Insurance Industry Impacts, Regulatory Response to 2007-2009 Financial Crisis Reported by U.S. Government Accountability Office Today

Jul 29, 2013


In response to a request by U.S. Representatives Randy Neugebauer (R-TX) and Steve Stivers (R-OH), the U.S. Government Accountability Office studied the effects of the 2007-2009 financial crisis on the insurance industry and policyholders, and the regulatory response.

To view the resulting GAO report issued today, July 29, 2013, click here.

The report, entitled “Impacts of and Regulatory Response to the 2007-2009 Financial Crisis” addresses (1) what is known about how the financial crisis affected insurance industry and policyholders, (2) the factors that affected the impact of the crisis on insurers and policyholders, and (3) the types of actions that have been taken since the crisis to help prevent or mitigate potential negative effects of future economic downturns on insurance companies and their policyholders.

With a few exceptions, the effects of the financial crisis on insurers and policyholders were found to be generally limited.  While some insurers experienced capital and liquidity pressures in 2008, their capital levels had recovered by the end of 2009.  Net income also dropped but recovered somewhat in 2009.  Effects on insurers’ investments, underwriting performance, and premium revenues were also limited.

However, some life insurers that offered variable annuities with guaranteed living benefits, as well as financial and mortgage guaranty insurers, were more affected by their exposures to the distressed equity and mortgage markets.  The financial crisis had a generally minor effect on policyholders, but some mortgage and financial guaranty policyholders–banks and other commercial entities–received partial claims or faced decreased availability of coverage.

The report also found that actions by state and federal regulators, and the National Association of Insurance Commissioners (“NAIC”), among other factors, helped limit the effects of the crisis through increased and more detailed information sharing.

Also, a change in methodology by NAIC to help better reflect the value of certain securities also reduced the risk-based capital some insurers had to hold.  To further support insurers’ capital levels, some states and the NAIC also changed reporting requirements for certain assets.  These changes affected insurers’ capital levels for regulatory purposes, but rating agency officials said they did not have a significant effect on insurers’ financial condition.  Several federal programs also provided support to qualified insurers.

Finally, insurance business practices, regulatory restrictions, and a low interest rate environment helped reduce the effects of the crisis.

The NAIC and state regulators’ efforts since the crisis have included an increased focus on insurers’ risks and capital adequacy, and oversight of noninsurance entities in group holding company structures.  The Own Risk and Solvency Assessment, an internal assessment of insurers’ business plan risks, will apply to most insurers and is expected to take effect in 2015.  The NAIC also amended its Insurance Holding Company System Regulatory Act to address the issues of transparency and oversight of holding company entities.  However, most states have yet to adopt the revisions, and implementation could take several years.

To create the 91-page report, the GAO analyzed insurance industry financial data from 2002 through 2011 and interviewed a range of industry observers, participants and regulators.


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