Allstate To Dinallo: We're Legal, We Swear
By Daniel Hays
National Underwriter News
April 23, 2009
In response to the New York insurance superintendent's inquiry into its possible illegal participation in unregulated insurance markets, Allstate has provided an affidavit that it is operating legally.
The document sent last week--signed by Mary J. McGinn, Allstate vice president, secretary and general counsel--follows a demand for the information by Superintendent Eric Dinallo.
Mr. Dinallo announced last week that he had asked Allstate's New York companies to "report immediately any inappropriate or unregulated use by them of credit default swaps."
He 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 that Allstate had played a "small role in unregulated insurance markets," and that "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."
Andy Mais, a spokesman for the New York Insurance Department, 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"
Mr. Dinallo had 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, the Illinois insurance director--while Mr. Dinallo's inquiry was attacked as possibly illegal by the conservative Washington think tank, the Competitive Enterprise Institute.
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 "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."
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