Committee Members Present:

JOl-IISI DOYLE, Marsh McLennan, Chair

IAN ADAMCZYK, Proxy for Rob Falzon, PrudentialERIC ANDERSEN, Aon

AMY BACH, United Policyholders

BIRNY BIRNBAUM, Center for Economic Justice

MARTIN BOGUE, Proxy for Lucy Fato, AIG

KERMITT BROOKS, Guardian Life Insurance Company

JILL BROWN, Proxy for Betsy Ward, MassMutualMICHAEL CONWAY, Colorado Division of Insurance

DAMON HART, Liberty MutualDOUG HELLER, Consumer Federation of America

MICHAEL HUMPI-IREYS, Pennsylvania Department of Insurance

EDMOND JORDAN, Louisiana House of RepresentativesPETER KOCHENBURGER, University of Connecticut School of Law

CAROLYN KOUSKY, Environmental Defense FundLAURA LAZARCZYK, Zurich North AmericaKEVIN O’DONNELL, RenaissanceRe

JOI-IN SEO, Fermat Capital ManagementJULIE SPORE, TransamericaANDREW STOLFI, Oregon Division of Financial Regulation

JOSEPH WAYLAND, Chubb GroupDepartment of Treasury Staff Present:

STEVEN SEITZ, Director, Federal Insurance Office (FlO)

ELIZABETH BROWN, Senior Insurance Regulatory Policy Analyst, FIO

JOHN GUDGEL, Designated Federal Officer, Senior Insurance Regulatory Policy Analyst, FlO

Also Present:

SCOTT ROBINSON, Moody’s

BOB GAROFALO, Moody’s

RICH BABEL, Oliver Wyman

ETIENNE SCARBOROUGH, Oliver WymanKEVIN STINE, National Institute of Standards and Technology (NIST)
Director Seitz said that FlO continues to monitor market developments in the life and retirement sector. Over

the last several years, this sector has attracted the interest of large, alternative asset managers, including privateequity firms. FlO is closely following the increased use of offshore-affiliated and non-affiliated reinsurance by

U.S. life insurers, as well as work in this area by the National Association of Insurance Commissioners’ (NAIC)

and the l3ermuda Monetary Authority (BMA).

FIO’s climate-related work is also a top priority. In June 2023, FIO issued a report assessing climate-related

issues and gaps in the supervision and regulation of insurers, as requested by President Biden’s 2021 Executive

Order on Climate-Related Financial Risk. FlO has also proposed a data collection of underwriting data on

homeowners insurance from certain property and casualty insurers that would provide non-public, consistent,granular, and comparable homeowners insurance data on a nationwide level.

The NAIC has begun scoping its own potential data call, based on issues of affordability and availability of

insurance coverage in their property markets. FlO is pleased to see that the NAIC and state regulators have

recognized the importance of granular insurance data to help understand and address climate-related risk and

will continue to engage with the NAIC and states to attempt to mitigate burdens to the extent possible, while

staying cognizant of our distinct roles and authorities.FlU will continue to work closely with the White House’s Office of the National Cyber Director andDepartment of Homeland Security’s Cybersecurity and Infrastructure Security Agency to jointly assess the need

for a federal insurance response in connection with potential catastrophic cyber incidents involving critical U.S.

infrastructure. In the coming months, FlO will undertake further analysis and engagement on the topic ofinsurance for catastrophic cyber incidents, including the ways this issue may converge with or diverge from the

Terrorism Risk Insurance Program and terrorism risk insurance more broadly.

FIO continues to assist the Secretary in its management of the Terrorism Risk Insurance Program. FlO hasrecently increased its status in the International Forum of Terrorism Risk Insurance Pools to a full member, and

FlO now acts as Vice Chair of the organization.FlO continues to work with the International Association of Insurance Supervisors (IA IS) on the Insurance

Capital Standard (ICS) and will be closely engaged in the comparability assessment of the aggregation method

to the ICS, which the IAIS will be launching shortly. FlU is also prioritizing its engagement with the Insurance

Regulatory and Development Authority of India (IRDAI) under the signed memorandum of understanding

between FlU and IRDAI. FIO and IRDAI intend to establish a regular, ongoing dialogue, including a public

sector and private sector meeting that will be held in India in 2024.

Presentation by Moody’s on the U.S. Life Insurance Sector

Scott Robinson, Associate Managing Director of the U.S. Life, Health, and Specialty Group, and Bob Garofalo,

Vice President of the U.S. Life, Health, and Specialty Group and Senior Credit Officer, gave an overview of theU.S. life insurance sector.

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inflation, although it is expected to recede, it remains a risk. Moody’s has not seen anything out-of-the-ordinary

regarding surrenders but is monitoring the topic carefully. There has also been a significant movement ofcapital, continuing a long trend of moving toward captives, but capital remains solid overall.Then Bob Garofalo spoke about cross-border life reinsurance. Around 80 percent of offshore reinsurance isgoing to Bermuda because the BMA has invested significant resources to build and maintain its regime,specifically with its asset liability management and economic capital, Solvency II equivalency, and qualifiedand reciprocal jurisdiction with the NAIC. Because of Bermuda’s good historical record with regulating sidecarstructures, much of that business is moving offshore too. The offshore movement is primarily due to capital and

investments. There is a large influx of private capital into the life insurance sector, and life insurers are trying

to leverage their asset management expertise to improve risk management. Given the extended low interest rate

environment, companies believe they could have better efficiency managing the risks of their business offshore.Moreover, certain jurisdictions offer more flexibility in investment strategies with less restrictions compared to

the United States.Then, Mr. Garofalo spoke to the risks of moving offshore, the most significant being counterparty risk. He also

spoke to the key themes that Moody’s will be monitoring with respect to offshore transactions, namely how

enterprise risk management is changing, how counterparty risk affects companies, how groups’ capitalizationhas changed, how investments will perform under stress, how the sector is ripe for consolidation, and how theregulatory environment has strengthened. Overall, Moody’s sees the movement offshore as a net negative for

the U.S. life insurance sector because of less transparency for investors and less regulation compared to the

United States.Member Birnbaum asked how an insurer can achieve a higher return on equity by reinsuring in Bermuda versus

the United States. Mr. Garofalo responded that U.S. companies can achieve higher returns on capital by

investing in certain products offshore. Mr. Robinson responded that companies might move offshore because

of strict reserve requirements or because the company is holding less reserves for a particular product offshore.

Member Kochenburger asked what Moody’s was referring to by non-economic liability, reserve, and drive

commensurate with liability. Mr. Garofalo responded that they were referring to redundancies in the statutory

reserve, which are some of the reserves that are potentially being unlocked in a structure. MemberKochenburger ensured that by liability, Moody’s was not referring to litigation risk, and Mr. Garofalo

confirmed.

Member Birnbaum commented that one of the charts showed that the industry aggregate or industry risk-based

capital (RBC) was fairly stable over time and asked whether the dispersion of individual company RBCs around

the median and the mean has changed. Mr. Robinson responded that he would have to look into the issue but

that those companies are pretty high from an RBC perspective and Moody’s has not seen the dispersion changedramatically. He said that the point of the slide is that RBC can be unreliable if a riskier business has been

moved to an entity that is not included in the RBC. Member Birnbaum asked whether Moody’s assumes the

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industry, their implications for insurance regulation and supervision, and for the stability of the financial

system, including for real estate and banking. Ms. Brown explained that the report provides FlO’s assessmentof the U.S. climate-related supervision and regulation of insurance in three main areas: prudential,macroprudential, and market conduct. The report also discusses disclosure initiatives and provides an overviewof additional FlO priorities concerning climate-related risks. Finally, it outlines FlO’s next steps.

In terms of prudential regulation, FlO recommends that every state adopt climate-related risk monitoring

guidance appropriate for their markets. The NAIC and state insurance regulators should also prioritize thecreation of new and effective climate-related risk tools and processes for use by state insurance regulators

through, for example, the development of scenario analysis and the increased use of the NAIC’s Catastrophe

Modeling Center for Excellence. Additionally, FlO recommends that state insurance regulators and federalauthorities continue encouraging insurers to capture more granular, consistent, comparable, and reliable data on

climate-related risks and continue identifying relevant data to fill data gaps.

In terms of macroprudential regulation, FIO recommends that the NAIC incorporate climate-related risks in

future macro-risk assessments and that the state insurance regulators and the NAIC monitor trends that could

indicate wider issues in the insurance market, including hardening of the reinsurance market, growth in residual

and surplus line markets, and potential climate-related risks for state guarantee funds.In terms of market conduct regulation, FlO recommends that the NAIC, state insurance regulators, the insurance

industry, FlO, and other partners work together to increase consumer education and outreach regarding climaterelated risks, including pre-disaster mitigation efforts. Public-private partnerships with the insurance industry

can aid this educational effort.

In terms of climate-related disclosures, FlO recommends focusing on promoting transparency and helping

stakeholders compare how insurers are addressing the climate-related risks that they face. FlO recommends

that the NAIC and state insurance regulators support efforts to improve climate-related disclosures by the

insurance industry and that all state insurance regulators adopt the NAIC Climate Risk Disclosure Survey. FlO

also recommends that the NAIC continue monitoring responses to its Climate Risk Disclosure Survey andpublish an annual quantitative report summarizing the survey results and addressing how well the survey isfulfilling its six purposes.

FlO plans to advance progress on the recommendations in the report by monitoring climate-related work of

state insurance regulators and how their work addresses the identified issues and gaps. FlO will issue periodic

updates detailing the progress made by state insurance regulators and the NAIC. Finally, FlO is engaging with

the NAIC, state insurance regulators, and other domestic and international stakeholders on these issues.

Member Birnbaum asked several questions around a specific scenario that insurers should be required to test.

Ms. Brown responded that the report did not specify a particular scenario; however, it suggests that the NAICand the states consider a pilot scenario project. Director Seitz noted that the report describes how the NAIC is

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are many other programs in the federal and state governments that address funding for mitigation and resilience.Member Heller asked if F1O has considered the need for more accountability or investigation into the practices

of insurers dealing with adjusters’ estimates. Ms. Brown responded that FlO did not necessarily find that to be a

unique area related to climate-related risk. Member Heller commented that it connects with climate issuesbecause part of the way insurers have been confronting their exposure is by increasing deductibles; adjusters

might be pressured to bring adjusted claims below the newly high deductibles. Member Heller hopes that FlOconsiders this issue in the future.

Member Hart commented that with respect to FlO’s data call, he would welcome coordination with the NAICfrom an efficiency and consistency basis. Then, he asked if there are updates on the status of the negotiation.

Director Seitz responded that FlO appreciates the need to coordinate and collaborate very closely with the

NAIC and that FlO has spoken with them on numerous occasions, and FlO is aware of the distinct roles and

authorities of each.

Presentation by Oliver Wyman on a Case Study in Analyzing Homeowners Insurance Availability and

Affordability Following a Catastrophe

Rich Babel and Etienne Scarborough presented on an Oliver Wyman report that analyzes the availability andaffordability of homeowners insurance in Colorado.

Member Conway explained that the study originated because of the Marshall fire in Colorado on December 30,

202 1, and was completed to ascertain whether Colorado has a growing availability problem, especially becauseColorado lacked a FAIR plan at the time.

Mr. Scarborough shared that the study had four analytical topics: whether premiums and exposure were

increasing, whether rate filing differed in Colorado compared to other states, whether there were significant

discrepancies at the carrier level, and whether the trends were widespread across the state or specific to certainareas. The study incorporated information from Oliver Wyman’s own data call, publicly-available sources, and

Guy Carpenter. Then, Mr. Scarborough provided more specifics about the exact data that Oliver Wyman

collected and explained why the group focused on written units and average premiums. He described how mapsof wildfire risk are more granular than the collected ZIP-code-level data, so they used satellite imagery to createZIP-Code-level metrics of wildfire risk.

Then Mr. Scarborough described the report’s findings. According to the carrier data collected, premiums

increased significantly in Colorado over the analysis period, by 11.5 percent annually, and the pace of increase

accelerated too. Premiums increased more in ZIP Codes with higher wildfire exposure; however, the difference

was very mild, 14 percent to 17 percent. Even in ZIP Codes with no wildfire exposure, there was a significant

unexplained portion, partly due to inflation. Additionally, smaller carriers have been shrinking on average,

getting picked up by larger carriers in the industry.

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Presentation by the National Institute of Standards and Technology (NIST) on the Cybersecurity

Framework 2.0

Kevin Stine, Chief of the Applied Cybersecurity Division at NIST, presented an overview of the recentlyreleased NIST Cybersecurity Framework 2.0.

Mr. Stine explained that the Cybersecurity Framework is a risk-based, outcome-focused tool that is intended to

help organizations better understand, manage, reduce, and communicate cybersecurity risk in the context of

their missions and business objectives. Version 1.0 was issued in 2014, version 1.1 was issued in 2018, andNIST is working on the 2.0 update now. NIST has seen significant uptake of the framework from various

sectors, including all layers of government and internationally. For every version, including the current update,

NIST has incorporated widespread feedback from stakeholders.

Between versions 1 .1 and 2.0, the Framework will continue to be voluntary, outcome-focused, based on the

principles of risk management, and meant to be paired with other resources. In terms of changes, NIST wants

to make it easier to put the Framework into practice, to provide more guidance outside the Framework, and to

broaden the Framework’s interest and applicability outside of critical infrastructure. The five functions of the

Framework have been to ‘identify, protect, detect, respond, and recover,” and version 2.0 will add both a sixth

function — “govern” — which will address risk management strategy, oversight, and roles and responsibilities, aswell as a new category that focuses on supply chains. Additionally, the Framework will include new

implementation examples, which will lead to informative references, and they will be revised more frequently.

Member Seo commented that Fermat Capital uses NIST’s Framework and has always been impressed with

NIST’s research and practicality. Mr. Stine thanked Member Seo and said that he would welcome more

feedback from his team as well as a one-on-one discussion.

Update on Climate-Related Financial Risk Subcommittee Activities

Member Lazarczyk provided an overview of the meeting of the FACI Subcommittee on climate-related

financial risk held virtually on August 17, 2023. During the meeting, Elizabeth Brown explained the keyfindings of the June 2023 Climate Report and summarized the report’s contents. Then Becky Swanson shared

feedback that had been received on the report. There was considerable subcommittee member questions andfeedback.Update on International Subcommittee Activities

Chair Doyle provided an overview of the meeting of the FACE International Subcommittee held virtually onAugust 31, 2023. Krishna Kundu presented on the status of the Insurance Capital Standards as a prescribedcapital requirement. Alex Hart presented on FlO’s engagement with the IRDAI. Andrew Shaw presented on

recent IAIS macroprudential work, including updates from the June committee meetings and global insurance

market report. Members showed particular interest in FlU’s engagement with IRDAI, and specifically, with the

implementation of supervisory materials underlying the holistic framework.

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Chairman Doyle confirmed that FACT members had no new business, then adjourned the meeting.

MEETING ADJOURNED AT 3:45 PM.

I hereby certify these minutes of the September 26, 2023, Federal Advisory Committee on Insurance public

meeting are true and correct to the best of my knowledge.

John Doyle, Chair

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