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 2018 Annual Report on the Insurance Industry (September 2018) Table of Contents I. INTRODUCTION .......................................................................................... 1 A. Structure of Report ............................................................................................................... 1 B. Federal Insurance Office ...................................................................................................... 1 1. Insurance Regulation and the Federal Insurance Office .................................................. 1 2. FIO’s Five Pillars ............................................................................................................. 3 3. FIO Activities ................................................................................................................... 4 C. Treasury’s EO Report .......................................................................................................... 7 1. Systemic Risk and Solvency ............................................................................................ 8 2. Efficient Regulation and Government Processes ............................................................. 9 3. International Engagement .............................................................................................. 11 4. Economic Growth and Informed Choices ...................................................................... 12 II. SYSTEMIC RISK AND SOLVENCY ....................................................... 14 A. Domestic Developments .................................................................................................... 14 1. NAIC Group Capital Calculations ................................................................................. 14 2. NAIC Macro Prudential Initiative .................................................................................. 16 3. Financial Stability Oversight Council Designations ...................................................... 17 B. International Developments ............................................................................................... 18 1. Activities-Based Approach ............................................................................................ 18 2. Development of an International Insurance Capital Standard for Insurance Groups .... 20 3. IAIS Liquidity Management and Liquidity Stress Testing ............................................ 22 III. EFFICIENT REGULATION AND GOVERNMENT PROCESSES ..... 24 A. Role of State and Federal Regulation ................................................................................ 24 1. FIO Engagement with Federal Agencies and the States ................................................ 24 2. Federal Agency Developments ...................................................................................... 24 B. Terrorism Risk Insurance Program .................................................................................... 25 1. Data Collection and the 2018 Data Call ......................................................................... 26 2. Terrorism Risk Insurance Program Effectiveness Report .............................................. 26 3. Advisory Committee on Risk-Sharing Mechanisms ...................................................... 27 C. Cyber Insurance and Insurance Industry Cybersecurity .................................................... 28 1. The Cyber Insurance Market .......................................................................................... 28 2. Insurance Industry Cybersecurity................................................................................... 30 D. Mitigation and Coordination with Other State and Federal Agencies ............................... 32 ______________________________________________________________________________ FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY i Annual Report on the Insurance Industry (September 2018) IV. INTERNATIONAL ENGAGEMENT ....................................................... 36 A. IAIS .................................................................................................................................... 36 1. Structural Changes at the IAIS ....................................................................................... 36 2. FIO’s Role Within the IAIS ........................................................................................... 38 3. Insurance Core Principles/ComFrame ........................................................................... 39 B. U.S.-EU Covered Agreement ............................................................................................ 41 1. Background; Benefits; and Transparency ...................................................................... 41 2. Implementation by Federal and State Authorities .......................................................... 44 3. Transparency and the Joint Committee .......................................................................... 51 4. The Path Forward ........................................................................................................... 52 C. EU-U.S. Insurance Project ................................................................................................. 55 D. Financial Stability Board ................................................................................................... 56 V. ECONOMIC GROWTH AND INFORMED CHOICES ......................... 57 A. Standards of Conduct ......................................................................................................... 57 B. Retirement Income ............................................................................................................. 58 C. Long-Term Care Insurance ................................................................................................ 59 D. InsurTech ........................................................................................................................... 61 1. The InsurTech Market and Recent InsurTech Developments ........................................ 61 2. Regulatory Responses to InsurTech ............................................................................... 63 VI. INSURANCE INDUSTRY FINANCIAL OVERVIEW ........................... 65 A. Domestic Insurance Marketplace Overview ...................................................................... 65 1. Financial Performance and Condition ............................................................................ 66 2. Life and Health Sector.................................................................................................... 70 3. Property and Casualty Sector ......................................................................................... 84 4. Market Performance ....................................................................................................... 95 B. Capital Markets Activity .................................................................................................... 96 1. Mergers & Acquisitions of U.S. Insurers ....................................................................... 97 2. Alternative Risk Transfer Insurance Products ............................................................... 97 C. International Insurance Marketplace Overview ............................................................... 102 D. Domestic Insurance Market Outlook ............................................................................... 104 ______________________________________________________________________________ FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY ii Annual Report on the Insurance Industry (September 2018) Glossary ABA .......... Activities-Based Approach ACRSM .......... Advisory Committee on Risk-Sharing Mechanisms A&H .......... Accident and Health ART .......... Alternative Risk Transfer B3i .......... Blockchain Insurance Initiative BEAT .......... Base Erosion and Anti-Abuse Tax BLS .......... Bureau of Labor Statistics, U.S. Department of Labor CFPB .......... Consumer Financial Protection Bureau Code .......... Internal Revenue Code ComFrame .......... IAIS Common Framework for the Supervision of IAIGs Core Principles .......... Core Principles for Financial Regulation set forth in Executive Order 13772 (February 3, 2017) Council .......... Financial Stability Oversight Council CRI .......... Collateralized Reinsurance Dodd-Frank Act .......... Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 DOL .......... U.S. Department of Labor EIOPA .......... European Insurance and Occupational Pensions Authority DTA .......... Deferred Tax Assets DTL .......... Deferred Tax Liabilities EO Report .......... U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities: Asset Management and Insurance ERISA .......... Employee Retirement Income Security Act of 1974 EU .......... European Union FACI .......... Federal Advisory Committee on Insurance Fannie Mae .......... Federal National Mortgage Association FATF .......... Financial Action Task Force FCA .......... United Kingdom’s Financial Conduct Authority FCTF .......... IAIS Financial Crime Task Force FDIC .......... Federal Deposit Insurance Corporation Federal Reserve .......... Board of Governors