Insurance Markets: Impacts of and Regulatory Response to the 2007-2009 Financial Crisis Page: 2 of 91
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GAO
Highlights
Highlights of GAO-13-583, a report to
congressional requesters
Why GAO Did This Study
Insurance plays an important role in
ensuring the smooth functioning of the
economy. Concerns about the
oversight of the $1 trillion life and
property/casualty insurance industry
arose during the 2007-2009 financial
crisis, when one of the largest holding
companies, AIG, suffered severe
losses that threatened to affect its
insurance subsidiaries. GAO was
asked to examine any effects of the
financial crisis on the insurance
industry.
This report addresses (1) what is
known about how the financial crisis of
2007-2009 affected the insurance
industry and policyholders, (2) the
factors that affected the impact of the
crisis on insurers and policyholders,
and (3) the types of actions that have
been taken since the crisis to help
prevent or mitigate potential negative
effects of future economic downturns
on insurance companies and their
policyholders.
To do this work, GAO analyzed
insurance industry financial data from
2002 through 2011 and interviewed a
range of industry observers,
participants, and regulators.View GAO-13-583. For more information,
contact Alicia Puente Cackley (202) 512-8678
or cackleya@gao.gov.INSURANCE MARKETS
Impacts of and Regulatory Response to the 2007-
2009 Financial CrisisWhat GAO Found
The effects of the financial crisis on insurers and policyholders were generally
limited, with a few exceptions. While some insurers experienced capital and
liquidity pressures in 2008, their capital levels had recovered by the end of 2009
(see figure). Net income also dropped but recovered somewhat in 2009. Effects
on insurers' investments, underwriting performance, and premium revenues were
also limited. However, some life insurers that offered variable annuities with
guaranteed living benefits, as well as financial and mortgage guaranty insurers,
were more affected by their exposures to the distressed equity and mortgage
markets. The crisis had a generally minor effect on policyholders, but some
mortgage and financial guaranty policyholders-banks and other commercial
entities-received partial claims or faced decreased availability of coverage.
Life and Property Casualty Insurers' Net Income and Capital, 2002-2011
Net income (dollars in billions) Capital (dollars in billions)
Sso-....... ..-*O 600
60 ... " O40
20
o m2002 2003 2004 2005 2006 2007 2008 2009
Source: GAO analysis of statutory financial statement data in SNL Financial.400
-0-
200
-200
-400
-600
2010 2011Capital P/C
Capital life
Net income
life
Net income
P/CNote: Data are shown in nominal dollars (i.e., unadjusted for inflation).
Actions by state and federal regulators and the National Association of Insurance
Commissioners (NAIC), among other factors, helped limit the effects of the crisis.
First, state insurance regulators shared more information with each other to focus
their oversight activities. In response to transparency issues highlighted by
American International Group, Inc.'s securities lending program, NAIC required
more detailed reports from insurers. Also, a change in methodology by NAIC to
help better reflect the value of certain securities also reduced the risk-based
capital some insurers had to hold. To further support insurers' capital levels,
some states and NAIC also changed reporting requirements for certain assets.
These changes affected insurers' capital levels for regulatory purposes, but
rating agency officials said they did not have a significant effect on insurers'
financial condition. Several federal programs also provided support to qualified
insurers. Finally, insurance business practices, regulatory restrictions, and a low
interest rate environment helped reduce the effects of the crisis.
NAIC and state regulators' efforts since the crisis have included an increased
focus on insurers' risks and capital adequacy, and oversight of noninsurance
entities in group holding company structures. The Own Risk and Solvency
Assessment, an internal assessment of insurers' business plan risks, will apply to
most insurers and is expected to take effect in 2015. NAIC also amended its
Insurance Holding Company System Regulatory Act to address the issues of
transparency and oversight of holding company entities. However, most states
have yet to adopt the revisions, and implementation could take several years.United States Government Accountability Office
...O- '-
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United States. Government Accountability Office. Insurance Markets: Impacts of and Regulatory Response to the 2007-2009 Financial Crisis, report, June 27, 2013; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc300226/m1/2/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.