Insurance Commissioners May Form National Catastrophe Insurance Program

[DW Simpson]

http://www.insurancejournal.com/news...9/20/59802.htm

Insurance Commissioners To Form National CAT Insurance Program
September 20, 2005

Insurance Commissioners of several large states will convene at a summit to develop a National Catastrophe Insurance Program. The summit is being organized by California Insurance Commissioner John Garamendi, Florida's Commissioner of the Office of Insurance Regulation Kevin M. McCarty and New York's Superintendent of Insurance Howard Mills and will be held on Nov. 15 and 16 in San Francisco.

...

[joeorez]

What would happen if insurance companies could reserve for catastrophes pre-loss, and deduct the change in reserve for statutory accounting and federal income tax purposes?

Would the public be better served by this?

Of course they reserve for cats pre-loss now on a non-statutory basis.

[Take 2]

Originally Posted by D.W. Simpson Webmaster

Insurance Commissioners of several large states will convene at a summit to develop a National Catastrophe Insurance Program. The summit is being organized by California Insurance Commissioner John Garamendi, Florida's Commissioner of the Office of Insurance Regulation Kevin M. McCarty and New York's Superintendent of Insurance Howard Mills and will be held on Nov. 15 and 16 in San Francisco.

Not too exciting -- these are the same guys who circumvented the NAIC Interstate Compact with their own "Multi-state review" (aka "big-state boondoggle"). Federal congress proposal has more potential.

Originally Posted by joeorez

What would happen if insurance companies could reserve for catastrophes pre-loss, and deduct the change in reserve for statutory accounting and federal income tax purposes?

Would the public be better served by this?

Of course they reserve for cats pre-loss now on a non-statutory basis.

This seems like a very worthwhile idea -- any lobbyists out there?

[Mobile Actuary]

Tax-deductible cat reserves have been a recurring topic for the 30 years I've been reading the trade press. It's a great concept. The problem is it sounds like a tax-loophole to the sceptics. I don't expect it to go anywhere this time either.

[Utanapishtim]

Originally Posted by Mobile Actuary

Tax-deductible cat reserves have been a recurring topic for the 30 years I've been reading the trade press. It's a great concept. The problem is it sounds like a tax-loophole to the sceptics. I don't expect it to go anywhere this time either.

One would think that regulators in Florida and California, for example, might go the the extent of requiring (and specifying the make-up of) a catastrophic hurricane/earthquake reserve to be built up to a certain level. This would seem to support the stability of the industry while silencing the skeptics, from the point of view of an insurance company simply following the prescribed regulations.

[JTBenson]

Originally Posted by Utanapishtim

One would think that regulators in Florida and California, for example, might go the the extent of requiring (and specifying the make-up of) a catastrophic hurricane/earthquake reserve to be built up to a certain level. This would seem to support the stability of the industry while silencing the skeptics, from the point of view of an insurance company simply following the prescribed regulations.

Why can life insurers reserve for premium collected to pay for losses far into the future, but P&C insurers can't? It has been accepted in the life insurance industry. There are different mortality tables for tax vs. Stat vs. GAAP and also different discount rates, but it is still allowed.

[Utanapishtim]

Originally Posted by JTBenson

Why can life insurers reserve for premium collected to pay for losses far into the future, but P&C insurers can't? It has been accepted in the life insurance industry. There are different mortality tables for tax vs. Stat vs. GAAP and also different discount rates, but it is still allowed.

Is this an honest question?
It has something to do with the duration of the contract, I believe....

[Plant Food]

Don't trust these guys to do the right thing. From Forbes

Hurricanes aside, one big problem in Florida (and elsewhere) is that state regulators lord over insurers like Soviet apparatchiks, setting premiums by fiat rather than letting market forces do it.

Let's hope that the feds respond to any of their proposals with a demand that the states allow the market to set rates.

[JTBenson]

Originally Posted by Utanapishtim

Is this an honest question?
It has something to do with the duration of the contract, I believe....

It has to do with collecting premium for losses in a future period. Yes, these contracts are long duration, but when you get down to the details, it is the same concept. We have future contingencies that we are collecting premium for today.

Too many people try to complicate it when it is fairly simple.

[Cloister]

Originally Posted by JTBenson

It has to do with collecting premium for losses in a future period. Yes, these contracts are long duration, but when you get down to the details, it is the same concept. We have future contingencies that we are collecting premium for today.

Too many people try to complicate it when it is fairly simple.

Not even close to the same concept. Not one dime, not even one penny, of your HO insurance premium is expected to pay for losses occurring after the end of your (typically one year) policy period.