NU Online News Service

Insurers and trade groups are far from unanimous in reacting tothe New York regulatory proposal requiring insurers to set upspecial hurricane reserve funds, regardless of the taximplications.

The concept put forward last week by New York InsuranceSuperintendent Eric Dinallo has some offering support, someopposition, and some on the fence.

In announcing his proposed regulation, which has yet to be putinto final draft form, Mr. Dinallo forecasted correctly that somewould oppose such reserves unless they are tax deferred.

However, changing tax policy may be difficult, he noted,suggesting that the industry should act responsibly by reservingregardless of the immediate tax implications, "which will give itthe credibility to ask for a new tax treatment," he said.

"An insurer's ability to set up a tax-deferred catastrophereserve is a critical component, said Joe Annotti, vice presidentof public affairs for the Property Casualty Insurers Association ofAmerica (PCI), adding that Mr. Dinallo "is on the right track, butunless there is a tax incentive to do that, I don't know howrealistic and effective this proposal is."

Mr. Annotti suggested companies might "embrace such aregulation, or it may make them further restrict their propertyinsurance capacity in the state."

At State Farm Insurance, a company spokesman, Fraser Engerman,said the company is "not sure how workable this is going to be. Weneed more details to have a discussion...It's a new concept. Wewill examine it and take a look at it."

Allstate, which has been cutting back on property exposures inNew York coastal areas, did not opine directly on the proposedregulation, but said it agrees with the superintendent that "adecision to do nothing is a bad decision."

An Allstate spokesperson, Krista Conte, said the company hasbeen advocating for New York to better prepare for and protectagainst a major catastrophe "for years. We are a member ofprotectingnewyork.org, and additionally are advocating foradvancement in public policy solutions."

Allstate is a major backer of ProtectingAmerica.org, a groupwhich in part advocates preparing for disasters by establishingspecial catastrophe backstops at the state and national level.

At Travelers, based in St. Paul, Minn., Jennifer Wislocki, acompany spokesperson, said the carrier supports thesuperintendent's proposals for three reasons.

"Primarily, it provides increased transparency to consumers,regulators can better assess insurance company solvency, and itmight contribute to less volatility in wind premiums over time,"she explained.

Ms. Wislocki said she was "emphasizing the word 'might.' We seethis as a good first step, but there are many issues that need tobe addressed in order to solve the problem of availability andaffordability of coastal insurance."

She noted that Jay S. Fishman, Travelers' chairman and CEO, hasproposed a federally-regulated U.S. coastal hurricane zone wherethe government would oversee most aspects of wind underwriting byprivate insurers--including pricing.

Paul Tetrault, Northeast state affairs manager at the NationalAssociation of Mutual Insurance Companies, said in e-mailed remarksthat Mr. Dinallo's concept was novel and might be a vehicle fordiscussion.

However, he added, "the superintendent's comments do notacknowledge the existence of policyholder surplus, which isavailable for contingencies such as catastrophes even if it is notdesignated as for that purpose prior to an event."

The New York department's proposal, he said, "appears to beaimed at achieving, or at least taking a step toward tax-freebuildup of catastrophe reserves, an idea that is often cited asdesirable from a public-policy perspective, but perhaps not viablepolitically."

Bernard Bourdeau, president of the New York InsuranceAssociation, said if federal authorities would allow tax-deferredhurricane reserves, the problems of coastal insurance availabilityin the state "would go away," but "the feds view the budget hit tobe too large."

He said he would oppose any regulation that might make New York"one state against 49," and "makes deployment of capital here lessattractive."

Robert P. Hartwig, president of the Insurance InformationInstitute, said he thought many insurers would agree that thenotion of having reserves to create less volatility in coverageavailability and price is "a laudable goal."

"What we will see here is some insurers will believe what Mr.Dinallo has proposed is acceptable, and others that believe the taxconsequences deserve more study, and others that there is a needfor a more comprehensive plan with state funds and a federal catmechanism associated with it," he said. "It does appear there aresome that believe we could move to present reserving without anaccelerated tax credit."

Some insurers, according to Mr. Hartwig, will be able to lookpast the tax issue and concentrate on a solution, while others willnot. In all likelihood, he said, the regulation, if ever enacted,could be the subject of a court challenge.