The factors rating agencies use to rate financial institutionsdo not necessarily well serve insurance companies, according to NewYork's top regulator.

Speaking at a meeting of the Association of ProfessionalInsurance Women (APIW), New York Insurance Superintendent EricDinallo said rating agencies have some basic issues and conflictsthat they have to manage going forward, particularly involvingtheir business model. But he also said rating agencies in generaluse some criteria that do not work well for insurancecompanies.

The rating system, Mr. Dinallo said, is based on factors such asfranchise value, expansion and return on equity. These factors, henoted, work better for "widget makers" rather than insurancecompanies.

He explained that the business of insurance is about makingpromises, being around for those promises and keeping them, butrating agencies do not give enough credit to these areas.

Rating agencies will not give a "triple-A" rating to anon-double-digit return-on-equity company, he said. But forinsurers, that could be a positive factor because the company willhave more capital for a doomsday scenario.

Mr. Dinallo also heaped praise on New York Gov. DavidPaterson.

Gov. Paterson took over after former Gov. Eliot Spitzer resignedhis post, and Mr. Dinallo said he has been asked what it has beenlike to work with the new governor. "I have had a very positiveexperience with him," Mr. Dinallo said.

Gov. Paterson's openness creates confidence, Mr. Dinallo said."He leads by consensus," he added, noting that Gov. Paterson's"high-order emotional state helps people agree on a generaldirection to go in."

"It's not easy to be a leader when you have bad news," Mr.Dinallo said. "It's easy to lead with everyone behind you on goodstuff...but he's out there talking about us heading into a greatrecession."

One area mentioned specifically by Mr. Dinallo was Gov.Paterson's leadership on the issues surrounding AIG. By showingleadership there, Mr. Dinallo said, Gov. Paterson acted as acatalyst and helped lay the groundwork for a much larger programfrom the Fed.

Speaking to insurer American International Group's situation,Mr. Dinallo said he is "actually a little bit disappointed" by thepress and its handling of news regarding outings and retreatsorganized by AIG companies after the government agreed to extend an$85 billion loan to the company.

He said AIG should certainly worry about the "optics"surrounding the outings, but press reports that focus on this issueand damage the company's reputation fail to consider the largerpicture that was envisioned when the government decided to extendthe loan.

"I really believe that people should step back and think--if wewanted to ruin the company, we could have done Chapter 11. That wasa real option," Mr. Dinallo said.

That option did not come about because it was thought that itwould cause "tremendous stress" on AIG's operating companies, Mr.Dinallo said. And the strength of the operating companies, headded, was why the government felt comfortable doing the $85billion loan.

AIG is experiencing problems executing transactions that willraise capital to repay the loan, Mr. Dinallo said, because ofmarket forces rather than the quality of the company's assets. Inthe current market, he said, it is difficult to finance even themost basic transactions. Once the market eases, he noted,transactions will likely unlock.