New York Insurance Superintendent Eric Dinallo announced last week that the State is considering a new regulation requiring that all property insurers writing policies covering damage from hurricanes and other natural disasters establish on their books a catastrophe reserve. If adopted, this regulation would be the first of its kind in the United States. The goal of the regulation is to ensure that insurance companies have the necessary funds to pay claims when major natural disasters strike.
Specifically, the regulation requires that insurers retain as reserves the amount of premium allocated to catastrophe protection, less any reinsurance costs and state and federal taxes. According to the Department’s press release, current statutory accounting practices would not provide for tax-deferred status for such funds, and if unchanged, insurance companies will no longer be able to consider these funds an operating expense and deduct them from yearly revenues and reduce their taxable income. Superintendent Dinallo has stated that the legislature may grant tax-deferred status to these funds in the future, but “the industry will only achieve that change if it acts first and gains credibility.”
Once the draft regulation is finalized, it will go through the formal proposal process which includes publication in the New York State Register with a 45-day written comment period.
We will continue to monitor developments related to this proposal and provide updates at InsureReinsure.com.
