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 2020 Annual Report on the Insurance Industry (September 2020) TABLE OF CONTENTS I. INTRODUCTION ............................................................................................................... 1 A. The Structure of this Report ............................................................................................. 1 B. Federal Insurance Office .................................................................................................. 2 1. Insurance Regulation and the Federal Insurance Office ............................................... 2 2. FIO Activities ................................................................................................................ 3 II. THE COVID-19 PANDEMIC AND THE INSURANCE INDUSTRY .......................... 9 A. The COVID-19 Pandemic and the U.S. L&H Sector .................................................... 10 1. L&H Insurers’ Potential Asset Exposures from the COVID-19 Pandemic ................ 11 2. The Potential Impact of the COVID-19 Pandemic on L&H Insurance Underwriting Results ................................................................................................. 15 3. Effects of the Low Interest Rate Environment ............................................................ 17 4. Sales and Distribution ................................................................................................. 18 5. Variable Annuities ....................................................................................................... 20 B. The COVID-19 Pandemic and the U.S. P&C Sector ..................................................... 21 1. Specific P&C Line Impact .......................................................................................... 22 2. P&C Sector’s Asset Exposures from the COVID-19 Pandemic ................................. 30 C. Insurer Responses to the COVID-19 Pandemic ............................................................. 31 1. Policyholder Relief ...................................................................................................... 31 2. Insurer Continuity Planning and Practices .................................................................. 32 D. State Insurance Regulatory Responses to the COVID-19 Pandemic ............................. 34 1. Guidance and Relief for Policyholders ....................................................................... 35 2. Guidance and Relief for Insurers ................................................................................. 36 3. State Regulator Information Requests and Data Calls ................................................ 37 E. International Insurance Supervisory Responses to the COVID-19 Pandemic ............... 38 1. IAIS Response ............................................................................................................. 39 2. FSB Response .............................................................................................................. 40 3. EIOPA Response ......................................................................................................... 41 Box 1: The World Bank Cat Bond and Alternative Risk Solutions for Pandemics ..... 42 III. SYSTEMIC RISK AND SOLVENCY ............................................................................ 43 A. Domestic Developments ................................................................................................ 43 1. NAIC Group Capital Calculation ................................................................................ 43 2. Federal Reserve Building Block Approach ................................................................. 44 3. Distinctions between GCC and BBA .......................................................................... 46 4. NAIC Macro Prudential Initiative ............................................................................... 46 5. Financial Stability Oversight Council Final Interpretive Guidance ............................ 48 B. International Developments ........................................................................................... 49 1. Development of an International Insurance Capital Standard for Insurance Groups ....................................................................................................................... 49 _____________________________________________________________________________ FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY i Annual Report on the Insurance Industry (September 2020) 2. IAIS’s Activities-Based Approach and the Holistic Framework ................................ 53 IV. EFFICIENT REGULATION AND GOVERNMENT PROCESSES .......................... 56 A. Role of State and Federal Regulation ............................................................................. 56 1. FIO Engagement with Federal Agencies and the States ............................................. 56 2. Federal Agency Developments ................................................................................... 57 Box 2: The Availability of Insurance for Natural Catastrophes .................................. 59 3. Federal Advisory Committee on Insurance ................................................................. 62 4. Other State Developments: Accreditation Program ................................................... 64 B. Terrorism Risk Insurance Program ................................................................................ 65 1. 2019 TRIP Reauthorization ......................................................................................... 66 2. TRIP Data Collection .................................................................................................. 66 3. Program Effectiveness Report ..................................................................................... 67 4. Advisory Committee on Risk-Sharing Mechanisms ................................................... 68 C. Cyber Insurance and Insurance Industry Cybersecurity ................................................ 68 1. The Cyber Insurance Market ....................................................................................... 68 2. Insurance Industry Cybersecurity ................................................................................ 71 V. INTERNATIONAL ENGAGEMENT ............................................................................ 74 A. IAIS ................................................................................................................................ 74 1. FIO’s Role Within the IAIS ........................................................................................ 74 2. Insurance Core Principles and ComFrame .................................................................. 77 B. Covered Agreements with the European Union and with the United Kingdom ............ 78 1. NAIC Progress on Credit for Reinsurance Models ..................................................... 80 2. U.S. State Progress on Credit for Reinsurance Laws .................................................. 81 3. NAIC Progress on Group Capital Assessment ............................................................ 82 4. The Covered Agreement Joint Committees ................................................................ 83 C. Insurance Dialogue Projects ........................................................................................... 83 1. EU-U.S. Insurance Dialogue Project ........................................................................... 83 2. U.S.-UK Insurance Dialogue Project .......................................................................... 84 D. Financial Stability Board ................................................................................................ 84 Box 3: LIBOR Transition ............................................................................................ 86 E. OECD ............................................................................................................................. 87 VI. ECONOMIC GROWTH AND INFORMED CHOICES.............................................. 88 A. Long-Term Care Insurance ............................................................................................ 88 B. Retirement Income ......................................................................................................... 91 1. SECURE Act and Annuities ........................................................................................ 91 2. Annuities and the 403(b) Market ................................................................................. 92 C. Standards of Conduct ..................................................................................................... 93 D. InsurTech ........................................................................................................................ 96 1. InsurTech Market Overview ....................................................................................... 96 _____________________________________________________________________________ FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY ii Annual Report on the Insurance Industry (September 2020) 2. Innovation and Its Impact, Including Responses to and Effects of the COVID-19 Pandemic ..................................................................................................................