A recent opinion piece in the New York Times has lead New York regulators to request more information about “unregulated insurance markets” and credit default swaps from Allstate Corp.

Thomas J. Wilson

In an April 16 piece entitled “Regulate Me, Please,” supporting a federal insurance regulators, Allstate CEO Thomas J. Wilson wrote about his company, indicating “we played only a small role in unregulated insurance markets.” Wilson also stated, “The insurance companies that wrote credit default swaps were happy not to be regulated,” according to text of the article.

Later that day, the New York State Insurance Department made an immediate request to the insurer about any credit default swap transactions in which Allstate was involved.

New York Insurance Superintendent Eric Dinallo said in New York and 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.”

“If Allstate broke the law or is aware of any other insurance company that broke the law, Allstate should immediately report that conduct to the appropriate state insurance regulator,” Dinallo said in a statement. “I have asked Allstate’s New York companies to report immediately any inappropriate or unregulated use by them of credit default swaps.”

Dinallo added that for more than a year, he has said that credit default swaps should be regulated and those who write them should be required to hold adequate reserves.

“But one thing should be clear. While the credit default swap market is not regulated, insurance company use of credit default swaps is,” Dinallo said. “In New York, no insurance company can use credit default swaps except under very specific and limited ways and only with approval.”

The insurance superintendent also said Wilson’s piece argued for federal regulation of insurance “based on a number of inaccurate and misleading statements,” including that credit default swaps are insurance and that troubled insurer American International Group sold them as insurance.

“I am also concerned that the Allstate opinion article makes a number of broad statements that could risk unnecessarily undermining consumer confidence in the insurance industry as a whole,” Dinallo said. “It states that insurance companies wrote credit default swaps and were not regulated and their solvency was not protected. Wilson’s column does not name those companies, leaving consumers to wonder which companies. …I welcome a principled debate about federal regulation of insurance, but the last thing an insurance executive should be doing now is undercutting consumer confidence.”

Dinallo, like most other state insurance commissioners, is opposed to federal regulation of insurance, saying the state-based system has worked well and continues to improve.