Transcripts For CSPAN2 Hearing On Insurance Industry Practices 20220917

Its. American Insurance Companies regulation it is historic and it ensures local markets and needs are taken into consideration. The naic coordinates state commissioners to identify risks. Congress created the federal sherbet two promote national coordination. I am pleased to have the mariner maryland commissioner on behalf of on the naic and darrell sykes if we are going to keep hard earned money safe, blockade specializing in Life Insurance and owned by the private equity firm. Overnight, Lockheed Martin employed retirees and notified their pensions would be managed by a fee. Many employees are very nervous about that. One example of private equity giants expansion into peoples pension. We note workers and up worse off when wall street private equity firms get involved. We have seen it over and over. I asked naic and f ill look into private equities and expansion into similar pension risk. We need to understand the risks to workers. Naic and f i provided letters. Fio has done similar work. Those connections have added it risk concerns. Taken together, insurance authorities are focused on emerging risks to safeguard the economy. Argument needs rely on insurance to protect level 1s loved ones. We cant ignore when risks are built up. We know who pays the price and it is rarely insurance and executives. It is workers and families. Taxpayers who are forced to bail out companies. We have to make sure industries and agencies are prepared for risks as more americans based climate catastrophes every year. We need to ensure that insurance watchdogs are prepared. In the aftermath of disasters, we have leaving families and businesses struggling to find affordable coverage as they work to rebuild their lives. We know the industry is along has a long history of Racial Discrimination and many other industries. Black and brown families make have more difficulty in getting insurance. The New York Times reported that the customer insurance agencies and employees sued state farm and eight discrimination in the workplace in discrimination in the workplace. They requested information about large life in pnc insurance involvement. I am glad they are working on this and the naic is investigating. I look forward to reviewing fios report. I hope it will shed more light on racial equity. Later this year, the International Association of insurance supervisors will need to conserve whether the u. S. Insurance Systems Review up sanders meets International Criteria because we regulate up to meets International Criteria of standards meets International Criteria now the fed vice chair has been confirmed. Michael barr is testifying today. We will get to work with international counterparts. These issues show how critical the work you to do is to be economy. I expect fio and naic to pry our best prioritize the risks to prioritize the risks. It has been a while since our committee has held a hearing on the Insurance Industry. There are topics i would like to touch on. One is the importance of the statebased insurance regulation problem we have. Avarice to develop international and insurance efforts to develop International Insurance standards. The importance of riskbased pricing. It is important to remind everyone as the chairman alluded to that Insurance Firms are likely a at the state level are regulated at the state level. The federal government has a limited regulatory role. The system works for consumers and the industry. That is why we need to pay close attention for efforts to develop interNational Standards. I worry that the insurance capital standards developed by the International Association of insurance supervisors is incompatible with the u. S. Insurance market. There is why said widespread concern that the this not take into account certain aspects that insurance holds. The result is the implementation of it would harm the availability of longterm Insurance Products that americans rely on. Our u. S. Representatives at i ais needs to make sure that it works for the u. S. Market. I would like to touch on troubling efforts to use the Financial System to address Climate Change. There are liberal activist who want to pressure Insurance Companies to deny services to Traditional Energy companies. Those efforts are misguided. Addressing the difficult challenges posed by Global Warming soaring Energy Prices european nations have made plans to open coal plants. We have seen the Biden Administration hostility to oil production. In a democratic society, those choices and the tradeoffs must be made by elected representatives who are accountable to the american people. Not insurance executives. Ensure space financial risk in the form of financial disasters. It is the core of the business. Insurers they are going need to adjust their prices accordingly. Higher premiums are a important signal. They create a financial incentive to mitigate risks which lead to safer and more resilient communities in society. A wellfunctioning Insurance Industry is capable of addressing the National Disaster risk that it faces today and in the future. I would like to address plants plans this program would be akin to the terrorism risk program. It mandates that insurance offered terrorism insurance and in the event of a tap attack, the federal government has an increasing share. Similar programs will be problematic. It in a matter of months, the paycheck by banks and other Financial Institutions participated on a voluntary basis. Compare that to the disaster claims process after hurricane sandy. The Insurance Program but encouraged states and local governments to impose economic devastating shutdowns in the future. With the assurance of the federal government risk Insurance Program would bail them out instead of considering policy that would facilitate. Lockdowns. We should be thinking of future and dont harm the children education. A wellfunctioning Insurance Industry is a critical of pop component of economic prosperity. Everyone will be better off if we resist efforts to use insurance as a tool to have private system insurance goals. Lets happen insurers stick to the business of insurance and i look forward to discussing these issues today. I would like to introduce todays witnesses. The honorable Kathleen Birrane is testifying on the behalf of naic. Mr. Steven seitz joined fios Director Office previously. Welcome to both of you. Members of the committee, thank you for the information invitation to testify. I will touch briefly on several issues. We have been actively monitoring the growth and private Equity Growth insurance. We have checks and balances to protect policyholders. As insurers of all types are searching for an vesting yield to avoid racing raising prices considering new requirements to ensure our facility ability to to address policyholders. We are working with 13 regulatory considerations and other insurance with similar features. We have extensive data reporting and analytical capability to review and assess alternative investments or unique structures and are continuing to apply those tools. We are confident in the system to oversee and insurers. We will keep the committee apprised of our work. Next, insurance regulators recognize the importance of cybersecurity Risk Management and continue to operate data security. That naic Insurance Data Security Model law updates regulatory requirements related to security, the investment of cyber event and the notification of cyber events. States adopt the model, which covers 83 of the market. The naic created a new innovation Cybersecurity Committee to address the insurance implications of emerging technologies in cybersecurity and to ensure consistency among insurance regulators. Feet see facilitates exercises with insurers to explore Cyber Incidents response. Another priority is climate risk. The naic facilitated which is now aligned to be these disclosures cover 80 of the market by premium help insurance assess risk and actions to mitigate crime climates risk. We recommended that wildfires be explicitly added to the framework for catastrophe risk exposure. We are creating a Catastrophe Model Center of excellence to provide insurance regulators to access of information and training. Another area of activity is the intersection of race and insurance. The nics work focuses on evaluating issues of race and diversity. The nic formed a new avenue to help foster instruments in the insurance careers swept a focus on students from underserved communities. State insurance regulators continue to engage on a variety of issues including the development of an insurance capital standards. The naic along with partners are clear that the best outwork for the u. S. Market and they have developed an aggregation method to that iac f. Finally, we will like to highlight a few of our federal priorities. We urge congress to pass a reauthorization that encourages investment in flood mitigation efforts and we support government scots pat act. We are working on legislation to helpers protect policy owners during an insurance receivership. I am pleased to take questions. Thank you. Thank you for the opportunity to testify today about current issues. I am the director of the federal Insurance Office. I would like to begin by outlining files role fios role and responsibilities. We provide a range of projects to help needs of businesses. Iao fio advises the treasury secretary on major domestic policy issues have access to affordable Insurance Products, assists in negotiating agreements with performance foreign jurisdictions. As fios director, i also served with a nonvoting member with the National Security building council. I would like to highlight five current fio priorities. Climate financial risk is a top priority. We are focus our with three areas. First, we plan to publish a report assessing climate related issues and gaps in the superman supervision and regulation of insurance. We are evaluating the potential of major disruptions of private insurance. Third, we are increasing engagement domestically and internationally on climate financial risk issues. As we move forward with efforts, we will see data to increase understanding on the wrist to Climate Change to policy owners. The second focus area is the growing role of alternative asset managers. This evolution is one that our office has highlighted for several years. It warrants increased intention to ensure mechanisms are designed to address activities that we outlined in our recent letter. We encourage continued focus. Fio continued to prioritize four areas of research and action. Liquidity risk, credit risk and capital addicts advocacy, offshore potential conflicts of interest. We are focused on fiber related risks, which is a top priority of the federal government. We have been examining our own cyber resistance. We have increased Data Collection and have supported the development of treasuries counter ransom strategy. We have worked with agencies in connection with the recommendation that we assess the need for federal backstop for Cyber Insurance. We are coordinating closely with the white house cyber director on issues. Our fourth priority is the representation of the United States with closed carnation with the naic coordination with the naic. We are considering topics and the related comparability work and evolving involving the application method. These topics are important initiatives that will affect the u. S. Insurance sector and is critical for fio in the u. S. To engage with these issues. We are prioritizing our work on diversity, equity and inclusion. Fio looks at these issues through the lens of affordability with Insurance Products. We are working to update our study on personal Auto Insurance portability. These issues are key components of our climate work. On all of these topics, fio values are close relationship and ordination with state regulators, are federal partners and international counterparts. Thank you for the opportunity to testify. Thank you. Thank you for files fios response. You mentioned that once a Company Transfers its pension obligations in eight pension risk in a pension Risk Transfer what problems arise when pensions are transferred to life insurers and how do they pose risks to workers i do have that concerns about the broader Financial System and the impact. Thank you for that question. We share your interest. The u. S. Insurance sector and the life and retirement sector is critical for working americans that rely on these products. We highlighted the four key areas. Enhancing files monitoring of the Liquidity Risk of the financial sector. We are looking at regulatory measures and whether they are designed to accommodate and regulate this business model. We are looking at the officer reinsurance implications, particularly the increase entered interconnectedness with the u. S. And europe markets. We are looking at potential conflicts of interest. We will look with the naic and the states going forward. My interests in this issue has increased because Congress Worked a year ago and was able to fix in the congress pension system. We know that human cost of failing pensions close to workers who have the expectations. It is imperative that insurers and become a full we count on both of you commissioner, thank you for being here. I have heard from nonprofit associations greasing to state insurance about difficulties of finding finding affordable properties. What are tools available for state Insurance Commissioners to solve this market fairly earlier failure . The in ic has long opposed the expansion of the act to allow our r. G. s to buy commercial property insurance. We have serious concerns that nonprofits that are vulnerable to be could be put at greater risk by if they are allowed to purchase their property insurance from a into see that is not subject to the same rigorous standards and multistate enforcement as other carriers and that creates an uneven playing field. Most states have a residual market for property insurance. In my state, i have queried our nonprofits and this is not an issue that we see in the state of maryland. Other commissioners are making efforts to look at their markets to see where issues exist and we would be happy to know about specific circumstances and make ourselves available to work with nonprofits that are having difficulty getting commercial property insurance. Your assess students assessment differs from ours. It is a serious problem that has not been solved in the past with faced with similar issues. I am working to amend things to address the issue affecting communitybased nonprofits. Director sykes, are you concerned . Thank you for that question. We have also been tracking this issue. We have been engaging with various stakeholders on the topic. We will look forward to working with the naic and your team as we look into this issue. We have a working with naic to find a solution with retention groups under nrc regulations and commissioner, i wanted to ask, can we Work Together to find a solution that responsibly increases insurance capacity for rrgs to address the problem . We want to Work Together to construct an solution and we are happy to work with you. Thank you. I wanted to ask if their questions a third question about climate catastrophe risk and we will submit something in mind writing. Thank you. That chairman brought up the circumstances that occur occasionally where pension Risk Transfer occurs and by understanding is the nature of this is when a company has a defined benefit obligation to insert retirees, it can purchase an annuity from an Insurance Company that transfers the management of this to an Insurance Company. In that scenario, it is my understanding that the pp d. C. Guarantee no longer of class. There are insurance funds. What i be correct in assuring the assuming that the insurance guarantee would be there as a backstop for companies to honor their obligations . That is correct. After the transfer concerns, something no longer applies but the no longer applies to be risk because what is happening is that the pension fund is find an insurance product buying a insurance product. Your experience and you will probably agree with me that Insurance Companies have extensive experience in managing longterm liabilities. That is what they do. The idea of whether they are in a good position to manage the longterm liabilities of a defined benefit pension plan suggests to me that they were likely while still best suited to manage the task they are likely well suited to manage the task. Insurance regulators hold life Insurance Companies to must much bricks much stricter standards. Those regulars rigorous standards dont go away. If anything, private equity funds are subject to stricter election. Regulation. Director sites, seitz, it has come to my attention that there is work being done done involving private equity insurance and i am not sure that you are involved with that for the international i lose track of my acronyms here. It is not iais. V iais. Is that true . With regard to that, they have discussed the topic of private equity. I cant disclose the private conversation but it is one of the themes we are seeing in the micro production. Are you involved in the efforts to make recommendations regarding private equity involvement in insurance . We are coordinating with the Federal Reserve and others on issues including work related to the capital standards and regarding the holistic framework which steve and i ic is adopting which the naic is adopting. You didnt answer my question. Are you involved in Research Update analysis that includes policy recommendations involving analysis that includes policy recommendations . We are working closely with the and aic in the states and there are topics we are discussing and one of the topics is private equity. You are updating my question. Evading my question. If there is a memo or a piece of Research Work that is done and you are involved and it is submits to submitted to the iais, the you intend to share that with the committee . We value the importance of transparency and we will work with partners to make sure that there is appropriate transparency and this is a topic that will be included in the report to this Committee Regarding our activities. I am out of time mr. Chairman. The senator from rhode island is recognized. Thank you. In may 2021, a study was released about challenges that ensures that policy holder space based holders face. Ensuring that policies provide appropriate coverage . Thank you for your question. We have closely reviewed the study and contributed to it and we agreed agree with the conclusions. Looking at the pricing challenges that have been happening, additionally, you are seeing carriers withdraw coverage. In particular, an area of focus is the extent to which cyber coverage is available to small and medium enterprises. We have collected information for the first time last year regarding the extent to which smes affect coverage. Have that coverage. At this point, terrorism insurance, with that includes chuck include Cyber Attacks . A dust cover Cyber Insurance rates and in the lines of insurance and regard to our work, it is an addition an issue we have discussed extensively, physically how the particularly how are you working with the insured sing Insurance Industry to address the cyber issues . There seems to be a new challenge prevented presented by cyber something. I would say with respect to the nrc, what we have got to develop as a cybersecurity supplement for ensure insurers statements. We utilize data that we have captured within this cyber supplement to monitor risks. What we can confirm is that between 2020 and 2021, there was an increase of 75 indirect written premium that was clear that was growth due to primary plea to price increases primarily due to price increases. Premiers premiums are going up and limits are going down. It is a much harder environment. With respect to the environment, we are engaged with efforts to look at what is the appropriate backstop, how do we make sure there is a robust Financial Financial backup available, even if the Insurance Market doesnt have the appetite to cover all of it. Any comments . I think the commissioner said it well. You point out the increasing prices of Cyber Insurance, which affects every business and Small Businesses. What steps can state regulators take to try to reduce coverage . Insurance is fundamentally based on risk. Pricing is based on risks. That is what we expect them to do so as risks increase, so do premiums. We have switches we can toggle in terms of opening up markets like the surplus lines markets or the passive arrangements will for certain companies. At some point, there are risks that are high are either too large or volatility there are or they are to certain to be affordable as we would like them to be. When we see the tightening of the market, the increasing costs and underwriting standards creates discipline and helps with good cyber hygiene. Ed asks businesses it asks businesses to be more responsible and take cyber risks seriously. That allows their programs to be more affordable. Thank you very much. Thank you to both of you for being with us today. As you are both aware, in response to the development proposed at the team usa propose the aggregation method at an alternative framework. Comments in response to a consultation of the proposed criteria to it and dictates it indicates that the current process may be biased towards the ics. It precludes which we want. Could each of you take a minute and explain why a eurocentric capital model would have a negative impact to consumer access to insurer products. I would begin with the commissioner. And you for the question thank you for the question. The u. S. Market includes a number of foreign owned insurance. Comparability would allow the foreign jurisdiction to divert to u. S. Capitol requirements. As u. S. Based insurers seek to operate abroad, it is important that those countries recognize relevant aspects of the system. The agreements between the u. S. And eu and u. K. Along with all of five george edition qualified jurisdiction processes already require capital. Director seitz . I am assuming you are in agreement with my statement that you want to maintain the current proposal we use. Thank you for your question. It is critically important for the u. S. Sector and we have been working on this for several years in coordination. We we made engaged in the conversation. In particular, the International Community is moving ahead with the interNational Standard. We need to improve the methodology so it is more compatible to the u. S. System. Vi the ics doesnt reflect we look forward to working with the partners as we take this step forward. I believe that the u. S. System is the Gold Standard when it comes to protecting Insurance Markets. Commissioner, do you believe our statebased regulatory system has been effective and successful . What is interesting, asked senator brown referred to aig, and i know many have lived through that time, one sent ce nt of companies that did well were Insurance Companies, the pic carriers that were regulated by the state. As aig stock to recover, it was those assets they were able to sell to find the find fund the economy garrett recovery. Their recovery. The notion that policyholders in those rare instances where there have been an insolvency are not getting paid, is unheard of. What the statebased rep. Torres system has proved, having just come through a pandemic and an difficult environment the state insurance system is protecting policyholders and claims are being paid and it is infinitely clear that the mechanisms that exist at the statebased level are able to protect policyholders and respond quickly to changes in in circumstances in circumstances. I couldnt agree with you more and i believe that congress should allow you and the naic to do your job and i think it is imperative that congress recognizes that it has worked successfully and we will talk about the other items. One of them is private equity. There are good messages about what private equity has done for the interest markets. My time has expired. I think you for your answers today i thank you for your answers today. Senator menendez is recognized. Thank you. Last year, i introduced the clarifying law around insurance of marijuana act. [indiscernible] provided a shape safe harbor for insurers to involved provide products without the risk of federal prosecution. It was included as a provision of a state banking act. And you describe why we need the safe banking act enacted as soon as possible . The naic does support the safe banking act. The safe banking act would help remove federal barriers for insurers to and short states legalized cannabis businesses. It is critical that businesses are able to buy insurance and what claims occur, they can use the Banking System to pay claims. Making ask what allow that to happen banking acts would allow that to happen. [indiscernible] imagine a scenario where a jersey lightbulb manufacturer provides some products to a manager marijuana business and it causes a fire. That sounds the challenge that Insurance Companies have is using the Banking System to transfer on to a cannabis business. The answer is that is a circumstance that could be challenging for that lightbulb companys and sure and trying to use the Banking System to pay money to the campus cannabis business. Let me turn to pandemic risk insurance. When covid19 hit our country, Small Business owners discovered the most business disease are pandemic, leaving many businesses without relief. Congress provided a bipartisan basis trillions of dollars in aid to help keep Small Businesses afloat. I voted for the American Rescue plan, which was critical to the response but we should be planning ahead to better protect our economy from the rest of a do pandemic a new pandemic that could overwhelm the health system. The question of the next pandemic is not if but when. Commissioner, is there Still Limited pandemic interrupting coverage in the market . The scope of coverage in the market has not changed. It has not expanded. Wouldnt Business Owners and employees of the federal government be better prepared for the next pandemic after congress established a publicprivate solution to provide coverage for pandemic related losses . I think business is an area where the risk is potentially so large and so uncertain that it is not going to be covered by the private Insurance Market and in those circumstances, it is appropriate to discuss what Publicprivate Partnership you could do in order to make sure that financing is available in those circumstances. I appreciate that. It is critical we plan ahead for the next pandemic rather than wait to the next outbreak. What we need is to a way to incentivize businesses to preserve the lessons of covid and except a level of personal responsibility. I dont know those who would simply wait until eight crisis point and have the federal government distributes billions of dollars instead of a targeted response. Finally, mr. Chairman, fema reported that over for 25,000 420 500,000 to 20 20 of the policyholders with drop coverage over 10 years. The agency predicted it would take years for 425,000 aussie overs to drop coverage but it took eight short months. I think fema has misled us and i want to work with you to advance the Bipartisan Legislation we had before the problem gets worse. Thank you. The senator from antenna is recognized montana is recognized. I want to thank the folks here. I want to touch back on cyber. Commissioner, is there anything that washington, d. C. Needs to do to deal with cyber from your industry perspective or are we are or are we ok . Are you speaking in terms of the protection cap . I am speaking in terms of the threats and i will get into the increase do due to cyber. Is there anything we can do in terms of relief . From the perspective of our industry is that we are looking at assuring that there are adequate controls in the Insurance Industry so they can withstand potential cyber threats. What the and act naic has been developed engaged in is a law which improves and increase the security of data and the rapid next of notice to any rapid next rapid this rapidness. But between these agencies, the issue is being handled adequately . We have an adequate model in place. When senator reid was asking a question, you said there was a 75 increase in premiums due to cyber . When we talk about Insurance Companies as risk financers, policies have become more expensive for the businesses that buy policies. That is what timeframe . One year. The Ranking Member talked about you dealing with risks. Have you done that with issues around climate . Where i live in montana, it is dry as hell. You probably heard about the flood in yellowstone park. It seems like we are having 500 year event every decade. You take that into account did you take that into account . We track the severity of perils in the claims. In the world of climates, c limate, weather patterns are changing and they are causing increased claim activity. Can you give me an idea from property damages standpoint, what the increase in premiums would be . I dont have the numbers and i am happy to followup at the increases are exponential. We are seeing larger numbers of claims. Weather events are frequent and severe. I would love to get those numbers because there are a number of folks in the body of congress that think ignoring climate is something that will make you go away, when in fact, my experience is it aint going away. It is getting far worse. Last year was the worst we crop we have ever had. We have been on the farm for 45 years. I want to talk quickly about an arab. We have passed a bill years ago and we still dont have a board through obama or trump. Can you get me the benefits of that board . That is an issue that we would probably do better briefing you on. The position we have is the board should be created and established. Can you give me an update on the status of that board being fully functional . Thank you for that question. We shared recognizing be importance of it and we have been meeting with stakeholders on. To sort of thing through the process and it is an issue that we have focused on through the last two years. I am way out of time but i would say, please be aggressive. Bounce some people around and get this damn thing done. It will be a win for the consumer and industry and nation. Senator hagerty is recognized. Thank you both and to our guests. I will like to turn to you, commissioner. There have been concerns raised about the lack of regulation and transparency. I would like to talk to you from a state regulatory standpoint. Our insurers treated any differently than other insurers and are they able to avoid oversight at the state level . No. Private equity owned insurers are not treated any differently than other insurance except to the extent that it has been the comments since 2013 that states have imposed greater in requirements they have been required to accept additional conditions. That is the condition of the approval of their investment and their assessment of the Insurance Company. They are now part of the financial handbook that states use when they assess a request by any entity to purchase a Insurance Company. In christ light investments not just made five the macro potential working group has constructed a list of considerations that are focused on investment disclosures, ownership collateral, these and pension risks transfer guidance. You said that there are additional regulations in place for private equity owned insurances at the state level. That is business standard. Back to patient Risk Transfers, that is the process by which a corporation may transfer pension risk to an Insurance Company, what tools do state regulators have to ensure policyholders. . Be insurance regulators have a robust the insurance regulators have a robust set of tools. Our system is designed to avoid failure. Are system is designed to have object into the financial standing of the companies who use a variety of tools to assure that Companies Maintain the reserve date need, but tickly with Life Insurance that have longterm risks. To assure that they are adequately reserved. The fact that in may, the National Association of Insurance Commissioners sent a letter to chairman brown on the topic of alternative assets quantities. The state regulators possessed the tools and resources necessary to address chairman browns concerns. Like any other industry, Life Insurance will continue to evolve. I am certain they will provide new and better products and it is clear that state regulators have the tools they need to continue in the role. Do you agree with that . I do. Thank you. Senator warren of massachusetts is recognized. Not content with buying newspapers and Single Family homes, retail chains and pretty much everything else, private equity has set its sights on a new moneymaker, American Retirement savings. Private equity has hoovered equity products. Zero presents just over a decade ago. These private owned equity insurers have developed a taste for worker pension. Under this model private equity giants like apollo are buying up pension obligations from big employers like jcpenney and Lockheed Martin. Almost 300,000 americans today have pensions that are managed by private equity firms. Mr. Seitz, you run the office that oversees Insurance Products. I want to ask you about the safety of these americans pensions. When someone report retires from a company like jcpenney and alcoa and their pension was transferred over to apollos insurance arm, you say that the retirees pension is just as financially secure now that it is managed by a private equity ownerensure, as it was before . Mr. Seitz thank you, senator, for that question. We share your view on the importance of this issue and recognize the importance of pensions to millions of americans relying on those for their retirement, and a dignified retirement. We are working closely with regulatory considerations as they look at their framework and how to best address not only changes in the pe sector, more broadly in the Life Insurance sector with regard to their investment and liquidity. Sen. Warren i appreciate you care about these issues, but that is not the question i asked. Once there has been a transfer to apollos insurance arm, are the people covered just as secure as they were before the transfer . That is easy. Yes or no . Mr. Seitz the individuals, when their policies are transferred they are covered by the state guarantee funds, and it is an area of focus for our office to make sure the make sure regulatory mechanisms are being designed to reflect these new transactions. Sen. Warren im still not hearing a yes or no. Just make clear, in a september 2021 report the federal Insurance Office, which you run, stated that pe owners may use Investment Strategies for their own insurance entities that have heightened credit and Liquidity Risk profiles as compared to other market participants. And tended to hold a more significant proportion of investments in alternative or nontraditional insurance assets that are associated with a liquidity and complexity premiums. Do you still agree with what you said . Mr. Seitz thank you, senator. We have articulated those same points in our letter to chairman brown a few months ago, and it is an issue we are focused on, and we appreciate the changing investment portfolio of those companies, as well as across the broader Life Insurance sen. Warren in other words there is more risk . Mr. Seitz it is an area of increased focus for our office. Sen. Warren exposing American Retirement savings to more risk is exactly how private equity makes its money. Riskier and more complex investments means that private equitybacked insurers can jack up their returns and shortterm profits. But the pensions are more vulnerable to being wiped out by a market downturn, which endangers the Insurance Companies insolvency. This is not hard. This is just how the pieces work. For example, 1 5 of the portfolio is invested in risky assetbacked securities and leveraged loans made to companies that are already highly indebted. And even worse, many of the scenes risky investments are created or managed by the parent company, apollo, itself. This means that apollo collects fees on the investments that it directed its insurance arm to make. So, look, this is a problem of more risk, and the risk is borne by people who have invested for all of their working lives in their Retirement Security. I want to underline the word security. My stop wall street looting act would strengthen private equity disclosures to empower investors and help regulators crackdown on selfdealing, that we also need federal and state insurance regulators to step up and address the risk that private equity poses to pensioners and workers. I appreciate that treasury and naic are looking at this closely, but enough studying. It is time to act. Im looking forward to working with your offices to ensure that happens. Thank you. Sen. Brown the senator from kansas. Thank you. We start with you, director sites director seitz. Concern has been expressed about private equity firms, however that term is defined, having a short time horizon for their investments and insurers, and thus may be willing to engage in riskier activities. Can you tell me if there are insurers that have been purchased by private equity that have been sold or are up for sale, indicating a quick turnaround . Mr. Seitz thank you, senator. It is an issue we are monitoring, particularly over the last we have seen an increase in activity over the last several years, and particularly for certain blocks of business, and it is an area we are continuing to monitor. Sen. Moran the question was, whether examples of Insurance Companies are there and in short fashion sold . Are then in short fashion sold . Mr. Seitz they are not making those types of movements that you described. Sen. Moran thank you. I do want to indicate that my experience in kansas is a pe firms purchase of Insurance Companies has turned out to be very valuable to that company, to those companies, and it benefited the company and its employees with an influx of capital that fueled growth and additional jobs, and helped those Insurance Companies continue to be in existence and grow their book of business and Economic Activity in our state. Then i was listening on the television about a question that the Ranking Member asked. It does seem to me this administration is determined to import financial regulations and capital standards from europe as quickly or as pervasive as they can. My view is that we need that we do not need the importation of european policy to hating American Business and markets. And that the fs top priority should be defending american interests and preserving a system that has worked so well as i heard you indicate, of state regulation over a century. You want to be promoting that in the international forms. I was night i was not quite certain you answered senator toomeys question, but i will have my thoughts to that topic. Thank you. Sen. Brown thank you. Senator sinema is recognized, i believe from her office. Sen. Sinema thank you, chairman. Want to start by talking to our witnesses about our working group that i convened last year. A Bipartisan Working Group with other members of this committee to identify advanced solutions around risksharing. Our goal is to improve the resiliency of the economy to future pandemicrelated economic shocks. We do this by creating insurance frameworks that bring forward the power of the private sector and provide Business Owners with choices to buy coverage that aligns with their needs and risk tolerance. That will reduce the price tag of any future Pandemic Response and address some of the waste we are seeing with respect to pandemic a. Our response to future pandemics need to be leaner, faster, and smarter, and it is important to me that future responses are fiscally responsible. It is clear that the risks of overspending, coupled with supply chain disruption, can trigger an inflationary response. As you know, for insurance policies that cover cancellation and interruptions, virtually all of them include exclusions that exempt pandemics from coverage, despite this i have heard from businesses and Insurance Brokers that cancellation and Business Interruption coverage is increasingly difficult to find and is expensive if you can find at what do you see in the market for these lines . Ms. Biranne i think your characterization of the current market condition is correct, and i do not see that changing in the near future. I think there are certain types of risks that are come as i have said before, too large, too volatile for the market to be able to absorb them. Thank you. Our working group is concerned about this because we want businesses to afford the policies they need and responsibly plan for the future. My question is for you, commissioner. I would like to also see and insurance for Small Businesses so they can take a level responsibility that aligns with the risk tolerance. In 2020 some businesses had to wait months to get their ppp loans, and they had to go from two to access relief. I would rather have a framework where businesses could purchase subsidized coverage where it is affordable and the Business Owner knows how much coverage they are getting. Would you agree that a preestablished private insurance policy would generally provide faster and more predictable relief for businesses to plan around . Ms. Biranne what i would suggest is that the in eic has supported the idea of a federal backstop with respect to the eye coverage. Certainly it is important that Business Owners have a sense of certainty about what the Coverage Options are, but there are a variety of models that work well when the government and private industry coupled together and draw on the strength of each. The strength of government to fund broadly and the strength of Insurance Companies to be able to appropriately underwrite and price and adjudicate claims and assist businesses in risk mitigation. I would say overall there is a case to be made for such a partnership and the particular model of that partnership is something the in eic does not have a position on. Sen. Sinema thank you. Would you agree the auditing capacities that private insurance brings would be helpful in reducing waste, fraud, and abuse in a future pandemic . Ms. Biranne i would say Insurance Companies, part of what they bring to the table is expertise in underwriting and risk mitigation, as well as Risk Financing and fraud detection. Sen. Sinema thank you. I have a question for you about insurance generally. In your experience regulating Insurance Companies would you say an insurance carrier bearing some level of risk incentive incentivizes them to conduct more robust Risk Management, since their own capital is on the line . Ms. Biranne i would say that Insurance Companies generally very effective at reviewing risks, and in helping their insured to mitigate those risks. When you have an insurance policy, particularly in the property and casualty area, the Insurance Company plays an integral role in the underwriting process and the pricing process in helping companies to mitigate the risks they are trying to finance. Sen. Sinema thank you. Finally i will say we are working to identify thought a thoughtful and bipartisan solution to this issue and create a smarter response for future pandemic. Our working group appreciates the commissioners strong leadership in endorsing a federal solution and im looking forward to working with you and other key stakeholders. Thank you, mr. Chairman. Sen. Brown senator van hollen of maryland is recognized. Thank you, mr. Chairman. Commissioner biranne, it is great to have a fellow maryland are here. Thank you for your work protecting the interests of marylanders in your work. I want to thank you and naic for helping me and my colleagues prepare legislation to protect seniors from financial fraud. The legislation is titled empowering states to protect seniors from bad actors act. And it would provide an authorization Grant Program to the sec to provide both state securities and insurance regulators with additional resources, to crack down on fraud, which we know is a huge problem, 3 billion a year at least in financial scams. Can you speak briefly to the importance of passing this legislation to protect seniors from financial fraud . Ms. Biranne absolutely. We have been very happy to work with you on this initiative. Consumer protection is what insurance regulation is all about. And there is probably no more important area of Consumer Protection than ensuring that our seniors are not subject to aggressive Marketing Tactics and to other fraudulent practices. It is critically important that we have all of the Resources Available to ensure that we are on the ground with seniors directly to be able to prevent them from being caught up in fraud. Sen. Van hollen thank you. Im going to ask the chairman and Ranking Member to join us in getting that out. Sen. Brown we were just speaking about that quietly. Sen. Van hollen i appreciate that. Thank you. Let me ask you a couple of questions regarding capital standards in the context of climate risk. As you well know, an porton an important part of it is to ensure their ability to play their claims following catastrophic events. One of the concerns is that with increasing severity and frequency of extreme weather events that the riskbased capital models they overemphasize the trends of older Historical Data and not adequately assess your risks. So twopart question. What is the naacp doing to ensure its models incorporate the most recent and relevant climate data . In order to reflect the true risks. Secondly, from a Risk Management and capital adequacy perspective how important is it for insurance regulators to have to have standardized data on climate risk . Ms. Biranne with respect to the first issue, i would say what our solvency work work frame is doing is working closely and making sure our models are accurate and or uptodate, and we are adding additional perils to the rbc capital framework. To ensure we capture more broadly the various events that can occur. That is the first thing. Secondly, with respect to Data Collection, the in eic naic has Data Collection that captures what needs to be captured. That is something subject to constant update and improvement. We have both on the individual state level and in the aggregate through the in eic naic, capture data through the Way Insurance regulators use that data to understand what our claims patterns and where claims are occurring and why and how claims are being paid and what the impact of that is on insolvency and the financial status of entities. Sen. Van hollen is there an effort to create some kind of National Standard so that states are not using, you know, 50 different standards for this purpose . Ms. Biranne there is conversation through our center of excellence on the development of a single standard and being able to work with Insurance Companies, what would be appropriate in that regard. That is a conversation that is occurring as to whether a centralized and standardized approach is the one that makes the best sense. In the interim these Data Collections that occurs around natural disasters is very robust. They sen. Van hollen thank you. Mr. Seitz, i dont know if you want to comment on the two parts of the question . Mr. Seitz i would say we share your view on the importance of granular data. On our office we are looking at it through the lens of affordability, particularly in the homeowners business line. It is an area we have seen sums some need for National Standards and approaches. Sen. Van hollen we have obviously seen a huge increase in property losses due to extreme weather events over the last couple of decades. If you could maybe try to quantify for me in the committee what the increase in premiums have been as a result of increased climate risk . I realize that as an imperfect science, but i would like a ballpark estimate if you could get back to us on that. Mr. Seitz sen. Brown senator cortez masto is recognized from her office. Sen. Cortez masto thank you, mr. Chairman. Thank you to the two speakers today. Let me at the very beginning show support for senator menendezs question around the safe banking act. This is about supporting Small Businesses, which is the backbone of our economy. It has bipartisan support. I think it should be passed. I hope my colleagues feel the same way. Director seitz, let me talk to about the federal review happening. The fha recently announced a review of our Home Loan Bank system. Are you aware of the proposed review, and i have a question about whether the Insurance Office plans to monitor or participate in the review of the bank review happening as well . Let me put this out there. It was surprising for me to realize that 548 Insurance Companies are members of the federal Home Loan Banks and they received one quarter of the advances. Im curious if the organization is going to be reviewing and following with the what the fha is doing . Mr. Seitz thank you, senator, for that question. The federal Home Loan Banks play an Important Role in our housing markets. We are well aware that Insurance Companies, particularly life insurers, are increasing participants and taking advances. It is an area we have been discussing with our colleagues at the fha and we look forward to continuing to engage with them as they begin the review process that was just recently started. Sen. Van hollen thank you. I hope you do continue to monitor it. Left jump to an issue my colleagues have been talking about, which is private equity. Before we get there i want to follow up on Business Interruption insurance. In march 2020 when the covid pandemic began my office received calls from Business Owners who had insurance. They chose policies that included Business Interruption insurance and they paid the premiums. Then when the pandemic hit they had to close down due to a risk of contamination, obviously. But they were not covered. So, i guess my question to both of you is, talk a little bit about it. Is it feasible for Insurance Companies to provide pandemic insurance . Then, when it comes to private equity, ms. Birrane, let me talk to you about this. In particular the transfer of ownership or risk from private equity to some Insurance Companies. One of the things you identified is that there are certain types of risks that are too large and volatile for the market to absorb them. And you dont feel that way about private equity as they come in and purchase so many of unfortunately, Insurance Companies and so many assets. I know i am asking and conflating two questions, they are similarly related, and this is the concern. Insurance companies are not covering the risk when there is a pandemic even though companies are paying for it, if there is some risk related with private equity and there is, god for bid, some disaster, economically, how can we guarantee that that coverage will exist by Insurance Companies as well . Is there a correlation between the two . Or do you feel that protections have been put in place by the naic adopting these regulations when it comes to private equity . Lets start with you. Ms. Biranne when what i would say is let us think about this as a matter of contract. When you think about the Business Interruption insurance dental policies baked into policies, those contract terms exempted Business Interruptions caused by things like contaminations that would fall within a pandemic, or that did not result from a physical covered peril. Those gaps in coverage were baked into the policies, and unfortunately many Business Owners were not as were not really aware that those limitations existed. If we look at private equity as a general matter, i would come back to the notion that the private equity firm as an owner of the Insurance Company does not run the Insurance Company in the same way. Insurance companies are subject to a set of clear rules and guidelines of air around what Insurance Companies can do, from the kinds of investments they can make, to the credit they get for those investments, to the riskbased capital standards in place. None of those are different because the owner is a private equity company. Continue to monitor and regulate the performance of the company regardless of the ownership. Hopefully that helps contrast those two circumstances. Sen. Smith i note sen. Cortez masto i know my time is running out. That is very helpful. Director seitz, do you feel the same way with respect to private Equity Companies . That they can be covered by these regulations that naic has adopted . Mr. Seitz we appreciate the importance of Retirement Security products for millions of americans, and we are working closely with the naic and states as they develop the regulatory considerations. As our letter noted, there are areas of focus for our office, and also to the Life Insurance sector more generally irrespective of sometimes the Business Models as well. Sen. Cortez masto thank you. Thank you, mr. Chairman. Sen. Brown thank you, senator. Thanks, commissioner, and thanks, director, both of you, for answering questions forthrightly and being here today. And especially for your public service. Would like to submit the testimony of a retiree of the northwestern Bell Telephone company, whose pension is now administered by athene. For senators who wish to register questions, those are due september 15. Please submit your responses to questions for the record 45 days no more than 45 days from the day you received them. With that, the hearing is adjourned