U.S. Insurance Industry's Exposure to Restricted Assets as of Year-End 2016
By Jennifer Johnson of NAIC's Capital Markets Bureau
"Among its investments, the U.S. insurance industry has exposure to assets that are not under its exclusive control. That is, they are restricted. Insurers disclose these restricted assets and code them as such in their annual statement filings. There are several different code categories, depending on the purpose of the restriction. For example, some investments are held as collateral for repurchase agreements, while others may serve as pledged collateral to the Federal Home Loan Bank (FHLB). Assets identified as restricted may be admitted or nonadmitted, depending on specific Statement of Statutory Accounting Principles (SSAP) limitations, and/or whether certain criteria are met. Insurers disclose whether restricted assets are admitted or nonadmitted in the financial statements, and they also provide information on the extent of the restricted assets in comparison to total assets. Similar to any investment held by U.S. insurers, when assets are restricted, insurers may be exposed to market risk and liquidity risk, among other types of risks. Note also that insurers must be able to freely substitute restricted assets with the corresponding counterparties in order for the assets to be admitted. "