland, and Pennsylvania have conducted public hearings on specific 

requests for rate increases or LTCI generally.300 In 2016, as part of its Retirement Security 

Initiative, the NAIC organized the Long Term Care Innovation Subgroup to examine the future 

of LTCI, what type of LTCI products should be on the market going forward, and to whom those 

products should be marketed.

301 In April 2017, the Subgroup released a list of ten federal public 

policy changes raised by various stakeholders that could help to increase private long-term care 

financing options for middle-income Americans.302 Also in April 2017, the NAIC established a 

Joint Long Term Care Insurance Task Force and charged the Task Force with a number of 

objectives, including more rigorous assessment of the solvency of LTCI writers, assessing state 

activities regarding rate increase requests and identifying common elements to achieve greater 

transparency and predictability, and coordinating state actions aimed at revising state guaranty 

fund laws.303

Additional State-Level Regulatory Developments

State-level regulatory developments are important for understanding the U.S. insurance industry 

because the business of insurance in the United States is regulated primarily at the state level.304 

This section discusses state regulatory and legislative developments not addressed elsewhere in 

the report with respect to (1) group capital; (2) life insurance and reserving requirements for life 

insurers; (3) unclaimed death benefits under life insurance policies; and (4) NAIC activities.

 299 LIMRA, U.S. Individual Life Combination Products (Annual Review 2016) (May 23, 2017), 3.

300 “Long Term Care Public Rate Hearings,” Florida Office of Insurance Regulation, August 2016, 

http://www.floir.com/Sections/LandH/LongTermCareHearing.aspx; “Long-Term Care Hearing to be Held March 6, 

2017,” Maryland Insurance Administration, http://insurance.maryland.gov/Consumer/Pages/Long-Term-CareHearing-March-6-2017.aspx; “Long-Term Care Public Hearing – March 6, 2016,” Pennsylvania Insurance 

Department, http://www.insurance.pa.gov/Pages/Long-Term-Care-Hearing.aspx.

301 “Long Term Care,” NAIC and CIPR, http://www.naic.org/cipr_topics/topic_long_term_care.htm.

302 NAIC Long Term Care (B) Subgroup, Long Term Care Federal Policy Options to Present to Congress, April 3, 

2017, http://www.naic.org/documents/government_relations_ltc_fed_policy_opt.pdf.

303 NAIC, Report of the Executive (EX) Committee, April 9, 2017, Attachment Three, 

http://www.naic.org/meetings1704/cmte_ex_plenary_2017_spring_nm_materials.pdf .

304 See, e.g., the McCarran-Ferguson Act, 15 U.S.C. § 1011 (2015); the Gramm-Leach Bliley Act, 15 U.S.C. § 6711 

(2015); NAIC, State Insurance Regulation (2011), 

http://www.naic.org/documents/topics_white_paper_hist_ins_reg.pdf. 
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1. Domestic Regulatory Capital Initiatives

This section discusses the importance of capital in the context of insurance regulation, and 

outlines the current U.S. regulatory treatment of capital and ongoing developments at the state 

and federal levels. Capital serves an important role for insurers by providing them with the 

financial resources to make payments for future policyholder claims that may exceed reported 

estimates of claims and obligations. Developments on capital standards in the international 

context are summarized in Section V.C.3.

In the United States, state insurance laws and regulations impose minimum capital requirements 

for insurers on a legal entity basis. State regulators have not mandated a capital requirement for 

insurance groups. State and federal regulators, however, are currently considering adoption of a 

group capital standard or assessment. State insurance regulators are working on a group capital 

calculation, as a regulatory tool, which would use a so-called “inventory approach.”305 The 

Federal Reserve is working on two approaches to group capital standards for companies with 

significant insurance activities that are under its supervision: (1) a “building block approach” that 

would apply to insurance groups that are regulated by the Federal Reserve because they own a 

depository institution; and (2) a “consolidated approach” that would apply to nonbank financial 

companies which are significantly engaged in insurance and have been designated for Federal 

Reserve supervision by the Council.

306

The inventory approach and the building block approach employ similar methodologies for 

arriving at a consolidated group capital amount. By aggregating legal entity capital requirements 

based on existing local regulatory measures (e.g., using state-based risk-based capital – RBC –

measures for U.S.-based legal entities) with certain adjustments, the inventory and the building 

block approaches would leverage existing risk-sensitive capital frameworks. Such an 

aggregation approach in the United States would build on a number of existing features, 

including: (1) the extensive investment made by the state-based supervisory regime in statutory 

reporting processes and RBC requirements; (2) related reporting formats and schedules; (3) a 

national data repository administered by the NAIC; and (4) public access through the NAIC and 

private data integrators.

As this work moves forward, expectations are that both state and federal approaches will use 

existing regulatory capital calculations for entities within the holding company structure, rather 

than developing replacement or additional standards, to achieve a consolidated view of capital. 

For example, recognizing that the work is in its early stages, it appears that the NAIC’s inventory 

approach to its group capital assessment will use: (1) RBC for U.S. legal entity insurers; 

(2) jurisdiction-appropriate calculations for non-U.S. legal entities, adjusted for comparability 

 305 See, e.g., NAIC Memorandum, Questions on Various Aspects of the Inventory Method (August 22, 2016), 

http://www.naic.org/documents/committees_e_grp_capital_wg_exposure_memo_inventory_method_w_questions.pd

f. 

306 See, e.g., Board of Governors of the Federal Reserve System; Advance Notice of Proposed Rulemaking, 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-requirements-for-supervisedinstitutions-significantly-engaged-in-insurance-activities.
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with the use of scalars; (3) other sectoral requirements for regulated non-insurers such as the 

Basel Committee on Banking Supervision requirements for banking entities; and (4) a proxy for 

non-regulated entities.

2. Life Insurance Reserving Requirements 

January 1, 2017 marked two significant milestones in the regulation of reserves307 established by 

U.S. insurers to support their life insurance policy liabilities. After years of work at the NAIC 

and among state insurance regulators, principles-based reserving (PBR) became effective for 

most life insurance policies issued on or after January 1, 2017. The NAIC has explained that 

PBR “replaces the current formulaic approach to determining policy reserves with an approach 

that more closely reflects the risks of highly complex products” available in the marketplace, and 

that PBR is expected to “right-size” reserves.

308

On the same date, the 2017 CSO also became effective, replacing the 2001 CSO mortality 

tables.309 The NAIC has established a three-year transition period for both PBR and the 2017 

CSO. Accordingly, although insurers may voluntarily implement PBR, the 2017 CSO, or both as 

early as January 1, 2017, and may do so at different times for different policy types, insurers 

must fully implement both regimes by January 1, 2020.

Less than one year into the three-year transition period, the effect of these developments on 

reserve levels, as well as the resulting impact on premiums, remains uncertain. According to one 

rating agency, the complexity of PBR and questions regarding the required levels of tax reserves 

will contribute to low PBR adoption rates during the transition.310 Reserves may be subject to 

increased volatility under PBR due to changes in company assumptions that evolve after policies 

are issued. In general, because of conservatism built into the 2001 CSO mortality tables, the 

2017 CSO is expected to lower term life insurance premiums, particularly for longer level term 

 307 Reserves are balance sheet liabilities established by insurers to recognize obligations to pay policy benefits in the 

future. The determination of reserves involves complex actuarial calculations and estimations based on past 

experience, and may include additional margins for conservatism or regulatory prudence.

308 “Principle-Based Reserving,” NAIC and CIPR, June 9, 2017, 

http://www.naic.org/cipr_topics/principle_based_reserving_pbr.htm. Development of PBR was driven in part by 

concerns over the use of captive reinsurance arrangements to lower reserves that would otherwise be required for 

certain products perceived to require overly conservative or redundant reserves under the traditional formulas. See 

“Captive Insurance Companies,” NAIC and CIPR, June 12, 2017, 

http://www.naic.org/cipr_topics/topic_captives.htm. See also FIO, How to Modernize and Improve the System of 

Insurance Regulation in the United States (December 2013), 32-34, 

https://www.treasury.gov/initiatives/fio/Documents/How%20to%20Modernize%20and%20Improve%20the%20Syste

m%20of%20Insurance%20Regulation%20in%20the%20US.pdf (recommendations concerning captive life 

reinsurance).

309 See Mary Bahna-Nolan, “2017 CSO Implementation: Product Implications and Considerations,” Product 

Matters, July 2016, https://www.soa.org/Library/Newsletters/Product-Development-News/2016/july/pro-iss104-

bahna-nolan.aspx.

310 A.M. Best, “U.S. Life Insurers Move Slowly Into Principle-Based Reserves Era,” news release, July 5, 2017, 

http://news.ambest.com/presscontent.aspx?altsrc=14&refnum=25434.
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premiums and older issue ages.311 However, the timing of 2017 CSO implementation will also 

vary by company based on factors such as product segment, age mix, and implementation 

costs.

312

3. Unclaimed Death Benefits.

Since 2009, life insurers’ use of the Social Security Death Master File has been subject to 

regulatory review and legislation.313 To date, state insurance regulators have either reached 

settlements with or concluded the investigation of 28 of the top 40 companies, constituting 80 

percent of the total life insurance market, based on market share.314 In addition, at least 27 states 

have adopted some version of the Unclaimed Life Insurance Benefits Act, a model law drafted 

by the National Conference of Insurance Legislators (NCOIL).315 A subgroup of the NAIC’s 

Unclaimed Life Insurance Benefits (A) Working Group drafted a model law as well, but 

suspended its work in March 2017 following disagreement on whether the model law would 

apply only to life insurance policies and annuity contracts issued after the law’s effective date 

(i.e., “prospective application”) or to existing business as well (i.e., “retroactive application”).316 

In August 2017, the NAIC disbanded the Working Group in view of the number of states that 

had already taken action on unclaimed life insurance benefits and the lack of consensus 

necessary to adopt the draft model law.317

In August 2016, the NAIC launched a Life Insurance Policy Locator application to help 

consumers find lost life insurance policies.

318 Between November 4, 2016 and June 30, 2017, 

26,333 queries were made and 4,144 matches found, totaling $41,712,670 of benefits.

319

 311 Timothy Pfeifer, “The Outlook for Term Life,” Pfeifer Advisory, February 29, 2016, 

http://www.pfeiferadvisory.com/blog/2016/2/29/the-outlook-for-term-life.

312 Bahna-Nolan, “2017 CSO Implementation,” 14.

313 See, e.g., FIO, Consumer Report, 44-45.

314 California Department of Insurance, “Another Major Insurer Agrees to Death Master File Settlement,” news 

release, January 30, 2017, http://www.insurance.ca.gov/0400-news/0100-press-releases/2017/release009-17.cfm.

315 See “States Adopting NCOIL Unclaimed Life Insurance Benefits Act,” Keane’s Unclaimed Property Blog, 

February 23, 2012, https://www.keaneunclaimedproperty.com/blog/states-proposing-ncoil-unclaimed-lifeinsurance-benefits-act.

316 See “Unclaimed Life Insurance Benefits,” NAIC, May 15, 2017, 

http://www.naic.org/cipr_topics/topic_unclaimed_life_insurance_benefits.htm.

317 NAIC, Life Insurance and Annuities (A) Committee: Meeting Summary (August 7, 2017), 

http://naic.org/meetings1708/cmte_a_2017_summer_nm_summary.pdf.

318 NAIC, “NAIC Launches Life Insurance Policy Locator Application,” news release, August 26, 2016, 

http://www.naic.org/Releases/2016_docs/lost_policy_locator_news_release.htm.

319 NAIC, Life Insurance and Annuities (A) Committee: Meeting Summary Report.
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4. NAIC Activities and State Adoption of Model Laws320

The Financial Regulation Standards and Accreditation Program of the NAIC is a peer-review 

process designed to develop and maintain standards to promote effective insurance company 

financial solvency regulation.321 In order to be accredited, a state must adopted specified NAIC 

model laws and regulations, or substantially similar laws which include the key provisions 

identified in the accreditation standards.

322 As of January 1, 2017, NAIC accreditation 

requirements were expanded to include the Model Risk Retention Act (#705), the 2011 revisions 

to the Risk-Based Capital for Insurers Model Act (#312), and Section 4B(10) of the Model 

Regulation to Define Standards and Commissioner’s Authority for Companies Deemed to be in 

Hazardous Financial Condition (#385).323 All fifty states, the District of Columbia, and Puerto 

Rico are accredited as of July 2017.324

The NAIC also is reviewing lender-placed insurance. Lender-placed insurance – also known as 

“creditor-placed” or “force-placed” insurance – is an insurance policy placed by a lender, bank, 

or loan servicer on a home or personal property when the property owner’s own insurance has 

lapsed or been deemed insufficient by the lender.325 The NAIC charged a working group with 

determining whether changes to its existing Creditor-Placed Insurance Model Act are 

warranted.

326 In August 2017, the NAIC Executive Committee approved the further 

development of the Creditor-Placed Real Property Insurance Model Act and the model law 

 320 For more discussion of NAIC domestic activities, see Section IV.A.2.a (development of cybersecurity model 

law), Box 6 (regulatory response to natural disasters), and Box 7 (potential amendments to guaranty association 

model acts).

321 “Accreditation,” NAIC, January 6, 2017, http://www.naic.org/cipr_topics/topic_accreditation.htm. See also

NAIC, Financial Regulation Standards and Accreditation Program (August 2017), 

http://www.naic.org/documents/cmte_f_frsa_pamphlet.pdf.

322 See, e.g., NAIC, Accreditation Program, 7-12. 

323 NAIC, New or Revised Financial Solvency Regulation-Related Model Laws and Regulations Status Regarding 

Consideration for Accreditation as of August 10, 2017, 

http://www.naic.org/documents/committees_f_related_model_law_stat_accred.pdf.

324 “Financial Regulation Standards and Accreditation Program – Accredited U.S. Jurisdictions,” NAIC, 

http://www.naic.org/cmte_f_accredited_states.htm.

325 See, e.g., “Force-Placed Insurance: What You Need to Know,” NYDFS, October 1, 2015, 

http://www.dfs.ny.gov/consumer/forced-placed.htm; “Lender-Placed Insurance,” NAIC and CIPR, June 2, 2017, 

http://www.naic.org/cipr_topics/topic_lender_placed_insurance.htm. See also FIO, Annual Report on the Insurance 

Industry (2015), 69-70, https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2015%20FIO%20Annual%20Report_Final.pdf; FIO, Annual Report on the Insurance Industry

(2014), 36, https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2014_Annual_Report.pdf. 

326 See “Creditor-Placed Insurance Model Act Review (C) Working Group,” NAIC, 

http://www.naic.org/cmte_c_cpimar_wg.htm. See also Creditor-Placed Insurance Model Act (NAIC 1996), 

http://www.naic.org/store/free/MDL-375.pdf. 
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development request for a separate model law for lender-placed insurance placed on real 

property mortgage loans pursuant to the working group’s recommendation.

327

In August 2017, the NAIC’s Financial Stability Task Force created a Liquidity Assessment 

Subgroup.

328 The Task Force explained in its proposal to create the subgroup that state 

regulators have little substantive data on insurers’ liquidity risk, do not require liquidity stress 

testing, and therefore do not have a common measurement for evaluating insurers’ level of 

liquidity risk. The task force noted concerns about how larger insurers in particular might 

perform when subject to liquidity strains and about the spill over impacts to broader financial 

markets.329 Accordingly, the task force charged the new subgroup with reviewing existing 

available data related to liquidity risk, identifying any data gaps based on regulatory needs, and 

constructing a liquidity stress testing framework proposal, as well as specifying the proposed 

cohort of companies to which the framework would apply.330

Finally, the NAIC is considering incorporation or substitution of a best interest or other higher 

standard into its model regulation on annuity suitability.331

 327 NAIC, Executive (EX) Committee: Meeting Summary Report (August 7, 2017), 

http://naic.org/meetings1708/cmte_ex_2017_summer_nm_summary.pdf; NAIC, Request for NAIC Model Law 

Development, http://www.naic.org/documents/index_committees_model_req_lender-placed_170817.pdf. 

328 NAIC, Financial Stability (EX) Task Force: Meeting Summary Report (August 6, 2017), 

http://www.naic.org/meetings1708/cmte_ex_financial_stability_tf_2017_summer_nm_summary.pdf.

329 NAIC, FSTF Proposal for Liquidity Assessment Subgroup (August 6, 2017), 

http://naic.org/meetings1708/cmte_ex_financial_stability_tf_2017_summer_nm_materials_3.pdf.

330 NAIC, FSTF Proposal.

331 See NAIC, Annuity Suitability (A) Working Group: Meeting Summary Report (August 6, 2017),

http://www.naic.org/meetings1708/cmte_a_2017_summer_nm_materials.pdf.
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V. U.S. COMPETITIVENESS IN GLOBAL INSURANCE MARKETS

This section of the Report begins with statistics describing global insurance markets, which 

demonstrate the scope of international opportunities for the U.S. insurance industry. The report 

then addresses U.S. participation in a number of insurance-related initiatives in various 

international forums. Engagement by FIO and other U.S. participants in international financial 

standard-setting bodies such as the IAIS remains important to promote financial stability, level 

the playing field for U.S. insurers, prevent unnecessary regulatory standard-setting that could 

stifle financial innovation, and assure the competitiveness of U.S. insurers and markets. 

Specifically, the Report describes U.S. success concluding a covered agreement on prudential 

insurance and reinsurance measures with the EU, which on a consolidated basis is the largest 

U.S. insurance trading partner. This section then goes on to discuss IAIS activities in the past 

year, including the role of FIO in facilitating stakeholder engagement, and concludes with a 

discussion of the IAIS methodology used to recommend insurers for identification as 

systemically important financial institutions.

Global Insurance Markets

The United States remains the world’s largest single-country insurance market, with 29 percent 

of global direct premiums written in 2016 (see Figure 43). This market share was the same in 

both 2015 and 2016, and is a 7.5 percent increase over 2011.332 When viewed as a single 

market, the EU’s global share of total direct premiums written (also 29 percent) is comparable to 

that of the United States. Globally, direct insurance premiums increased by 3.1 percent to $4.7 

trillion in 2016, as compared to the 4.3 percent growth experienced in 2015.333 For 2016, growth 

in global premiums was led by non-life business (up 3.7 percent), with life business advancing at 

a slower 2.5 percent pace.334 This growth was achieved despite continued moderate global 

growth in real gross domestic product (GDP), which expanded globally by 2.5 percent in 2016, 

slightly lower than the 2.7 GDP percent growth achieved in 2015.335 

As in 2015, growth of emerging markets economies (3.8 percent) exceeded that of advanced 

economies (1.7 percent) in 2016.336 Similarly, 2016 growth in total insurance direct premiums 

written was stronger in emerging markets than in advanced economies: total direct premiums 

written increased by 14 percent in emerging economies, compared to an increase of only 0.7 

 332 Swiss Re Institute sigma, World Insurance in 2016: the China Growth Engine Steams Ahead (July 5, 2017), 

http://media.swissre.com/documents/sigma3_2017_en.pdf. Swiss Re sigma examines insurance and macroeconomic 

data from 147 countries sourced through Swiss Re Economic Research and Consulting. 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 as is the practice outside of the United States; under this 

convention, the “non-life” sector includes health insurance.

333 See Swiss Re sigma, World Insurance in 2016, 1.

334 Swiss Re sigma, World Insurance in 2016, 1, 2.

335 Swiss Re sigma, World Insurance in 2016, 3.

336 Swiss Re sigma, World Insurance in 2016, 3.
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percent in advanced economies.337 For emerging markets, life direct premiums written grew by 

17 percent, and non-life direct premiums written increased by 9.6 percent. By comparison, for 

advanced economies life direct premiums written declined by 0.5 percent, and non-life direct 

premiums written increased by 2.6 percent.338

Figure 43: Gross Premiums Written (Market Share) by Country, 2011 vs. 2016

2011

Rank

2016 

Rank Country

2011 

Premium 

Volume

($ millions)

2011 World 

Market 

Share (%)

2016 

Premium 

Volume

($ millions)

2016 World 

Market 

Share (%)

Change in 

World 

Market 

Share (%)

1 1 United States $1,221,471 26.58 $1,352,385 28.58 7.52

2 2 Japan 643,672 14.01 471,295 9.96 -28.89

6 3 China 221,858 4.83 466,131 9.85 104.04

3 4 United Kingdom 312,843 6.81 328,883 6.95 2.10

4 5 France 274,208 5.97 237,644 5.02 -15.83

5 6 Germany 245,572 5.34 215,021 4.54 -14.97

8 7 South Korea 125,868 2.74 170,862 3.61 31.83

7 8 Italy 160,514 3.49 162,383 3.43 -1.75

9 9 Canada 121,031 2.63 114,523 2.42 -8.11

13 10 Taiwan 78,429 1.71 101,445 2.14 25.62

11 11 Australia 86,214 1.88 82,159 1.74 -7.45

10 12 Netherlands 108,813 2.37 80,130 1.69 -28.48

15 13 India 72,338 1.57 79,311 1.68 6.48

14 14 Brazil 78,656 1.71 72,646 1.54 -10.30

12 15 Spain 82,405 1.79 68,599 1.45 -19.15

18 16 Ireland 46,849 1.02 59,295 1.25 22.92

16 17 Switzerland 62,907 1.37 58,369 1.23 -9.89

23 18 Hong Kong 28,863 0.63 56,448 1.19 89.93

17 19 South Africa 52,352 1.14 41,962 0.89 -22.16

21 20 Belgium 41,295 0.90 33,838 0.72 -20.42

World $4,595,704 $4,732,188

Source: Swiss Re Institute sigma, World Insurance in 2016

Insurance penetration, one measure of which is the ratio of premiums to real GDP, was 3.17 

percent for emerging markets and 8.05 percent for advanced economies in 2016.339 Compared to 

2015, insurance premiums in 2016 constituted a slightly larger percentage of GDP in emerging 

markets and a slightly smaller percentage of GDP in advanced economies.

Among emerging markets, China showed strong growth, with life premiums increasing by 29 

percent in 2016, and non-life premiums gaining 20 percent.340 Since 2011, total direct premiums 

 337 See Swiss Re sigma, World Insurance in 2016, 30, 35-36. Swiss Re sigma’s country classifications of 

“advanced” and “emerging” generally follows the International Monetary Fund’s classification system. 

338 Swiss Re sigma, World Insurance in 2016, 32.

339 Swiss Re sigma, World Insurance in 2016, 46.

340 Swiss Re sigma, World Insurance in 2016, 38.
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written in China have more than doubled, raising China to the world’s third-largest insurance 

market in 2016 (as compared to the sixth largest in 2011), behind the United States and Japan. 

Among other emerging markets, India and Brazil, the thirteenth and fourteenth largest insurance 

markets in the world in 2016, also showed positive growth.

These data demonstrate that non-U.S. markets – both established and emerging – continue to 

present attractive business opportunities for the U.S. insurance industry. Many U.S. companies 

are very active in these markets, thus supporting both growth and risk diversification. Similarly, 

the United States remains an attractive market for non-U.S. insurers and reinsurers. Over 4,000

non-U.S. reinsurers (both affiliated and unaffiliated) assumed a total of approximately $78.5 

billion in premium from U.S. insurers in 2015, which was more than an eight percent increase 

over the previous year.341

Covered Agreement

Title V of the Dodd-Frank Act authorizes the Secretary and USTR jointly to negotiate a “covered 

agreement” on behalf of the United States with one or more foreign governments, authorities, or 

regulatory entities. A covered agreement is an international agreement that relates to the 

recognition of prudential measures with respect to the business of insurance or reinsurance that 

achieves a level of protection for insurance or reinsurance consumers that is substantially 

equivalent to the level of protection achieved under state insurance or reinsurance regulation.342

In November 2015, Treasury and USTR began the process of negotiating a covered agreement 

with the EU, advising Congress that a covered agreement with the EU would help level the 

regulatory playing field for U.S.-based insurers and reinsurers operating in the EU, and 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.343 Those 

negotiations resulted in an agreed final legal text, which Treasury and USTR submitted to 

Congress in January 2017.344

 341 Reinsurance Association of America, Offshore Reinsurance in the U.S. Market: 2015 Data (2016), 

http://www.reinsurance.org/RAA/Industry_Data_Center/Offshore_Report/Offshore_Report,_2015_Data.html. The 

comparison is in nominal dollars.

342 Federal Insurance Office Act of 2010, 31 U.S.C. § 313(r)(2) (2015).

343 Letters from Treasury Assistant Secretary for Legislative Affairs Wall and USTR Assistant U.S. Trade 

Representatives for Congressional Affairs to Members of Congress (November 20, 2015), 

https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/Covered%20Agreement%20Letters%20to%20Congress.pdf.

344 Letters from Secretary Lew and U.S. Trade Representative Froman to Members of Congress (January 13, 2017) 

and Bilateral Agreement Between the European Union and the United States of America On Prudential Measures 

Regarding Insurance and Reinsurance, 

https://www.treasury.gov/initiatives/fio/Documents/Final%20Covered%20Agreement%20Letters%20to%20Congres

s%20Full%20Text.pdf. The final legal text also appeared in the Federal Register. Notice of Availability of Bilateral 

Agreement Between the European Union and the United States of America on Prudential Measures Regarding 

Insurance and Reinsurance, 82 Fed. Reg. 8488 (January 25, 2017), https://www.gpo.gov/fdsys/pkg/FR-2017-01-

25/pdf/2017-01638.pdf.
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The covered agreement with the EU – formally titled Bilateral Agreement Between the United 

States of America and the European Union On Prudential Measures Regarding Insurance and 

Reinsurance – addresses three areas of insurance and reinsurance prudential measures: (1) group 

supervision; (2) reinsurance supervision, including collateral and local presence requirements; 

and (3) exchange of information between supervisory authorities. The covered agreement 

promotes U.S. interests by allowing U.S. insurers with EU operations to avoid burdensome 

worldwide group capital, governance, and reporting requirements under the EU’s “Solvency II” 

prudential regulatory system for insurers, as well as EU local presence and collateral 

requirements for U.S. reinsurers.345 Reflecting a longstanding issue raised by the EU, the 

covered agreement builds on NAIC initiatives underway at the state level by committing the 

United States to eliminating state-based reinsurance collateral requirements as applied to 

cessions to EU reinsurers that meet the consumer protection standards specified in the 

agreement. Collateral elimination for EU reinsurers will apply prospectively only, and according 

to a five-year timeline established in the agreement.

During 2017, Treasury and USTR engaged in substantial Congressional consultations and 

outreach on the covered agreement with industry and regulatory stakeholders – including state 

regulators through the NAIC as well as insurance trade association officials and members – and 

determined that Agreement is in the interest of the United States. The agreement was also the 

subject of two Congressional hearings.

346 The agreement is expected to provide greater 

regulatory certainty for U.S. insurers and reinsurers operating in the EU, and to reduce costs for 

insurers and personal and commercial policyholders in the United States, while preserving 

important consumer protection provisions for U.S. individual and commercial policyholders.

Accordingly, in July 2017, Treasury and USTR announced their intention to sign the covered 

agreement and, at the same time, to issue a United States “policy statement” responsive to the 

most significant concerns raised by industry and regulatory stakeholders, including the NAIC 

and members of Congress.347 The EU made a similar announcement,

348 confirming the earlier 

decision of the European Council to move forward with the agreement.349

 345 Solvency II was implemented in the EU effective January 1, 2017.

346 Assessing the U.S.-EU Covered Agreement, House Financial Services Committee, 115th Cong. (February 16, 

2017), https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=401498; Examining the U.S. – EU 

Covered Agreements, Senate Committee on Banking, Housing, and Urban Affairs, 115th Cong. (May 2, 2017), 

https://www.banking.senate.gov/public/index.cfm/2017/5/examining-the-u-s-eu-covered-agreements.

347 Treasury and USTR, “Treasury, USTR Notice of Intent to Sign,” news release, July 14, 2017, 

https://www.treasury.gov/press-center/press-releases/Pages/sm0124.aspx.

348 European Commission, “EU and US to Sign the Bilateral Agreement on Insurance and Reinsurance,” news 

release, July 14, 2017, https://ec.europa.eu/info/sites/info/files/170714-eu-us-joint-financial-regulatory-forum-jointstatement_en.pdf.

349 Council of the European Union, Council Decision on the Signing, on Behalf of the Union, and Provisional 

Application of the Bilateral Agreement Between the European Union and the United States of America on 

Prudential Measures Regarding Insurance and Reinsurance (May 23, 2017), 

http://data.consilium.europa.eu/doc/document/ST-8055-2017-INIT/en/pdf. This Council Decision was amended on 

September 14, 2017 to clarify that the agreement would be executed in English, 

http://www.consilium.europa.eu/register/en/content/out/?&typ=ENTRY&i=ADV&DOC_ID=ST-12064-2017-INIT.
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On September 22, 2017, at the Treasury Department in Washington, D.C., the covered 

agreement was formally signed by the Secretary and the U.S. Trade Representative (Ambassador 

Lighthizer) on behalf of the United States, and the Estonian and EU Ambassadors to the United 

States on behalf of the EU.350 The Secretary noted in a press release that “by providing 

regulatory clarity and reducing regulatory burdens, 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.”

Consistent with those goals, the United States is committed to promoting the interests of U.S. 

insurers and reinsurers, U.S. insurance regulators, U.S. consumers, and the U.S. economy as the 

U.S.-EU covered agreement is implemented pursuant to the timeframe established in the 

agreement. In conjunction with signing the agreement, the United States released the Policy 

Statement noted above, which emphasizes that the agreement “affirms 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.351 Accordingly, FIO and USTR will continue 

engaging with state regulators, the NAIC, Congress, and other stakeholders concerning 

implementation and operation of the agreement.

Both the United States and the EU recognize that this first-ever covered agreement is a major 

cooperative step between the two jurisdictions.352 In their joint statement upon signing the 

parties stated: “The United States and the EU look forward to successful implementation of the 

Agreement, including through the Joint Committee established by the Agreement. The 

Agreement provides meaningful benefits for U.S. and EU insurance consumers and for U.S. and 

EU insurers and reinsurers that operate in both markets.”353

IAIS Activities

The IAIS, established in 1994, is the international standard-setting body for supervision of the 

insurance sector. IAIS membership consists of insurance regulators and supervisors of more 

than 200 jurisdictions in nearly 140 countries, representing 97 percent of global insurance 

premiums. The IAIS mission is to: (1) 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 (2) contribute to global financial stability. 

 350 Treasury and USTR, “Treasury, USTR Sign Covered Agreement on Prudential Insurance and Reinsurance 

Measures with the European Union,” news release, September 22, 2017, https://www.treasury.gov/presscenter/press-releases/Pages/sm0164.aspx. (The Estonian Ambassador signed as representative of the European 

Council, as Estonia currently holds the Presidency of the Council of the European Union.)

351 United States, Statement of the United States on the Covered Agreement with the European Union (September 

22, 2017), https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/US_Covered_Agreement_Policy_Statement_Issued_September_2017.pdf.

352 United States and EU, “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://www.treasury.gov/press-center/press-releases/Pages/sm0163.aspx.

353 United States and EU, “Joint Statement on Upcoming Signature of the Bilateral Agreement.”
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The IAIS also provides a forum for members and stakeholders to share experiences and 

understanding of insurance supervision and insurance markets, and to develop standards based 

on best practices.354

The IAIS has a committee structure employing multiple working groups and task forces that 

focus on a range of prudential regulation and supervision topics, including financial stability and 

market conduct. These committees are ultimately led by an Executive Committee. Much of the 

IAIS’s standard-setting work is headed by a Financial Stability and Technical Committee, which 

reports directly to the Executive Committee. This section highlights some of the projects and 

work streams in which FIO is currently engaged at the IAIS, and thus helping to “advance 

American interests in international financial regulatory negotiations and meetings.”355

Importantly, international standards are not self-executing and are not binding on member 

jurisdictions. Any international standards would not become effective in the United States unless 

implemented through the relevant state or federal legislative processes. Whether occurring at the 

state or federal level, therefore, international insurance standard implementation can be adapted 

to the unique features of the U.S. insurance marketplace and regulatory system.

1. Coordination and Stakeholder Engagement 

In all of its IAIS-related work, FIO prioritizes coordination and collaboration with the other U.S. 

members of the IAIS, as well as facilitating formal and informal opportunities for U.S. 

stakeholders to engage with FIO about matters before the IAIS. The U.S.-based members of the 

IAIS include FIO, the 56 state and territory insurance regulators who represent the individual 

sovereign jurisdictions within the United States, the NAIC, and the Federal Reserve. Over the 

past year, FIO has improved its coordination with the U.S. members of the IAIS in an effort to 

achieve a unified “Team USA” position at the IAIS. As part of this effort, FIO collaborates and 

communicates daily – by phone, telephone, email, and in-person meetings – with counterparts at 

numerous state insurance departments, the NAIC, and the Federal Reserve. This collaboration 

occurs in relation to various IAIS committee, task force, and working group meetings, as well as 

in related interim activities.

“Stakeholder engagement” at the IAIS encompasses education, consultation, and a variety of 

other collaborative activities. In general, it means the IAIS’s efforts to explain the “policy 

formulation and decision making process,” and to provide stakeholders with an opportunity to 

provide input in those processes.356 To support this engagement, the IAIS created the 

 354 See, e.g., “Welcome to the Website of the International Association of Insurance Supervisors (IAIS),” IAIS, 

https://www.iaisweb.org/home. 

355 Core Principles for Regulating the United States Financial System, Exec. Order No. 13,772, § 1(e), 82 Fed. Reg. 

9965 (February 8, 2017), https://www.federalregister.gov/documents/2017/02/08/2017-02762/core-principles-forregulating-the-united-states-financial-system.

356 IAIS, Stakeholder Engagement Plan (March 20, 2017), https://www.iaisweb.org/page/about-the-iais/policiesand-procedures/file/65579/iais-stakeholder-engagement-plan-2017.
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Stakeholder Engagement Task Force in January 2016 to develop a Stakeholder Engagement 

Plan, which was open for public comment between November 2016 and January 2017.357 

Following the public consultation, the IAIS Executive Committee agreed to publish the 

responses to stakeholder comments and adopted a finalized Stakeholder Engagement Plan.

358

The Executive Committee also published a plan summary emphasizing the IAIS’s new 

engagement opportunities and commitments,359 and then disbanded the task force which had 

completed its mandated work.

As a supplement to official IAIS-sponsored engagement opportunities, FIO also provides U.S. 

stakeholders with opportunities to engage with U.S.-based members of the IAIS. Since August 

2014, FIO has convened sessions at Treasury for U.S. stakeholders – including U.S. insurers, 

foreign insurers with a U.S. presence, trade groups, and consumer representatives – interested in 

IAIS activities to meet jointly with FIO, the Federal Reserve, state insurance regulators, and the 

NAIC. In addition to these meetings, U.S. stakeholders participate in formal and informal 

conference calls and meetings with U.S.-based IAIS members prior to IAIS meetings to further 

discuss upcoming meetings and other issues. Additionally, through calls and meetings, FIO and 

other U.S.-based IAIS members engage regularly with U.S. insurers participating in IAIS field 

testing (discussed below) and other IAIS initiatives in order to monitor progress and discuss 

relevant issues such as data quality.

FIO’s IAIS (and domestic) work is informed by its ongoing stakeholder outreach, which extends 

well beyond that targeted to specific IAIS meetings. FIO regularly conducts outreach with 

insurers, agents and brokers, corporate representatives, trade associations, consumer advocates, 

academics, and other subject matter experts on numerous issues, including capital standards, 

cybersecurity, and terrorism risk insurance.

2. Common Framework for the Supervision of Internationally Active 

Insurance Groups and Insurance Core Principles

FIO participates in the development and revision of IAIS standards. Since 2009, the IAIS has 

been developing ComFrame, a framework for the supervision of IAIGs. For these groups, 

ComFrame is intended to help “supervisors to coordinate supervisory activities efficiently and 

effectively and share information about IAIGs at the group-wide level and between group-wide 

and host supervisors.”360 ComFrame ultimately will include a quantitative ICS, as well as 

 357 IAIS, [Draft] Stakeholder Engagement Plan for Stakeholder Feedback (November 23, 2016), 3, 

https://www.iaisweb.org/page/consultations/closed-consultations/draft-stakeholder-engagement-plan.

358 IAIS, Stakeholder Engagement Plan. 

359 IAIS, Brief Overview of IAIS Stakeholder Engagement Plan (March 20, 2017), 

https://www.iaisweb.org/page/about-the-iais/policies-and-procedures/file/65583/brief-overview-of-comprehensivestakeholder-engagement-plan.

360 IAIS, Common Framework for the Supervision of Internationally Active Insurance Groups Revised Draft 

(September 2014), 2, https://www.iaisweb.org/page/supervisory-material/common-framework//file/58726/revisedcomframe-draft-2014. 
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qualitative standards for group-wide supervision, governance, risk management, and recovery 

and resolution.361 Currently, an IAIG is defined as an insurance group that has either: (1) total

assets of at least $50 billion; or (2) gross premiums written of at least $10 billion (on a rolling 

three year average basis) across three or more jurisdictions, at least 10 percent of which is 

written outside its home jurisdiction.362 The IAIS has stated that approximately 50 IAIGs were 

involved in field testing.

363 

ComFrame supplements the Insurance Core Principles (ICPs), “a globally acceptable framework 

for the supervision of the insurance sector” that – unlike ComFrame, which applies only to 

IAIGs – applies to the supervision of insurers of all sizes.364 The current version of the ICPs was 

adopted in October 2011, with subsequent updates to select ICPs.

365 Figure 44 outlines the IAIS 

working groups that are responsible for periodically revising the ICPs.

 361 ICS is further discussed in Section V.C.3.

362 IAIS, ComFrame Revised Draft, 8. 

363 See IAIS, “IAIS Releases Version 1.0 for Extended Field Testing,” news release, July 21, 2017, 

https://www.iaisweb.org/page/news/press-releases//file/68051/21-july-2017-iais-releases-ics-version-10-forextended-field-testing.

364 IAIS, Insurance Core Principles Updated November 2015 (November 2015), 5, 

https://www.iaisweb.org/page/supervisory-material/insurance-core-principles//file/58067/insurance-coreprinciples-updated-november-2015.

365 IAIS, Insurance Core Principles 2015, 2. See also “Insurance Core Principles,” NAIC, April 14, 2017, 

http://www.naic.org/cipr_topics/topic_insurance_core_principles.htm.
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Figure 44: ICP and ComFrame Revisions in 2017 IAIS Public Consultations

IAIS Revisions ICP ComFrame Responsible Working Group

Introduction and Assessment Methodology X X Supervisory Materials Review Task 

Force (SMRTF)

ICP 1 (Objectives, Powers, and Responsibilities of the 

Supervisor) X SMRTF

ICP 2 (Supervisor) X SMRTF

ICP 3 (Information Sharing and Confidentiality 

Requirements) X Insurance Groups Working Group (IGWG)

ICP 5 (Suitability of Persons) X Governance Working Group 

(GWG)

ICP 7 (Corporate Governance) X GWG

ICP 8 (Risk Management and Internal Controls) X GWG

ICP 9 (Supervisory Review and Reporting) X X SMRTF/IGWG

ICP 10 (Preventative and Corrective Measures) X X SMRTF/IGWG

ICP 11 (Enforcement) X X SMRTF/IGWG

ICP 12 (Exit from the Market and Resolution) X X Resolution Working Group (ReWG)

ICP 13 (Reinsurance and Other Forms of Risk Transfer) X Reinsurance Task Force

ICP 18 (Intermediaries) X Market Conduct Working Group 

(MCWG)

ICP 19 (Conduct of Business) X MCWG

ICP 24 (Macroprudential Surveillance and Insurance 

Supervision) X Macroprudential Surveillance Working Group

ICP 25 (Supervisory Cooperation and Coordination) X X IGWG

ICP 26 (Cross-Border Cooperation and Coordination on 

Crisis Management) X X ReWG/IGWG

To develop ComFrame, including the quantitative ICS, the IAIS established a field testing 

process through which participating insurers provided data and perspectives that shaped a 2014

draft of ComFrame.366 This draft of ComFrame was designed to be an independent document

from the ICPs. Following additional field testing of ComFrame’s qualitative standards in 2015, 

the IAIS decided to integrate ComFrame standards with relevant ICPs. In addition to this 

restructuring – which resulted in streamlining ComFrame text that duplicated material already in 

the ICPs – relevant IAIS working groups also revised the text of certain qualitative sections of 

ComFrame based on feedback from field testing and the intervening changes to the ICPs since 

2014.

In March 2017, the IAIS released for public consultation revised sections of ComFrame, as well 

as revisions to certain ICPs.

367 These sections addressed the introduction and assessment 

 366 ComFrame field testing involves collecting data from volunteer insurers and insurance supervisors, with the goal 

of improving the qualitative and quantitative aspects of ComFrame, as well as assessing practical considerations for 

implementing ComFrame. Forty-two insurers participated in 2016 field testing (increased from 34 insurers in 2015). 

See IAIS, ComFrame Revised Draft.

367 “Consultation: Revised Insurance Core Principles (ICPs) and ComFrame Material Integrated with ICPs,” IAIS, 

https://www.iaisweb.org/page/consultations/closed-consultations/revision-of-icps-and-comframe.
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methodology for ICPs, governance, supervisory review and reporting, supervisory measures, 

supervisory cooperation and coordination, and resolution. This public consultation closed on 

June 1, 2017. In June 2017, the IAIS released for public consultation revisions to ICPs regarding

market conduct, intermediaries (i.e., brokers and agents), and the role and powers of the 

supervisor.

368 Public consultation on these ICPs closed on August 29, 2017. Finally, on August 

1, 2017, the IAIS released for public consultation revisions to an ICP addressing macroprudential 

surveillance.369 This public consultation will close on October 1, 2017. Following the close of 

each public consultation, IAIS working groups review stakeholder feedback and make additional 

revisions to the relevant standards, as appropriate. The IAIS will continue working on 

ComFrame through 2019.

3. Development of International Capital Standards for Insurance Groups

As insurance markets become increasingly global, the IAIS is taking steps to increase insurance 

supervisors’ understanding of the financial condition of insurance groups that have operations 

and affiliates in multiple international jurisdictions. The amount and quality of an insurer’s

capital are important measures of the insurer’s financial viability and its ability to absorb an 

unexpected level of losses.

One means to enhance inter-jurisdictional understanding among supervisors may be through a 

commonly understood quantifiable capital standard that would be applied to IAIGs. The IAIS 

has stated that ICPs alone do not provide this common understanding because the ICPs provide

flexibility in individual jurisdictions, “allow[ing] a wide range of regulatory approaches and 

supervisory processes to suit different markets and the range of insurance entities and groups 

operating within these markets.”370 In contrast, with respect to IAIGs, ComFrame aspires to 

provide a “tailored and more coordinated” approach, including through a risk-based group 

capital standard that is understood by supervisors across jurisdictions.371

Specifically, as one component of ComFrame, IAIS members are continuing to develop a 

risk-sensitive ICS that if adopted would measure the capital adequacy of an entire insurance 

group.372 The IAIS began work in mid-2013 on key components of the ICS, launching a series 

of annual development, field testing, and data analysis exercises involving the Capital Solvency 

and Field Testing Working Group. A number of volunteer insurance groups from various 

regions around the globe participate in the annual voluntary exercises. As currently envisioned,

the IAIS’s ultimate goal is a single ICS that includes a common methodology by which one ICS 

achieves comparable, or substantially the same, outcomes across jurisdictions. As such, central 

 368 “Revision of ICPs 1, 2, 18 and 19,” IAIS, https://www.iaisweb.org/page/consultations/currentconsultations/revision-of-icps-12-18-19-and-24/.

369 “Revision of ICP 24,” IAIS, https://www.iaisweb.org/page/consultations/current-consultations/revision-icp-24. 

370 “ComFrame,” IAIS, https://www.iaisweb.org/page/supervisory-material/common-framework. 

371 “ComFrame,” IAIS.

372 See, e.g., IAIS, Frequently Asked Questions for The Global Risk-Based Insurance Capital Standard (ICS), July 

21, 2017, https://www.iaisweb.org/file/67671/ics-frequently-asked-questions-21-july-2017. 
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elements are: (1) a valuation basis for assets and liabilities; (2) a capital requirement that 

considers all relevant and material risks and is calibrated at a sufficient level; and (3) criteria to 

determine qualifying capital resources that are available to meet that capital requirement.373

In July 2017, the IAIS adopted Risk-Based Capital ICS Version 1.0 for Extended Field Testing 

(ICS Version 1.0).374 The options presented in 2017 field testing were formulated to better 

inform the appropriate future direction for the IAIS to take, which may include exploring new 

options as the IAIS progresses towards ICS Version 2.0. As such, the data requests for 2017 

field testing were more expansive than in previous years, requiring greater analytics to shape

potential policy decisions. Concurrently with the adoption of ICS Version 1.0, the IAIS 

reiterated a target date of 2019 for ICS Version 2.0.375 The IAIS also reiterated its goal of 

designing and calibrating the ICS so that it can be effectively implemented across jurisdictions.

ICS Version 1.0 also noted the continuing work at the IAIS on the valuation of assets and 

liabilities. For example, due to various factors, jurisdictional differences in local Generally 

Accepted Accounting Principles (GAAP) exist, resulting in a multitude of different approaches. 

One source of these differences stems from the use by some jurisdictions of International 

Financial Reporting Standards (IFRS) developed by members of the International Accounting 

Standards Board (IASB) to allow for the application of national accounting standards. Other

jurisdictions, such as the United States, use their own GAAP instead of IFRS.

There have been recent developments that relate to the work on valuation in the ICS. In May 

2017, the IASB issued a new standard for insurance contract accounting that will replace IFRS as 

the accounting standard for insurance contracts. IFRS 17 is intended to help address the 

comparison problems created by IFRS 4, by requiring all insurance contracts to be accounted for 

in a consistent manner.

376 The U.S. Financial Accounting Standards Board – which establishes 

financial accounting and reporting standards for companies and organizations that follow 

GAAP377 – is also expected to issue a new standard for insurance contracts in late 2017 or early 

2018. Depending on the final texts of these standards and how they are implemented in various 

jurisdictions, the new accounting standards could lead to greater consistency in valuation 

reporting by insurance groups in jurisdictions that use either IFRS or GAAP.

 373 Insurance Capital Standard Papers,” IAIS, https://www.iaisweb.org/page/supervisory-material/insurance-capitalstandard/file/67651/ics-version-10-for-extended-field-testing.

374 “Insurance Capital Standard Papers,” IAIS.

375 “Insurance Capital Standard Papers,” IAIS.

376 See “Insurance Contracts,” IFRS, http://www.ifrs.org/projects/2017/insurance-contracts/. 

377 See “About the FASB,” Financial Accounting Standards Board, 

http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=117615452649

5. 
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4. Cross-Border Resolution Planning

Work on the development of proposed international standards regarding the resolution of IAIGs 

continued in 2016 through both the FSB and the IAIS. Formed in late 2013, the FSB 

Cross-Border Crisis Management Group for Insurers (iCBCM) assists and supports regulatory 

authorities in the development and implementation of resolution-related policy measures. The

IAIS Resolution Working Group (ReWG) was also formed in late 2013 to develop and maintain 

supervisory guidance on the resolution of insurers, including G-SIIs, and to contribute to the 

resolution-related content of ComFrame and ICPs. The ReWG also represents the IAIS at 

relevant FSB bodies such as the Resolution Steering Group and its subcommittee, the iCBCM.

The FSB is the standard-setting body for resolution issues, having promulgated the Key 

Attributes for Effective Resolution Regimes for Financial Institutions (the Key Attributes) in 

2014.

378 In late 2015, the FSB published a consultation paper entitled Developing Effective 

Resolution Strategies and Plans for Systemically Important Insurers.

379 The final version of this 

paper was published on June 6, 2016. The iCBCM developed this guidance with the intent of 

instructing jurisdictions in developing resolution strategies that are consistent with the Key 

Attributes, and included guidance on determining critical functions of an insurance group.

In 1999, the International Monetary Fund (IMF) established the Financial Sector Assessment 

Program (FSAP). The goals of FSAP assessments are to gauge the stability and soundness of the 

financial sector, and to assess its potential contribution to growth and development.380 In 

September 2010, the IMF made it mandatory for 25 jurisdictions with systemically important 

financial institutions to undergo financial stability assessments under the FSAP every five years. 

The number of jurisdictions was increased to 29 in 2013.381 As part of the FSAP assessment for 

the insurance sector, a jurisdiction’s regulatory regime is measured for compliance with the Key 

Attributes. In August 2013, the FSB published for public consultation the Assessment 

Methodology for Key Attributes of Effective Resolution Regimes for Financial Institutions to 

guide the assessment of a jurisdiction’s compliance with the Key Attributes, and to also serve as 

guidance to jurisdictions that are adopting or amending resolution regimes to implement them.382

In the process of addressing comments received in the consultation, the FSB decided to divide

this work into Banking and Insurance Modules. The final version of the Banking Module was 

published in October 2016. The FSB then turned its attention to the Insurance Module, tasking 

 378 FSB, Key Attributes of Effective Resolution Regimes for Financial Institutions (October 15, 2014), 

http://www.fsb.org/wp-content/uploads/r_141015.pdf.

379 FSB, Developing Effective Resolution Strategies and Plans for Systemically Important Insurers (November 3, 

2015), http://www.fsb.org/2015/11/consultative-document-on-developing-effective-resolution-strategies-and-plansfor-systemically-important-insurers/.

380 See “Factsheet: The Financial Sector Assessment Program (FSAP),” IMF, May 16, 2017, 

http://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/16/14/Financial-Sector-Assessment-Program.

381 “Factsheet: FSAP.”

382 FSB, Assessment Methodology for Key Attributes of Effective Resolution Regimes for Financial Institutions 

(August 28, 2013), http://www.fsb.org/2013/08/r_130828. 
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the iCBCM with drafting revisions to the Assessment Methodology appropriate to the insurance 

industry.

While the FSB and the IAIS are both involved in work on resolution matters relating to G-SIIs 

(see Section V.D), the ReWG also works on the development of resolution-related policy 

standards for a broader range of insurance firms. During 2016, the ReWG continued its 

revisions to resolution-related content in the ICPs and ComFrame, including hosting a 

stakeholder session following the close of a request for informational feedback on an early 

revision of ICP 12 (with integrated ComFrame materials) – Exit from the Market and Resolution. 

In March 2017, the ReWG included the revised ICP 12 (with integrated ComFrame materials) in 

the public consultation package comprised of numerous ICPs. The goal is to provide a final 

version of ICP 12 (ICP material only, not including ComFrame materials) by the end of 2017.

5. Combating Financial Crime in Insurance

The IAIS, through the FCTF, engages in international efforts related to the involvement of 

insurance supervisors in combating financial crime including fraud, the financing of terrorism, 

and money laundering (addressed in ICPs 21 and 22). This work includes monitoring 

developments at the Financial Action Task Force (FATF), on which the FCTF represents the 

IAIS.383 The FCTF, which reports to the IAIS Financial Stability and Technical Committee, also 

addresses matters of cybersecurity in the insurance sector.

The IAIS published an Issues Paper on Cyber Risk to the Insurance Sector in August 2016. 

Developed by the FCTF, the goal of the paper was to raise awareness of the challenges presented 

by cyber risk, review current and contemplated supervisory approaches for addressing these 

risks, and identify other related areas of interest for insurers and supervisors. An IAIS Issues 

Paper does not establish supervisory expectations, but may shed light on the need for additional, 

more specific IAIS material to support supervisors in addressing cyber risk.384

Through the FCTF, the IAIS has been represented on the Joint Working Group on Cyber 

Resilience (WGCR), which was organized by two other international standard-setting bodies, the 

Committee on Payments and Marketing Infrastructure (CPMI) and the International Organization 

of Securities Commissions (IOSCO). On June 29, 2016, the WGCR published its Guidance on 

Cyber Resilience for Financial Market Infrastructures.

385

 383 The FATF is an inter-governmental body established in 1989 by the ministers of its member jurisdictions. The 

objectives of the FATF are to set standards and promote effective implementation of legal, regulatory, and 

operational measures for combating money laundering, terrorist financing, and related threats to the integrity of the 

international financial system. See “About FATF,” FATF, http://www.fatf-gafi.org/about/.

384 The work of the FCTF related to cybersecurity is discussed above in Section IV.A.2.c of this Report.

385 CPMI and IOSCO, Guidance on Cyber Resilience for Financial Market Infrastructures (June 2016), 

http://www.bis.org/cpmi/publ/d146.pdf.
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6. IAIS Systemic Risk Task Forces

In early 2017, the IAIS created two new task forces relating to the evaluation of systemic risk in 

the insurance sector: (1) the SRATF; and (2) the TFBI.

The IAIS established the SRATF in January 2017 with responsibility to assess and measure 

systemically-risky activities, improve cross-sectoral consistency in systemic risk measurement, 

and make improvements to the G-SII assessment methodology.

386 Unlike an entity-based 

approach to assessing systemic risk, which focuses on the extent to which any single insurance 

company poses a threat to the broader financial system, the SRATF will explore an 

activity-based approach that examines risk across insurers to assess vulnerabilities that may be 

relevant to financial stability.

The SRATF is expected to issue an initial public consultation in November 2017 that will 

describe the potential framework of an activity-based assessment.

387 The SRATF is expected to 

issue a second, more detailed public consultation on its updated approach to systemic risk 

assessment in insurance by December 2018.388

In addition to the SRATF, the IAIS, jointly with the Basel Committee on Banking Supervision, 

created the TFBI in 2017. Among other things, one objective of the TFBI is to address 

inconsistencies between the G-SIB framework and the G-SII assessment methodology (discussed 

in Section V.D). 

7. Other IAIS Working Group and Task Force Developments

The IAIS’s Governance Working Group, Insurance Groups Working Group, Supervisory 

Materials Review Task Force, and Reinsurance Task Force continued work on revising or 

developing supervisory materials in 2016 and 2017.

The Governance Working Group develops high-level corporate governance principles, standards, 

and guidance for the supervision of insurers and IAIGs. In March 2017, the IAIS released for 

public consultation an application paper on group governance issues developed by the 

Governance Working Group. This consultation period closed on May 1, 2017. The Governance 

Working Group has also worked on revisions to the corporate governance sections of ComFrame

(see Figure 44).

The IGWG provides a framework for developing and advancing standards for effective and 

efficient group-wide supervision. In 2016 and 2017, the working group revised relevant 

standards and guidance in the ICPs and ComFrame, including ICP 3 (Information Sharing and 

 386 IAIS, “IAIS Announces Systemic Risk Assessment and Policy Workplan,” news release, February 28, 2017, 

https://www.iaisweb.org/page/news/press-releases/file/65229/iais-press-release-systemic-risk-assessment-workplan.

387 IAIS, Newsletter, April 2017, https://www.iaisweb.org/page/news/newsletter.

388 IAIS, Newsletter.
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Confidentiality Requirements), ICP 25 (Supervisory Cooperation and Coordination), and the 

ComFrame material for ICP 9 (Supervisory Review and Reporting) and ICP 10 (Preventative 

and Corrective Measures) (see Figure 44).

The SMRTF is responsible for revising other principles, standards, and guidance that are not 

otherwise the responsibility of any other IAIS working group or task force, as well as for 

assessing the ICPs’ Introduction and Assessment Methodology. In addition, the SMRTF is 

responsible for working to achieve style consistency across the ICPs and standards. In 2016 and 

2017, the task force revised relevant standards and guidance in the ICPs and ComFrame (Figure 

44).

Lastly, the Reinsurance Task Force was formed in 2016 to propose amendments to ICP 13 –

Reinsurance and Other Forms of Risk Transfer in response to current market developments and a 

self-assessment by IAIS members. The IAIS published proposed updates to ICP 13 through a 

public consultation process that concluded on July 31, 2017.389

Financial Stability Board

In April 2009, the G-20 established the FSB to monitor and make recommendations about the 

global financial system. One FSB initiative is the identification of systemically important 

financial institutions, i.e., financial institutions whose distress or disorderly failure, because of 

their size, complexity, and systemic interconnectedness, would cause significant disruption to the 

wider financial system and economic activity. With respect to the insurance sector, the IAIS 

developed an assessment methodology in July 2013 to recommend insurers that may be eligible 

for identification as G-SIIs. In 2013, in consultation with the IAIS and national authorities, the 

FSB identified an initial list of G-SIIs. Similar annual identification processes were 

subsequently conducted in 2014 and 2015.

In June 2016, the IAIS released an updated G-SII Assessment Methodology, which builds upon 

the methodology developed in 2013 by incorporating a five-phase approach to the G-SII 

assessment process.390 In 2016, the FSB identified nine insurers as G-SIIs, including the same 

three U.S. groups (AIG, MetLife, and Prudential) that had also been identified under the previous 

methodology.

 389 “Revised Insurance Core Principles 13 Reinsurance and Other Forms of Risk Transfer,” IAIS, 

https://www.iaisweb.org/page/consultations/closed-consultations/revised-insurance-core-principles-13. 

390 See IAIS, “IAIS Releases Updated G-SII Assessment Methodology,” news release, June 16, 2016, 

http://www.iaisweb.org/file/61170/iais-press-release-updated-g-sii-assessment-methodology.
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Box 9: Global Systemically Important Insurers Identified by the FSB in 2016

Aegon N.V. Netherlands

Allianz SE Germany

American International Group Inc. United States

Aviva plc United Kingdom

AXA S.A. France

MetLife Inc. United States

Ping An Insurance (Group) Company of China Ltd. China

Prudential Financial Inc. United States

Prudential plc United Kingdom 

Source: FSB, 2016 List of Global Systemically Important Insurers (G-SIIs) (November 21, 2016), 

http://www.fsb.org/wp-content/uploads/2016-list-of-global-systemically-important-insurers-G-SIIs.pdf.