Federal Insurance Office releases first annual report on U.S. industry

The Federal Insurance Office in the United States has released its first annual report on the insurance industry in the country, noting that persistent low interest rates are continuing to present a challenge.

The office, within the U.S. Treasury department, was created through the Dodd-Frank Wall Street Reform and Consumer Protection Act, tasked with monitoring various aspects of the insurance industry and reporting to the president and Congress.

In 2012, insurance premiums in the life and health and property and casualty sectors totaled more than $1.1 trillion, about 7% of gross domestic product, the report notes.

U.S.-based insurers also reported $7.3 trillion in total assets, $6.8 trillion of which were invested assets, it says.

Overall, the industry is recovering well from the decline it faced during financial crisis, according to the report.

Regulators in the U.S. and internationally also “have expended significant efforts on financial stability and prudential matters with respect to financial firms, generally, and insurers, specifically,” the report notes.

Those efforts included the development of the Own Risk and Solvency Assessment (ORSA), and the Solvency II Directive in Europe.

Still, low investment yields from low interest rates remain an issue for the industry, expecially in the life and health sector, the report says.

“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,” it says.

“While insurers would benefit from an increase in interest rates through improved investment returns, a sudden, significant rate increase could present threats,” it notes.

“A sudden increase in general interest rate levels would increase unrealized losses in insurer fixed income portfolios and, at the same time, could prompt policyholders to surrender contracts for higher yield elsewhere.