The 141-page report is chock-full of information on both the Property & Casualty, Life & Health and Accident & Health marketplaces
The Federal Insurance Office (FIO) of the United States Department of the Treasury issued its annual report on the United States insurance industry. Now in its eighth edition, the report is a result stemming from The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which mandates it. In response to this statutory mandate, the FIO has consistently produced detailed annual reports describing the overall insurance market within the United States as well as our nation’s place in the increasingly international aspects of cross-border insurance regulation.
The report has 107 pages of text and charts, and covers the calendar year 2017, in the United States insurance industry. For readers interested, they may click on the report’s image to obtain a copy.
The Report gives an overview of the U.S. insurance industry
The report presents and analyzes the financial performance and condition of the key U.S. insurance industry sectors: life and health, property and casualty, and health.
The industry financial overview includes analysis of the insurance industry’s capital markets activity, the increasing prominence of non-U.S. reinsurers, and the expanding role of alternative risk transfer mechanisms such as insurance-linked securities.
The US continues to be the largest single marketplace globally, followed by China
According to the 2019 Report, The United States continues to be the world’s largest single-country insurance market as of 2018. The U.S. currently maintains a 28% share of all global direct premiums written. China follows as the second largest single-country marketplace with an 11 percent share of global direct premiums written. If viewed as a whole, along with the U.K., the EU has a comparable share to the U.S. of all global direct premiums with a combined 27 percent market share.
While global direct written premiums only increased 1.5 percent in “real terms as adjusted for inflation” 2018 was the first time that world direct premiums surpassed the $5 trillion threshold.
An overview of the Domestic Marketplace
Since the financial crisis a decade ago, the insurance industry has been able to maintain a relatively stable financial profile. Ten years on, however, the FIO notes that the financial economic environment has changed quite a bit since 2009. More specifically, while the past decade has been stable, there are “recent signs of potential weakening in the financial health of both the Life & Health (L&H) and (P&C) sectors. The following graph and bullets from the report highlight the most salient points from the report:
- For 2018, total P&C sector net premiums written reached a record level at $615 billion, marking a strong ten percent increase over 2017 levels.
- Direct premiums written for personal lines of business grew by six percent, while direct premiums written for commercial lines of business increased by more than four percent.
- Net reinsurance premiums ceded dropped by 30 percent, or some $29 billion, and boosted the growth in net premiums written.
For example, the Report notes that for P&C sector, both cash growth and short-term investments turned negative last year, as well as policyholder surplus. As for L&H, this sector has logged negative growth for the past two years in its operating income.
Other facts from the report include:
- Since the 2009 low point for domestic insurance premiums (following the financial crisis), industry premiums have grown in every year except in 2013.
- In 2018, total direct premiums written for the combined L&H and P&C sectors were $1.41 trillion, growing by more than five percent over 2017 levels and nearly 29 percent from 2009.
- Premium growth in 2018 was the second highest since 2009, exceeded only by a slightly stronger performance in 2011.
What a difference five years has made
One of the most interesting facts to note is how much the Federal Insurance Report has changed over the past five years. If you review our article from 2014, in comparison, one would immediately note that there is virtually no reference or mention in the report of either cyber insurance nor insurtech.
Fast forward to 2019, and one can see the growing importance of each of these areas in terms of how much space they now occupy in the report. Out of 141 pages, the report now dedicates a seven-page section entitled Cyber Insurance and Insurance Industry Cybersecurity starting on Page 39 of the report. In addition, the Treasury hosted a cybersecurity tabletop exercise with various large insurers, in August 2018 as well as a joint regional cybersecurity exercise in February 2019 with the NAIC.
As for insurtech, Section D. of Chapter V. entitled Economic Growth and Informed Choices dedicates 15 pages to the rise of innovation and what it means for the insurance industry. The following graph outlines all of the innovation areas the FIO has tracked for the inclusion in this year’s Report. The following is a look at the amount of investment that has been poured into insurtech since 2012.
Other interesting facts from this year’s report
- There were approximately 90 mergers and acquisitions in 2018 involving U.S. insurers. The total value of these transactions totaled approximately $27.6 billion.
- Anti-rebating laws are increasingly being looked at as “low-hanging fruit ripe for state law reform.”During the NAIC’s Summer meeting, members of the Innovation and Technology Task Force “agreed to request an update on model law anti-rebating prohibitions.”
- Net investment income for the P&C sector increased for the second consecutive year, rising a strong 14 percent to $57 billion in 2018 from $50 billion in the prior year.
- The P&C sector’s net income decreased for the fourth consecutive year in 2017, dropping eight percent to almost $41 billion from $44 billion reported in 2016.
- The Treasury and the FIO have both acknowledged the growing need for long-term care. As of year-end 2018, an estimated 4.7 million individual LTCI coverages were in force, 289 with LTCI policies paying $10.3 billion in claims to approximately 303,000 individuals during the year. Even so, the market for traditional, stand-alone LTCI policies continued to decline in 2018.