NAIC Catastrophe Reserve Working Group Meeting Report: May 12
May 12, 2009
The National Association of Insurance Commissioners (“NAIC”) Catastrophe Reserve (C) Working Group (“Group”) met via teleconference on May 12, 2009. A subgroup of the Property and Casualty Insurance (C) Committee (“Committee”), the Group was formed for the purpose of reviewing the current NAIC Catastrophe Reserve Proposal, and will make a recommendation on whether to move the forward with the Proposal, even if the Internal Revenue Service Tax Code is not amended to allow insurers to establish a tax-deferred catastrophe reserve.
The Group’s recommendation was to be presented to the Committee prior to the NAIC 2009 Spring National Meeting in March 2009. However, because that deadline was missed, the Group will ask Committee Chairman and Florida Insurance Commissioner Kevin McCarty for a deadline extension.
The Group will also request input from the NAIC Casualty Actuarial and Statistical Task Force on this matter.
Current tax laws and accounting principles discourage United States property and casualty insurers from accumulating assets to pay for future catastrophe losses. Instead, those payments are made from unrestricted policyholder surplus after the losses are incurred. U.S. tax law also does not permit the deduction of reserves established for future catastrophe losses. In 1997, and again in 2001, the NAIC developed a Tax-Deferred Pre-Event Catastrophe Reserve Proposal, but, at the time, agreed that it would not pursue the proposal unless Congress acted to amend the Federal Tax Code to permit insurers to accumulate assets to pay for future catastrophe losses on a tax-deferred basis.
The Group requested comments in June 2008 on whether the NAIC should reconsider its decision to defer action to implement the tax-deferred catastrophe reserve until Congress has acted to amend the Federal Tax Code. Comments were submitted by the Property Casualty Insurers Association of America (“PCI”), the National Association of Mutual Insurance Companies (“NAMIC”) and the Reinsurance Association of America (“RAA”). To read the Proposal, click here.
Two Proposal models are under consideration, and will be discussed in detail at the NAIC 2009 Summer Meeting in Minneapolis on June 13-16:
- The NAIC Proposal would fund catastrophe reserves along lines of business, and has a cap on the amount of reserves that may be funded.
- The “New York” Proposal, which was published in early 2009 for comments, would fund an amount equal to the catastrophe load in rates; but, unlike the NAIC proposal, it has no reserves cap.
An outline detailing both the potential benefits and the costs of requiring catastrophe reserves by insurers will be available in time for the Summer Meeting. The Group is making an effort to prepare the information in advance, in order to solicit comment before the meeting.
For information on the NAIC 2009 Summer Meeting, go to www.naic.org/meetings_home.htm.
Should you have any questions or comments, please contact Colodny Fass.
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