1

UNITED STATES DEPARTMENT OF THE TREASURY

FEDERAL ADVISORY COMMITTEE ON INSURANCE

SUMMARY AUGUST 18, 2016 OF PUBLIC MEETING

The Federal Advisory Committee on Insurance was convened at 1:00 P.M. on August 18, 2016 in the 

Cash Room at the U.S. Department of the Treasury, 1500 Pennsylvania Avenue, N.W., Washington, 

D.C., with Daniel Glaser, Chair, presiding.

In accordance with the provision of the Federal Advisory Committee Act, the meeting was open to the 

public.

Committee Members Present:

DANIEL GLASER, President and Chief Executive Officer, Marsh & McLennan Companies, Inc., Chair

DAVID (BIRNY) BIRNBAUM, Executive Director, Center for Economic Justice

LAURA BISHOP, Executive Vice President and Chief Financial Officer, USAA

KURT BOCK, Chief Executive Officer, Country Financial

ELIZABETH BROWN, Professor, University of Wisconsin - La Crosse

BRENDA CUDE, Professor, University of Georgia

JOHN FRANCHINI, Superintendent, New Mexico Office of Superintendent of Insurance

LORETTA FULLER, Chief Executive Officer and Chief Financial Officer,

Insurance Solutions Associates

MARK GRIER, Vice Chairman, Prudential Financial, Inc.

GEORGE KEISER, Representative, North Dakota House of Representatives

JAMES KELLEHER, Executive Vice President & Chief Legal Officer, Liberty Mutual Insurance

THEODORE MATHAS, Chairman, President, and Chief Executive Officer, New York Life Insurance 

Company (represented by proxy George Nichols)

TERESA MILLER, Commissioner, Pennsylvania Insurance Department Insurance

THEODORE (TED) NICKEL, Commissioner, Wisconsin Office of the Commissioner of Insurance

MICHAEL RILEY, Commissioner, West Virginia Offices of the Insurance Commissioner

MARGUERITE SALAZAR, Commissioner, Colorado Division of Insurance

KATHERINE (KATIE) WADE, Commissioner, State of Connecticut Insurance Department

Also Present:

GERALD COHEN, Deputy Assistant Secretary

(Macroeconomic Analysis), U.S. Department of the Treasury

MICHAEL McRAITH, Director, Federal Insurance Officer, U.S. Department of the Treasury

CHESTER McPHERSON, Designated Federal Officer

JEROME ALBRIGHT, Principal (Actuarial and Insurance Risk), KPMG

COLIN DEVINE, Principal, C. Devine & Associates

JOSEPH SCHNEIDER, Managing Director (Corporate Finance), KPMG

DALE THATCHER, Executive Vice President & Chief Financial Officer, Selective Insurance Group
2

Welcome Introduction and New Members

Director McRaith welcomed the members of the Federal Advisory Committee on Insurance (FACI) and 

turned the meeting over to FACI chairman Daniel Glaser who officially convened the meeting. 

Chairman Glaser welcomed FACI members, including Superintendent Maria Vullo of the New York 

State Department of Financial Services who joined FACI since the May 26, 2016 meeting. In addition, 

Chairman Glaser thanked former FACI members David Herzog and Sean McGovern, who left FACI 

after the meeting on May 26, for their many contributions and wished them well in future endeavors.

Discussion of Discussion of Brexit

Chairman Glaser introduced the topic, and noted that it is hard to overstate the importance of Brexit for 

certain companies on a go-forward basis. He observed that it may be many years before Brexit is fully 

understood; and, that because London is an important center for insurance business, Brexit will impact 

even companies that do not have any operations in the United Kingdom (U.K.). Chairman Glaser

offered his perspective on how Brexit could impact the insurance industry and his company in particular. 

He underscored the anticipated multi-year level of uncertainty caused by Brexit, and noted the difficulty 

of predicting in advance what those impacts could be because of the many variables involved, especially 

given that London is the center of the insurance marketplace as it relates to complex specialty risk. 

Chairman Glaser said that many of the London market players, and other capital providers like banks,

have created efficient structures where they are headquartered in the U.K. and use branch network 

within the European Union (EU) to service clients and manage their affairs. Chairman Glaser observed 

that because of this arrangement, Brexit has the potential of being far more complicated depending on 

what negotiations happen between the U.K. and the EU, and as a result, capital providers may need to 

establish another capital beachhead somewhere else in Europe in order to service the EU, other than the 

U.K. Chairman Glaser said that there will be a lot of work to determine whether or not companies will 

have to restructure their U.K. operations, depending on the impact of passporting negotiations or other 

arrangements between the U.K. and the EU.

Director McRaith added that the U.K. is an important partner and collaborator in many aspects of the 

work done at Treasury, as is also the European Union. He noted that there is continuing collaboration 

and partnership with the U.K. on many issues involved with financial services and the insurance sector; 

and, if there is an eventual withdrawal from the EU, FIO would work with the U.K. 

Mr. Bock added that for purely domestic writers, Brexit has second order effects and is a great reminder 

of what uncertainty does to our markets. Mr. Keiser added his perspective that Brexit is an attack on the 

globalization of financial markets with uncertain outcomes, and expressed concerns about the 

international standards that are being developed. Mr. Birnbaum asked questions as to the impact of 

Brexit on prices in the reinsurance markets given that Lloyds is major reinsurer; he also asked what 

effect, if any, will Brexit have on the covered agreement negotiations. Superintendent Franchini and 

Mr. Kelleher inquired as to whether there need be a compilation of the types of issues that could impact 

the U.S. insurance market as a result of Brexit, and what role should the FIO play in engaging on these 

issues.
3

Discussion of the Impact of the Prolonged Low Interest Rate Environment on the Availability and 

Affordability of Insurance Products 

Chairman Glaser introduced the topic. He noted that for insurers, fixed income assets, bonds, and 

mortgages comprise a significant part of their investment portfolios and underscored the significance of 

a low interest rate environment for insurers in a globally-connected industry. He then called on Gerald 

Cohen, Deputy Assistant Secretary for Macroeconomic Analysis, U.S. Department of Treasury. Mr. 

Cohen stated that the Administration, based on its forecasts, expects interest rates to rise over the 

coming years. He noted the importance of not underestimating interest costs while acknowledging at the 

same time, that if estimates are too high – indicating an expectation of high of borrowing costs – there 

would not be enough fiscal space to actually do policy work such as funding infrastructure or other 

initiatives that might benefit the economy other than paying interest. Chairman Glaser, Mr. Bock, and 

Mr. Birnbaum asked questions of Mr. Cohen. 

Chairman Glaser called on Mr. Dale Thatcher to present his perspective on the impact of low interest 

rates on the property and casualty (P&C) industry. Mr. Thatcher noted that the returns on equity (ROE)

in the P&C business are at somewhat of a disadvantage compared to other companies that the P&C 

industry competes with for capital in the United States. Mr. Thatcher noted that a significant portion of 

earnings in the P& C industry are from either underwriting income or from investment income. He said 

that the P&C industry currently is losing about 30 basis points (bps) of yield per year on their portfolios, 

generating approximately 6 percent ROE on investments compared to the expected yield on the S&P 

500 of between 10 and 15 percent over a long historical horizon. Mr. Thatcher said that instead of a 6 

percent ROE, earning 11 percent ROE would be a good range. Mr. Thatcher concluded that insurers 

will have to decide how to maintain strength and viability in the low interest rate environment. Mr. 

Birnbaum, Mr. Grier, Mr. Bock, and Superintendent Franchini asked questions of Mr. Thatcher.

Chairman Glaser called on Mr. Colin Devine to present on impact of low interest rates on life insurance 

companies. Mr. Devine shared that a low interest rate environment makes retirement products, such as 

an annuity, more expensive for consumers; has caused some insurers to reduce benefits and exit some 

product lines, such as long-term care; and has resulted in lower earnings and profits for insurers. He 

said that, as a result, there could be shifts to insurers offering combination-type products, such as LTC 

benefit embedded in a life insurance policy, and an annuity with some advanced death benefit payments. 

However, Mr. Devine noted that, in response to these potential concerns, the life insurance industry is 

already adjusting business models accordingly. He observed that the long-term growth potential in the 

industry, the ability to shift product offering and features, the resiliency of Japanese life insurance 

companies during long periods low interest rates, and the resiliency of the U.S. life insurance companies 

during the recent crisis are all reasons for optimism going forward. Mr. Devine concluded by 

underscoring the continuing important role that life insurers play by offering annuities to help retirees 

manage their longevity risk. Mr. Keiser, Mr. Grier, Ms. Bishop, Ms. Cude, Superintendent Franchini, 

and Director McRaith asked questions of Mr. Devine. 

Discussion of Developments of Insurance Issues Related to Autonomous Vehicles

Chairman Glaser introduced and welcomed Jerome Albright and Joseph Schneider, both from KPMG, to 

share their presentation. Messrs. Albright and Schneider provided an overview of some of the issues 

they believe might impact the availability and affordability of insurance related to the operation of 
4

autonomous automobiles, in particular the following: the convergence of existing and new technology;

the evolving capabilities of autonomous vehicles; the creation of smart infraction structure and roadways

to support autonomous driving; the evolving regulatory landscape – adoption of new laws and legal 

requirements governing their operations; the reassignment of legal responsibilities from traditionally 

drivers to mainly manufactures in the future; whether consumers will adopt to autonomous vehicles, and 

at what rate; the increased use of car sharing and the reduction car-owning households; and, issues 

concerning who owns the data used, and generated, by autonomous vehicles. Messrs. Albright and 

Schneider shared that one major outcome of these developments in their opinion is that over the next 25 

years accidents would be reduced by up to 80 percent, and they expect this loss frequency to initially 

reduce overall loss costs payments by 7 to 15 percent, thus resulting in lower premiums for consumers. 

They acknowledged that these developments will occur over several years as the industry evaluates the

changing liability issues and determines the type of coverages to offer in response to the market. Ms. 

Cude, Mr. Keiser, Mr. Kelleher, Ms. Bishop, and Director McRaith asked questions Messrs. Albright

and Schneider.

Federal Insurance Office Presentation on the Overall Effectiveness of the Terrorism Risk 

Insurance Program

Director McRaith provided a brief update. He reported that in June 2016 the Federal Insurance Office 

published a report on the “Overall Effectiveness of the Terrorism Risk Insurance Program” as required 

by the 2015 TRIA Reauthorization. He highlighted a few of the key points in the report, including the 

voluntary collection of data regarding the cost of terrorism risk insurance, and shared the conclusions in 

the report that the Terrorism Risk Insurance program is serving its statutory purpose of making terrorism 

risk insurance affordable and accessible. Ms. Bock and Mr. Birnbaum asked questions of Director 

McRaith.

New Business 

Prior to the Committee adjourning, Chairman Glaser raised the item of new business, certifying the minutes 

for the May 26, 2016 FACI meeting. The minutes were then certified. 

Director McRaith then reminded everyone that the Chicago Cubs were in the World Series and at the next 

FACI meeting, scheduled for Nov 2, 2016, and he looked forward to celebrating the Cubs victory.

At 4:45 p.m., Chairman Glaser concluded the meeting.

A majority of the members who attended the meeting on August 18, 2016 subsequently certified the 

meeting summary electronically.