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Federal Insurance Office warns of low rates, hackers

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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.  

Related: Will FIO report help disability and LTC insurers?

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.

The FIO notes that, both in the United States and Europe, some advisory groups have suggested the regulators could help insurers get better yields and expand funding for public infrastructure structures by giving the insurer assets invested in public infrastructure projects more favorable treatment.

In a section on trends in the health insurance industry, the FIO says a traditional, Pittsburgh-based company, Highmark, dropped out of its top 10 ranking, and that a Long Beach, California-based company known for its Medicaid plans, Molina Healthcare, joined the top 10.

The FIO says the number of proposed life and health deals increased dramatically between 2014 and 2015, but that it’s not clear whether all of the companies involved in the health insurance-related deals will be able to complete their transactions.

In a report section on cybersecurity, the FIO points that two major 2015 breaches at large health insurers show how private health information and other personally identifiable information can be.

“Insurers should continue to improve risk management practices that protect against this growing threat,” the FIO says.

Related:

State insurance concerns bubble up to federal level

FIO releases first annual report

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