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FSOC 2016: Brokers and insurers show little growth

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Life insurers reported a slight decrease in premiums along with greater use of reinsurance in 2014, according to the latest report of the Financial Stability Oversight Council (FSOC), citing the slow growth as a product of the current consistent low interest rate environment.

But, lower reserve increases than in 2014 allowed for an increase in net income for life insurers, the report said.

At the same time, the report noted the continuing consolidation of the broker-dealer industry. It said the number of broker-dealers registered with the U.S. Securities and Exchange Commission has declined steadily since 2009, citing consolidation and declining net income. The report also said that aggregate net income in the broker-deal sector has declined 3.8 percent over the past year, and is more than 43 percent below its 2009 level.

The report listed MetLife as the fifth largest U.S. financial institution, behind J.P. Morgan, Bank of America, Wells Fargo and Citi. It listed Prudential Financial, Berkshire Hathaway and American International Group as the eighth, ninth and 10th largest U.S. financial institutions.

New York Life Insurance Co. was listed as the largest mutual insurance company, followed by TIAA-Cref.

The FSOC report was released last night after a regular meeting of the FSOC, which is chaired by Jacob Lew, Treasury secretary. At the meeting where the report was released, Lew made clear that the Obama administration would continue to defend the FSOC against legislative proposals “that would weaken” the FSOC’s ability to provide comprehensive oversight of the financial services industry. Lew added that as both he and President Obama “have both made clear,” we will oppose legislation that weakens important taxpayer, investor, and consumer protections by impeding the ability of regulators to identify and respond to threats to financial stability. 

“U.S. markets and financial institutions are constantly evolving,” Lew said. “We must remain alert and responsive to new challenges in order to maintain the safety, soundness, and resiliency of our financial system.”

The reports cites the current low interest rate environment as continuing to be a “challenge to the profitability of the insurance industry,” particularly for life insurers.

The report also said the net yield on invested assets of insurers has generally declined since 2009.

“While the low interest rates have not caused a significant shift in insurers’ investment allocations, insurers have modestly increased investment in certain asset types to capture higher expected yields,” the report said.

The amount of capital in the life and property and casualty insurance industry has increased over the past several years, the report said.

In the life insurance sector, equity, which includes capital and surplus, has grown steadily since 2010. This growth has generally kept pace with the growth in assets; the ratio of equity-to-assets has remained relatively constant, hovering between 8.75 percent and 9.50 percent since 2010, the report said.

In the property and casualty sector, year-end 2015 equity was essentially flat year-over-year, marking an end to the steady increase in equity over the previous five years, the report said.

The capital-to-asset ratio in this sector has remained relatively constant, hovering between 35 and 40 percent. The P&C sector continues to operate with far less asset leverage than the life insurance sector. In general, P&C businesses have greater volatility in earnings from underwriting than life insurers due to the impact of catastrophic events, the report said.

As for the broker-dealer industry, aggregate broker-dealer revenues fell 1.3 percent in 2015, as increases in supervisory, advisory, and administrative fees were more than offset by declines in underwriting fees and commissions.

The reports notes with concern the relative concentration of the U.S. broker-dealer sector. The report said approximately 60 percent of industry assets were held by the top 10 broker-dealers as of year-end 2015.

The report added that the concentration of the largest broker-dealers has remained fairly constant over the past several years. Assets held within the U.S. broker-dealer industry declined 9 percent to $4.1 trillion in 2015, well below the peak of $6.8 trillion in 2007, the report said.


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