Insurers' "deferred tax assets"

The Wall Street Journal (Leslie Scism, INsurers Nearing Regulatory Victory, Nov. 28-29, 2009) suggests that state insurance regulations are about ready to hand yet another regulatory giveaway to insurance companies, just another "win for insurers in what is shaping up to be a string of regulatory successes for the year."

In the context of a world-wide economic crisis caused in large part by Big Financial Institution's risk and profit-seeking behavior and the need for the US to bail out the biggest insurer in the world (AIG), handing Big Insurance regulatory victories seems out of place, at the least.  Especially when the victory is a fudging of the capital reserves held by insurers by allowing too much weight for deferred tax assets.  Letting those count as part of an insurer's cushion against losses makes no sense at all.  Generally, deferred tax assets (like NOL carryovers) won't do any good if an insurer is not making money.  And the time that an insurer will need to depend on the reserves is when?  Oh, when an insurer is not making money.  Those tax assets aren't going to pay claims for an insolvent insurer.

The journal article notes that New York's insurance superintendent, Kermitt Brooks, claims that regulators have added "safeguards" to protect consumers, such as new financial standards.  But the problem with those standards is that they weren't very reliable in the past, and they likely haven't been toughened enough to be reliable now.  Accounting tricks still permit companies too much flexibility in determining the worth of their assets--such as the April 2009 FASB rule that made it even easier for a company to use mark-to-model valuation rather than mark-to-market valuations whenever market disruptions occur.  Problem is, of course, that if an insurer needs assets to cover claims, it will have to sell into a market, even if the market is "disrupted."  And what may have seemed to be a temporary impairment may in fact be a permanent one. 

The Consumer Federation of America complaint--that state regulators go out of their way to aid insurers whie "dragging their feet" on help for consumers--is correct.