Printer Friendly

Commissioners Adopt Model To Create Tax-Free Cat Bonds.

State insurance regulators have approved a model law that could allow insurers to create catastrophe bonds without facing tax penalties.

The model law, adopted Dec. 6 by the National Association of Insurance Commissioners would allow insurers to set aside money from a catastrophe bond in a so-called protected cell. The money would be protected from any future insolvency and would give insurers more options to raise capital for catastrophe claims.

Regulators hope to bring securitization business, which is often placed through offshore transactions, back to the United States.

Of securitization transactions done so far, only one has been completed in the United States. In that case, Kemper Insurance Cos. handled its transaction through the Inex Insurance Exchange, based in Chicago. Transactions of this type weren't feasible until November 1998 when the Illinois Department of Insurance issued an order that allowed Inex to permit special-purpose limited syndicates to conduct insurance-securitization transactions.

Under the NAIC model, which is similar to a law passed this year in Illinois, the cells would be considered separate from the insurance company so business wouldn't be taxed by the Internal Revenue Service. It also wouldn't be subject to state premium taxes guaranty-fund assessments or other state taxes.

The NAIC also is developing a model law that would allow insurers to create catastrophe-reserve funds that meet the risks they face.

Insurers could set up funds based on probable maximum losses, or a PML cap, for events ranging from an event that could occur every 100 years, such as a hurricane, to an event that could occur every 250 years, such as an earth-quake.

Catastrophe reserves would allow insurers to set aside money they could use in case of a major catastrophe, similar to 1992's Hurricane Andrew, which left several insurers insolvent.
COPYRIGHT 2000 A.M. Best Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2000, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:National Association of Insurance Commissioners
Comment:Commissioners Adopt Model To Create Tax-Free Cat Bonds.(National Association of Insurance Commissioners)
Publication:Best's Review
Article Type:Brief Article
Geographic Code:1USA
Date:Jan 1, 2000
Words:293
Previous Article:Panel Advances on Model For Uniform E-Commerce.
Next Article:NAIC to Poll Insurers on Date Change.
Topics:


Related Articles
Demutualization Concerns.
Banks, Insurance Companies Duel Over Dual Regulation.
State, Federal Regulators Stress Need for Uniform E-Signature Laws.
Panel Adopts Report on Life Settlements.
A Look at NAIC's Progress On Modernization Initiatives.
Antifraud Task Force OKs Classifications for Attorneys.
NAIC Panel Adopts Model For Securitizing Risk Offshore.
Staying the course: As insurers navigate the changing regulatory environment, they have set their sights on speed-to-market rules, which are in the...
Insurers in waiting: most insurers are biding their time as the new life insurance mortality table wends its way through the approval process, one...
A new chapter in title insurance: state and federal probes are changing the way title insurers do business.

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters