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Federal Insurance Office releases first industry report

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Federal Insurance Office releases first industry report

After a prolonged silence since its inception in 2011, the Federal Insurance Office of the U.S. Department of the Treasury issued its first public report on Wednesday.

The 53-page “Annual Report of the Insurance Industry” is the first of several long-overdue public reports mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more significant report detailing recommendations to modernize and improve insurance regulation in the United States is still forthcoming.

Nonetheless, Wednesday's report provides a broad overview of the insurance industry, breaking out the financial performance of both the life/health and property/casualty sectors.

“After three years of declines, P/C sector annual net written premiums nearly returned to pre-financial crisis levels by 2011 and continued to grow in 2012,” according to the report. “While personal lines premium levels remained stable during the crisis, commercial lines premiums decreased by $30 billion from 2007 to 2010, before growing again by $13 billion in 2011 and $9 billion in 2012.”

The report also details the regulatory and economic issues affecting the industry, noting that the persistent low interest-rate environment has sapped industry investment income and pressured insurers to improve their underwriting performance.

“Despite near-record net investment income in 2012, insurers' investment yields remained low as a percentage of invested assets,” according to the report. “The prospect of continued low interest rates for a prolonged period poses a challenge to insurers seeking to balance investment risks and returns, especially while trying to build capital and to expand product offerings.”

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The FIO, created by Congress to monitor all aspects of the insurance industry while leaving prudential regulation to state regulators, notes in the report that insurers do face challenges as regulators work to refine the rules governing the industry.

The report cited the Financial Stability Oversight Council's authority to designate nonbank financial companies for supervision by the Federal Reserve and the Own Risk and Solvency Assessment initiative overseen by the National Association of Insurance Commissioners as prime examples.

“In 2012, regulators in the United States and internationally have expended significant efforts on financial stability and prudential matters with respect to financial firms, generally, and insurers, specifically,” according to the report.

In congressional testimony in March, Michael McRaith, the FIO director, said he expects the office to finish all of its mandated insurance industry reports by July.

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