In response to the New York insurance superintendent's inquiry into its derivatives activities prompted by its CEO's recent op-ed article, Allstate has provided an affidavit showing that it has been operating with full knowledge and approval of the state.
The document–signed by Mary J. McGinn, Allstate's vice president, secretary and general counsel–follows a demand for the information by Superintendent Eric Dinallo, who had asked Allstate's New York companies to "report immediately any inappropriate or unregulated use by them of credit default swaps."
Ms. McGinn, in her affidavit, said that all derivative transactions by companies in the Allstate group were done under a Derivative Use Plan (DUP) approved by the company board. DUPs for New York companies "have been filed with and approved by the New York State Insurance Department pursuant to New York Insurance Law…," she wrote.
Further, she said that "Allstate Insurance Company and Allstate Life Insurance Company each have DUPs, which permit entering into credit default swaps," adding that "no other Allstate companies have entered into credit default swaps."
Mr. Dinallo said he made the inquiry after Allstate Chief Executive Officer Tom Wilson wrote an op-ed article in The New York Times calling for federal regulation of insurance, which Mr. Dinallo said was inaccurate and misleading.
In the course of discussing regulatory problems, the article said Allstate had played a "small role in unregulated insurance markets," and "the insurance companies that wrote credit default swaps were happy not to be regulated."
Seizing on those comments, Mr. Dinallo noted that "in New York and in other states, it is illegal for an insurance company to write a credit default swap unless approved by the state insurance regulator under limited conditions."
Mr. Dinallo said Mr. Wilson was wrong when he wrote that credit default swaps are insurance, that American International Group sold credit default swaps as an insurer, and that insurance companies were unregulated in selling credit default swaps.
Mr. Dinallo's argument against Mr. Wilson's views was supported by Michael McRaith, insurance director for Illinois–the state where Allstate is domiciled–while Mr. Dinallo's inquiry was attacked as possibly illegal by a conservative Washington think tank, the Competitive Enterprise Institute.
A representative for the New York Insurance Department, Andy Mais, pointed out in an e-mail that Mr. Dinallo is on record as not opposing a federal role in insurance regulation but objects to "optional federal regulation, which would lead to regulatory arbitrage and a race to the bottom."
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