The Federal Insurance Office says in its new annual report that low interest rates are pushing life insurers to lock away their assets for longer periods of time, that merger activity in the life and health sector is heating up, and that Molina Healthcare is now one of the country’s 10 biggest health insurers.
The FIO is part of the U.S. Treasury Department.
Traditionally, the Treasury Department and other federal agencies have focused on regulating banking and left regulation of the insurance industry to the states.
The drafters of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created the FIO because of a concern that federal agencies knew too little about insurance to notice whether problems in that sector could threaten the stability of the U.S. financial system.
The FIO tells federal policymakers in the new report that low interest rates have been hard on many insurers, and especially on life insurers.
Returns are low, and “life insurers may face challenges constructing investment portfolios that properly match liabilities,” the FIO says.
In some cases, life insurers are trying to support the obligations linked to annuity guarantees, long-term care insurance and other products “by extending the duration of their portfolios and by investing in lower quality or less liquid assets in order to increase investment yield,” the FIO says.
Insurers may also be using captive reinsurers in ways that make yield-related problems harder for regulators to see, the FIO says.