U.S. Treasury Releases Report on Global Reinsurance Industry

December 31, 2014

The U.S. Department of the Treasury’s Federal Insurance Office (FIO) has released a report outlining the role the global reinsurance industry plays in the U.S. insurance industry.

The report, Breadth and Scope of the Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States, is required under the Dodd-Frank Act.

The report summarizes the history of reinsurance as a product and an industry, and outlines the various functions of reinsurance.

According to the announcement, the report emphasizes that “global reinsurers are vital to U.S. insurers and thus important for the general economic prosperity” of the United States, including through enhanced availability and affordability of insurance.

Among the many benefits global reinsurers bring to the insurance sector, the report discusses:

  1. Stabilizing Underwriting Results
  2. Increasing Underwriting Capacity
  3. Supporting Entry Into and Exit from Insurance Markets
  4. Promoting Capital Allocation Among Affiliates
  5. Achieving Risk Concentration or Diversification

The extent to which U.S. property /casualty insurers rely on reinsurance as of year-end 2013 was approximately 19 percent across all lines, according to the report. For property lines of insurance business, the average utilization is 18 percent for unaffiliated reinsurers, and is as high as 40 percent for allied lines.

The report indicates that the importance of global reinsurers may be most apparent following natural disasters and other catastrophes.

The report notes that Hurricanes Katrina, Rita and Wilma in 2005 resulted in about $90 billion of U.S. insured property losses, of which non-U.S. reinsurers paid approximately $59 billion. Likewise, reinsurers indemnified insurers for about 60 percent of the insured losses from the September 11th terrorist attacks, which at the time was the largest insured loss in U.S. history. More recently, Superstorm Sandy in 2012 resulted in an estimated $26 billion of insured losses, with insurers accounting for approximately $19 billion of this amount. About 40 percent of the loss to insurers was reimbursed through reinsurance.

FIO, which was established within Treasury as part of the Dodd-Frank Act, monitors the insurance sector, including identifying issues that could contribute to systemic risk in the insurance industry or the U.S. financial system.

The report is available here.

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