FIO Annual Report

The Federal Insurance Office (FIO) released its first annual report on Wednesday, June 12, 2013. The report gives an industry financial overview, discusses legal and regulatory developments, and identifies current issues and emerging trends.

According to the report, the industry's financial condition appears to be healthy, highlighting year-end 2012 reported surplus levels "at record highs for both the L/H and P/C sectors" and improved profitability for the insurance industry in 2012. The report discusses the process for designating nonbank financial companies for heighted prudential supervision, although it appears to have been finalized before the recent announcement of such designations. The low interest rate environment, natural catastrophes, changing demographics in the United States and growth opportunities in emerging markets are identified as issues and developing trends.

The report is available at: http://www.treasury.gov/initiatives/fio/Pages/default.aspx.

June 13 Congressional Hearing

On Thursday, June 13, 2013, the House Financial Services Committee's Housing and Insurance Subcommittee held a hearing entitled "The Impact of International Regulatory Standards on the Competitiveness of U.S. Insurers." Michael McRaith, director of FIO, National Association of Insurance Commissioners (NAIC) CEO and former Senator Ben Nelson, and Roy Woodall, the Financial Stability Oversight Committee voting member with insurance expertise, were witnesses. Housing and Insurance Subcommittee Chair Randy Neugebauer (R-TX), who opened the hearing by noting that it would be the first of many hearings on insurance, said that the subcommittee's objectives were to understand better the strategic priorities of the U.S. insurance supervisors, to confirm with witnesses that the policy agenda was a net positive for policyholders and insurers, and to raise awareness of proposals that could undermine successful state-based insurance regulation. Subsequent hearing testimony focused on the International Association of Insurance Supervisors' development of ComFrame regulatory standards and their application to the United States, the status of the designation of Global Systemically Important Insurers (G-SII's), and the coordination between FIO and the NAIC in international matters.

Representative Blaine Luetkemeyer (R-MO) expressed fear that the adoption of international insurance standards at the IAIS would force U.S. insurance companies to restructure their financial systems based on an international entity's direction. Other subcommittee members and Senator Nelson weighed in by noting that international standards under consideration are increasingly bank-centric. McRaith pointed out that ComFrame is an outcomes-oriented set of standards that would allow countries to tailor their specific regulations to achieve the outcomes. McRaith agreed that bank standards should not be applied to the insurance industry because insurance products are different from banking products.

McRaith and Nelson both discussed collaboration between FIO and state insurance regulators on international matters, although they had differing perspectives on the degree of such collaboration. McRaith spoke positively about the collaborative efforts. Nelson also recognized that FIO and NAIC are cooperating, but specified that FIO does not speak for state regulators and should not participate in regulatory discussions alone. In response, consistent with his prior positions on the NAIC, Representative Ed Royce (R-CA) stated that the NAIC and state regulators are "structurally and constitutionally incapable of representing U.S. insurers interests abroad."

The full hearing and submitted written testimony of the witnesses is archived and available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=337125.