New York Gov. David Paterson last week confirmed that his stateis seriously considering resurrection of the long-defunct New YorkInsurance Exchange as part of its financial services modernizationcampaign.

The exchange debuted in 1980 as a syndicated, subscription-basedmarket modeled after Lloyd's of London, to write both specializedrisks as well as reinsurance. It folded seven years later, thevictim of a softening insurance market, capital shortages and poorunderwriting, among other problems, critics said.

However, given the new dynamics in the financial marketplacenearly 30 years later, it might be time to reestablish the exchangeto create new capacity for hard-to-place risks–such as terrorism–aswell as bolster New York's position as a dominant player in theinsurance world, Gov. Paterson noted in his introductory speech ata dinner here hosted by Lloyd's.

“We have private equity funds and hedge funds and otherinvestment funds that might be eager to place their capital in theinsurance business right here in New York,” he said. “An exchangewould provide such an opportunity. This would be complementary towhat Lloyd's does on its side of the ocean.”

After the dinner, New York Superintendent Eric Dinallo–who firstraised the possibility of reactivating an exchange facility back inFebruary–confirmed that he is indeed exploring the optionseriously.

“It's something we're taking a close look at,” he told NationalUnderwriter. “It's very preliminary, but the fact is that coveringnoncorrelated risks via an insurance syndicate as part of a centralexchange might prove to be very attractive to investors.”

Although the original exchange folded back in 1987, the lawauthorizing creation of such a facility remains on the books.

Gov. Paterson praised Mr. Dinallo for his work as head of a“blue ribbon panel” examining regulatory modernization–not just forinsurance, but for the entire financial services industry in NewYork. A report, including recommendations for reform, is due byyear's end.

He said the state would “seriously consider moving toprinciples-based regulation, focusing on the outcome, to makeoversight more efficient and effective.”

He added that he supports a move to “level the playing field”when it comes to allowing foreign reinsurance entities, such asLloyd's, to do business in his state without imposing unnecessarycollateral burdens not required of domestic carriers.

“We want to remove prejudicial restrictions on foreignreinsurers,” the governor said.

Lord Peter Levene, chairman of Lloyd's and host of thedinner–which drew an all-star cast of top players from across theindustry–praised the governor for stating his commitment to an openmarket for all qualified players. “The U.S. should not discriminateon the basis of geography, as opposed to the more relevant elementof financial strength,” he said.

Both Gov. Paterson and Lord Levene noted the symbioticrelationship between London and New York City when it comes toinsurance. As a prime example, each cited the more than $11 billionin claims paid related to Sept. 11 damages, and the billions morein exposure Lloyd's has taken on to insure World Trade Center areareconstruction projects.