North America

  Economic conditions in the U.S. improved in 2018,
    in part on the strength of the reduction in corporate
      taxes presented by the Trump Administration. GDP
        rose 2.9% in 2018 and unemployment dropped below
          4.0% by the end of the year, reaching a 49-year low in
            November 2018. The financial services industry, although
              helped by increases in the interest rate, remained stressed
                by catastrophe losses and a weak bond market.

North America

  Economic conditions in the U.S. improved in 2018,
    in part on the strength of the reduction in corporate
      taxes presented by the Trump Administration. GDP
        rose 2.9% in 2018 and unemployment dropped
          below 4.0% by the end of the year, reaching a
            49-year low in November 2018. The financial
              services industry, although helped by increases
                in the interest rate, remained stressed by
                  catastrophe losses and a weak bond market.

North America

Economic conditions in the U.S. improved in 2018, in part on the strength of the reduction in corporate taxes presented by the Trump Administration. GDP rose 2.9% in 2018 and unemployment dropped below 4.0% by the end of the year, reaching a 49-year low in November 2018. The financial services industry, although helped by increases in the interest rate, remained stressed by catastrophe losses and a weak bond market.



Covered agreement with the EU

The Federal Insurance Office (FIO) continued negotiations with the European Commission on the implementation of the EU-U.S. covered agreement signed by the EU in 2018. Running up to the implementation, the National Association of Insurance Supervisors (NAIC) had hoped to complete by December 2018 the new model law and model regulation—eliminating reinsurance collateral requirements for qualified reinsurers—but now expects the work will be finished by June 2019. The changes will still need to be adopted by the individual states.

The FIO has also signed a covered agreement with the U.K., which replicated the terms of the EU agreement. This agreement will go into effect after the U.K. leaves the EU. Bermuda, Japan and Switzerland are hoping to use the NAIC process rather than negotiating a covered agreement with the U.S., but want to ensure the process grants their reinsurers similar access to the U.S. market. These countries and Europe are also still affected from the Base Erosion and Anti-Abuse Tax (BEAT), which limits the ability of multinational corporations to shift profits from the U.S., imposed on affiliate reinsurance transactions in the 2018 tax reform act. The tax increased to 10% in 2019.

Federal flood insurance cover

In light of the numerous natural disasters that impacted the U.S. in the past two years, federal flood insurance has become a major policy debate. The traditional U.S. residential homeowners’ policy does not include flood, so consumers can only purchase the coverage from the federal program. It is estimated that only 15% of U.S. homes1 are insured for flood damage.

Recently, federal banking regulators finalized rules to make it easier for banks to accept private flood coverage for federally backed home loans. This rule will go into effect on 1 July 2019. But the push to allow more private flood insurance remains an issue in the 2019 renewals of the Insurers are divided as to their support for private flood cover, although reinsurers have taken a strong stand in support of the private option and indicated that there is sufficient capacity in the market2.

The U.S. government has been slow to respond to climate-related risks because of the debate in the U.S. regarding the causes of climate change, but the NAIC has made climate risk a high priority for 2019. As part of its action plan, the NAIC has endorsed the private flood insurance option and will develop consumer information on the role of insurance in promoting climate resiliency.

Systemic risk

The Financial Stability Oversight Council (FSOC) has rescinded the designation of Prudential Financial as one of the Global Systemically Important Insurers. The FSOC is consulting on proposed rules regarding an activities-based assessment for non-bank financial companies.

Moreover, in 2018 the NAIC expanded its approach to macroprudential issues. The NAIC’s Macroprudential Initiative focuses on four areas: liquidity, resolution and recovery, counterparty exposures and capital stress testing.

Long-term care

Long-term care remains a focus of activity at both the state and federal level in the U.S. Most U.S. health insurance policies, including Medicare, only provide limited (100 days) coverage for long-term nursing care so the only option available is separate coverage. Although this product was popular 15 years ago, the market has decreased significantly over the past 10 years and earlier legacy policies appear to have been underpriced as life spans increased. On the federal level, FIO has created a task force on long-term care, the aim of which is to evaluate solutions to harmonize rate review processes across state lines. The task force has evaluated recommendations from the NAIC, identifying implications for tax policy and other regulatory matters that would address the availability and affordability of long-term care coverage.


The Canadian insurance sector is moving towards implementation of IFRS standards, including IFRS 17 for insurance contracts in 2021. In response to insurers’ concerns that the new standard will cause volatility in capital position, the Office the Superintendent of Financial Institutions (OSFI) has announced that it will maintain its current capital frameworks. This will minimize potential impacts until the OSFI can revise both the Minimum Capital Test (MCT) for non-life—and the Life Insurance Capital Test (LICAT) for life insurers—at least until 2022.

The OSFI issued the final MCT in late 2018, revised to incorporate provisions of IFRS 16 (Leases). The OSFI is also currently revising rules for reinsurance, including an examination of concentration limits and requirements for foreign property and casualty companies operating branches in Canada.


Bermuda remains one of only two countries under the equivalent of full insurance supervision from the European Commission, and it has worked to ensure that it also meets the European standards in other financial sectors. In 2018 the EU developed new standards regarding code of conduct for taxation and requested Bermuda to change its laws and require core income-generating activities to be conducted in Bermuda. Although Bermuda had complied by the end of 2018, a technical error in the legislative process resulted in a delay in one provision, placing Bermuda on the EU list of non-cooperative jurisdictions. Bermuda has now corrected the drafting error and expects to be removed from the list by mid-2019.



Brexit has been a concern for U.S. insurers writing business in Europe, since many used the U.K. as a base for operations in the EU. In reaction to the U.K.’s decision to leave the EU, most U.S. insurance companies have protected themselves by establishing European subsidiaries—with Ireland, Luxembourg and France being favoured locations for the new operations. Having made the commitment to establish European bases, it is likely that the companies will invest in growing their EU business, although most international growth by North American insurers remains focused on Asia. The Society of Actuaries recently released a report indicating that the potential impact of Brexit on the U.S. insurance industry appears to be minimal and readily absorbed by the market.

Natural catastrophes

In 2018 the U.S. insurance market was hit badly by a string of natural catastrophes including Hurricane Michael, the wild fires in California and flooding in the Western States and Midwest. As a result, 2018 and early 2019 losses have been significant. Insured natural catastrophe losses worldwide have been estimated by Aon at USD 90 billion in 2018, making it the fourth highest year on record by this measure3. Insured losses in the US were estimated at USD 57 billion and rising for 2018 catastrophes4.

Health and life insurance

The debate on national health care continues in a very divided political climate, putting pressure on the health insurance sectors. Changes to the Affordable Care Act have caused instability in the private insurance market. Both insurer acquisitions of health care providers and the entrance of large technology and pharmaceutical companies into the health care market will also have a major impact. For a start, in 2018 drug stores chain CVS merged with Aetna Insurance, and United Health Care announced it was purchasing a large urgent care provider.

Low interest rates remain an issue for life insurers, although the federal funds’ target rate increased four times in the 2018 bringing it to 2.25 -2.50%. New accounting standards for long-duration contracts adopted by the U.S. Financial Accounting Standards Board in 2018 will also significantly change the measurement and disclosure of insurers’ cash flows. Insurers will now have to update assumptions they use to measure liabilities at least annually, rather than retain the assumptions made at contract inception.


Cyber risk and innovation

The industry and regulators in the U.S. remain very focused on cyber risks as well as on the emerging risks resulting from the increasing use of technology and artificial intelligence. The FIO has formed a cybersecurity working group as part of the Treasury’s Office of Critical Infrastructure and Compliance Policy. The NAIC is not only looking at the impact of technology in the market place but how it can improve NAIC and state government operations. The NAIC completed 17 large technology projects in 2018. Significant progress was made implementing initiatives for business intelligence, data analytics and governance and cloud migration.

Bermuda is also looking at the role of technology in reinsurance operations. The Bermuda Monetary Authority (BMA) has recently joined the Global Financial Innovation Network, a group of 29 organisations supporting financial innovation in the interest of consumers. The BMA also has initiated a Regulatory Sandbox and Innovation Hub, which will allow companies to test new technologies and offer innovative products, services and delivery mechanisms with a small sample set of customers—in a controlled environment and for a limited period of time.


Infrastructure development is also a priority, especially in the U.S. The NAIC is very conscious of the treatment of infrastructure in its capital calculations and wants to ensure capital charges support these long-term investments. The U.S. Administration has also announced initiatives for private-public partnerships in infrastructure rebuilding, possibly using tax credits, but there has been little concrete action in this area.

  1. Facts and Statistics: Flood Insurance,
  2. The Future of Flood Insurance, PCIAA, 2018
  3. Julie Y. Nye, “The Potential Effect of Brexit on the U.S. Insurance Industry,” February 2019, Society of Actuaries, page 35.
  4. Idem