New York Insurance Superintendent Eric Dinallo believes his newproposed rule on collateral requirements–his second bold regulatoryinitiative in a month–is good for regulators and the insuranceindustry.

“Sometimes it's good for one state to put a stake in the groundand take a position and say, 'let's discuss this,'” he said.

Mr. Dinallo was interviewed after his announcement Thursday thathe planned to do away with collateral requirements for foreignreinsurers with good financial ratings.

Under the proposed regulation–which would go into effect on July1, 2008–the highest-rated U.S. and non-U.S. reinsurance companiesnot authorized or accredited to do business in New York will betreated the same as New York-domiciled reinsurance companies.

A variety of safeguards would be included, such as a slidingcollateral requirement for lesser-rated firms.

U.S. insurance organizations criticized the proposal as harmfulto the national insurance marketplace. Lloyd's of London–a majorproponent for years of lowering, altering or eliminating therequirements, established in a model law set by the NationalAssociation of Insurance Commissioners–reacted positively.

“We commend Superintendent Dinallo for providing leadership intrying toaddress the U.S. collateral issue,” said Lloyd's GeneralCounsel Sean McGovern. “We will study the proposal in detail, butitappears to be a significant step forward towards US andnon-USreinsurers being treated equally. This must continue to bethe goal.”

Mr. Dinallo said he had put the regulation proposal out seekingcomment just as he had on Oct. 4, when he announced a proposedregulation to require that insurers set up special reserve fundsfor catastrophes to avoid rate surges after big losses, regardlessof the immediate federal tax implications.

Before putting out his latest proposal, Mr. Dinallo said he hadalerted NAIC President Walter Bell, who is also Alabama insurancecommissioner, as well as Georgia Insurance Commissioner JohnOxendine, who chairs the NAIC's Reinsurance Task Force.

He said he had given them “a heads up,” and was glad that theywere both in Florida for a regulators' meeting so they coulddiscuss it.

Mr. Bell put out a public statement saying: “We applaud the NewYork Department for its leadership and innovation in this firstinitiative of reinsurance modernization. We look forward to workingwith them in the ongoing national dialogue to modernize U.Sreinsurance regulation.”

Insurance trade groups generally criticized the proposal asfailing to provide proper guarantees of solvency, and questionedthe reliability of financial ratings.

Mr. Dinallo said the current requirements for 100 percentcollateral are “making everyone carry an umbrella,” when in factcase of insolvency involve 1 percent of insurance companies.

On the issue of rating agencies, Mr. Dinallo noted that when theNAIC evaluates assets of a primary insurer, they are given 100percent credit for Triple-A-rated securities from a reinsurer, butthe same reinsurance company has “zero credit as a reinsurer.”

Mr. Dinallo noted that he had put out the regulation for commentwithout formally scheduling action, adding that “it's not going onthe State Register.”