NEW YORK -- New York Insurance Superintendent Eric Dinallo agreed today with executives who said yesterday that some sort of federal insurance regulation is likely on the horizon, based on the general mood in Congress.

Mr. Dinallo, speaking at the 20th Annual Executive Conference for the Property-Casualty Industry presented by National Underwriter Company and sponsored by Ernst & Young and Dewey & LeBoeuf, said he thought there was a "very strong likelihood that we're heading to some kind of federal role in the insurance industry."

The superintendent, who testified before Congress yesterday concerning credit default swap regulation, also indicated that he is not fiercely opposed to the idea outright, and he called aspects of state regulation "clunky," especially with respect to form development and agent registration.

"I've not been one of these extremely resistant state regulators because I can see, first of all, that we need certain standardization through the industry," Mr. Dinallo said.

Regarding where federal lawmakers might want to get involved, Mr. Dinallo said reinsurance may be one of the first areas looked at.

He also said they will probably examine the monoline insurers as well. He said that although people at the federal level respect the actions taken by the New York Insurance Department on bond insurers, "they have a justifiable position to want to look at it and see why it's not regulated federally, because [the monolines are] engaging in the guarantee of our financial instruments across the globe, is their argument."

Preceding Mr. Dinallo's presentation, Donald J. Bailey, chairman and chief executive officer, Willis HRH brokerage, lent his support to establishing an Optional Federal Charter.

Demonstrating the burden of the current system, Mr. Bailey recalled Willis' acquisition of HRH. He said among the regulatory approvals needed was one state in which a small entity related to the deal was domiciled. Weeks of burdensome red tape followed, Mr. Bailey explained. He said he had to be fingerprinted, and fill out a 15-page application. After a few weeks, the regulator informed him there were omissions on the application; one of them was that he wrote "J" instead of his full middle name.

He called such time consuming and costly requirements "a little silly," and said they do not apply to the world today.

Mr. Bailey also said he believes a federal regulator would have helped the insurance industry manage the current troubled environment better, "If you look at the current crisis that we have going on ... there is no doubt in my mind that having a federal regulator would do two things: not only help us manage our way through this probably a little more effectively, but far more important than that, actually help keep these things from happening."

Mr. Dinallo said regardless of positions on federal regulation, American International Group should not be "Exhibit A" for an Optional Federal Charter. He said states should be proud of the job they have done regulating AIG's operating companies and keeping them strong.

He also said he opposes any kind of "optional" regulation. Regulation, he said, is at its best when there is no choice. He said an optional charter could lead to regulatory arbitrage, "and lead to an inevitable distancing where, 'I, as a regulator, am not going to get too much in your hair, because you can go over and date someone else, and we're not married yet.'"

"I just urge all of you to actually step back about this optional federal [charter]," Mr. Dinallo said. He added that it is better to have "committed, holistic oversight than this inevitable distancing that goes on in an optional relationship."

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Dinallo Calls Future Federal Role In Regulation Likely

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