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Insurers and trade groups are far from unanimous in reacting to the New York regulatory proposal requiring insurers to set up special hurricane reserve funds, regardless of the tax implications.

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

In announcing his proposed regulation, which has yet to be put into final draft form, Mr. Dinallo forecasted correctly that some would 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 reserving regardless of the immediate tax implications, "which will give it the credibility to ask for a new tax treatment," he said.

"An insurer's ability to set up a tax-deferred catastrophe reserve is a critical component, said Joe Annotti, vice president of public affairs for the Property Casualty Insurers Association of America (PCI), adding that Mr. Dinallo "is on the right track, but unless there is a tax incentive to do that, I don't know how realistic and effective this proposal is."

Mr. Annotti suggested companies might "embrace such a regulation, or it may make them further restrict their property insurance 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. We need more details to have a discussion...It's a new concept. We will examine it and take a look at it."

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

An Allstate spokesperson, Krista Conte, said the company has been advocating for New York to better prepare for and protect against a major catastrophe "for years. We are a member of protectingnewyork.org, and additionally are advocating for advancement in public policy solutions."

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

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

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

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

She noted that Jay S. Fishman, Travelers' chairman and CEO, has proposed a federally-regulated U.S. coastal hurricane zone where the government would oversee most aspects of wind underwriting by private insurers--including pricing.

Paul Tetrault, Northeast state affairs manager at the National Association of Mutual Insurance Companies, said in e-mailed remarks that Mr. Dinallo's concept was novel and might be a vehicle for discussion.

However, he added, "the superintendent's comments do not acknowledge the existence of policyholder surplus, which is available for contingencies such as catastrophes even if it is not designated as for that purpose prior to an event."

The New York department's proposal, he said, "appears to be aimed at achieving, or at least taking a step toward tax-free buildup of catastrophe reserves, an idea that is often cited as desirable from a public-policy perspective, but perhaps not viable politically."

Bernard Bourdeau, president of the New York Insurance Association, said if federal authorities would allow tax-deferred hurricane reserves, the problems of coastal insurance availability in the state "would go away," but "the feds view the budget hit to be too large."

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

Robert P. Hartwig, president of the Insurance Information Institute, said he thought many insurers would agree that the notion of having reserves to create less volatility in coverage availability 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 tax consequences deserve more study, and others that there is a need for a more comprehensive plan with state funds and a federal cat mechanism associated with it," he said. "It does appear there are some that believe we could move to present reserving without an accelerated tax credit."

Some insurers, according to Mr. Hartwig, will be able to look past the tax issue and concentrate on a solution, while others will not. In all likelihood, he said, the regulation, if ever enacted, could be the subject of a court challenge.

Special Reports /

Insurers of Three Minds on N.Y. Cat Fund Proposal

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