NEW YORK--New York Gov. David Paterson last night confirmed that the state is seriously considering resurrection of the long-defunct New York Insurance Exchange as part of its financial services modernization campaign.

The exchange debuted in 1980 as a syndicated, subscription-based market modeled after Lloyd's of London, to write both specialized risks as well as reinsurance. It folded seven years later, the victim of a softening market and poor underwriting, among other problems, critics said.

However, given the new dynamics in the financial marketplace nearly 30 years later, it might be time to reestablish the exchange to create new capacity for hard-to-place risks, as well as bolster New York's position as a dominant player in the insurance world, Gov. Paterson noted in his introductory speech at a dinner here hosted by Lloyd's.

"We have private equity funds and hedge funds and other investment funds that might be eager to place their capital in the insurance business right here in New York," he said. "An exchange would provide such an opportunity. This would be complementary to what Lloyd's does on its side of the ocean."

After the dinner, New York Superintendent Eric Dinallo--who first raised the possibility of reactivating an exchange facility back in February--confirmed that he is indeed exploring the option seriously.

"It's something we're taking a close look at," he told National Underwriter. "It's very preliminary, but the fact is covering such non-correlated risks via an insurance syndicate as part of a central exchange might prove to be very attractive to investors."

Although the original exchange folded back in 1987, the law authorizing 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 for insurance, but for the entire financial services industry in New York. A report, including recommendations for reform, is due by year's end.

He said the state would "seriously consider moving to principles-based regulation, focusing on the outcome, to make oversight 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 as Lloyd's, to do business in his state without imposing unnecessary collateral burdens not required of domestic carriers.

"We want to remove prejudicial restrictions on foreign reinsurers," the governor said.

Lord Peter Levene, the chairman of Lloyd's and host of the dinner, which drew an all-star cast of top players from across the industry, praised the governor for stating his commitment to an open market for all qualified players. "The U.S. should not discriminate on the basis of geography, as opposed to the more relevant element of financial strength," he said.

Both Gov. Paterson and Lord Levene noted the symbiotic relationship between London and New York City when it comes to insurance. As a prime example, each cited the more than $11 billion in claims that Lloyd's paid related to Sept. 11 damages, and the billions more in exposure Lloyd's has taken on to insure World Trade Center area reconstruction projects.

Special Reports /

N.Y. Gov. Says Exchange Might Be Resurrected

Related Stories

Recommended For You