Allstate CEO Tom Wilson wrote an op-ed in NYT this week that may have gotten him into hot water with regulators. Here’s the offending paragraph:
My company, Allstate, serves more than 17 million American households. While we played only a small role in unregulated insurance markets, we have a duty to help stabilize the financial system. It was, after all, an insurance product that contributed to the risk that almost brought down the global economy.
The insurance product of which Mr. Wilson speaks is, of course, the credit default swap, which laid waste to AIG (NYSE:AIG).
Anyway, Eric Dinallo, NY State’s Insurance Superintendent, now wants details regarding the “small role” Allstate played in that market:
“While the credit default swap market is not regulated, insurance company use of credit default swaps is,” Mr. Dinallo said in a statement. “In New York, no insurance company can use credit default swaps except under very specific and limited ways and only with approval.”
In all likelihood, Wilson knows his company broke the rules and wants to come clean before regulators catch up on their own. Hopefully he’ll be forthcoming about Allstate’s (NYSE:ALL) role in the market. If he is, then good for him. It’s high time more corporate types take responsibility for mistakes made during the bubble. Good guys like Dinallo need as much cooperation from industry as they can get.
Also kudos to Mr. Wilson for calling a spade a spade; he’s correct that CDS are insurance and should be regulated as such.