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New York Insurance Superintendent Eric Dinallo is enlisting experts to examine the possibility of reviving the New York Insurance Exchange, which was seen as the U.S. equivalent of the Lloyd’s of London market when it was founded to great fanfare in 1980.
“He is now at the point of pulling together a working group,” said David Neustadt, a spokesman for the New York Insurance Department. Dinallo, who first raised the possibility of reviving the exchange earlier this year, has also recently held meetings with those involved in the original exchange.
The laws permitting the exchange are still on the state’s books, and the exchange would allow underwriters to form syndicates to reinsure and insure unusual or very large exposures.
The original New York Insurance Exchange, which created a centralized marketplace for brokering and underwriting, ran for about 7 years, attracting wide participation from the insurance industry.
But in the late 1980s, the industry was hit by a particularly severe period of losses, causing the exchange to close its doors.
LOOK TO LLOYD’S
Donald Kramer, an insurance executive who was instrumental in the earlier exchange’s formation, said he met with Dinallo and his staff earlier this year.
Kramer, who is now chief executive of Bermuda reinsurer Ariel Holdings Ltd, told Dinallo that there was the opportunity to do much more with the exchange than 20 years ago.
For one, there are now more participants that would likely sign up, said Kramer, with a foreign reinsurance market having sprung up in the years since that could be eager to have greater access to U.S. business.
Kramer said the exchange could also pattern itself on Lloyd’s, which has modernized its systems, and attracted much new business in recent years.
“If you create a New York guarantee fund that assures policyholder liabilities, just like Lloyd’s, then the exchange makes tremendous sense,” said Kramer.
“Lloyd’s is going through a flowering period, everyone wants to join – you get licensing, rating, guarantee fund,” said Kramer, who last year oversaw Ariel’s acquisition of Atrium, a Lloyd’s underwriting syndicate.
Lloyd’s is authorized to do business in about 30 countries and territories around the world.
Kramer suggested the New York Insurance Exchange could at the very least fashion itself as a federal marketplace, if it was able to win wider support from other state regulators.
That could solve a problem that confronts insurers who want to do business across the United States, but without the hassles that currently exist.
U.S. insurers are regulated by each of the states they do business in, but there is a push from many in the industry, which has gained some support on Capitol Hill, to create a federal insurance regulator. However, there is also opposition to the proposal, and many issues that would have to be ironed out first.
The National Association of Insurance Commissioners (NAIC), a body that represents state insurance regulators, has been lukewarm on the proposal, concerned that federal oversight could erode consumer rights.
“If they (the NAIC) recognize the New York Insurance Exchange, you will have created a federal marketplace without creating a federal charter,” said Kramer.
(Editing by Brian Moss and Tim Dobbyn)