New York regulators are aggressively pursuing plans for a reincarnation of the New York Insurance Exchange and expect to assemble a “working group” of industry insiders within the next two weeks who will guide the revival of a Lloyd’s of London-style insurance market at the heart of America’s financial capital.
Governor David Paterson, in his State of the State speech delivered today, said the New York Insurance Exchange was part of the centerpiece of his plan to help revitalize the economy of the Empire State.
In a conference call with reporters this afternoon, Insurance Superintendent James Wrynn said he hoped to have the first meeting of a committee of advisers within two weeks.
Wrynn said the Insurance Exchange would help fill demand for complicated, large or risky insurance contracts and could help retain some of the dollars that currently flow into Lloyd’s of London — although he stopped short of calling it a direct competitor.
“Lloyd’s would be a model but (this exchange) would not be a New York Lloyd’s of London,” Wrynn said. “We would like our own theme and focus.”
The original New York Insurance Exchange opened in 1980 but was shut down by 1987, a collapse attributed to weak capitalization, high claims and the vagaries of the soft market cycle. In its seven-year life, the New York Insurance Exchange enjoyed both a meteoric rise and precipitous collapse. At its peak, the exchange was ranked the eighth-largest reinsurer in the world. By the time it folded, 10 of its 50 syndicates had been declared insolvent, and seven were eventually liquidated. The business of the remaining syndicates was taken over by other entities.
Heads of the New York Insurance Department have talked about a reborn New York Insurance Exchange for nearly two years. Former Insurance Superintendent Eric Dinallo – who stepped down in July 2009 – first broached the topic in July 2008, calling the reopening of the exchange a departmental priority.
At the time, Dinallo gave an 18-month timetable for its opening. But amidst the meltdown of AIG and the extended economic collapse over the last 18 months, the idea of a revitalized New York Insurance Exchange was relegated to the backburner and the department’s attention was “diverted,” Wrynn said.
But in 2010, the exchange remains a major priority for the department, which hopes to have an exchange up and running again as soon as possible. “I want to conduct our due diligence and get all our ducks in a row, but we are very aggressively pursuing this,” Wrynn said.
The formation of a working group, which will include members of different sectors of the industry, is seen as the next big step toward the creation of the Insurance Exchange.
However, there is no clear launch date and the department has not given a specific timetable for a new Insurance Exchange. Officials said they believe it’s important first to get industry buy-in for a relaunched exchange, given the history of the previous iteration.
One of the goals of a new exchange would be to have less traditional participants – that is, organizations other than insurers and reinsurers, such as hedge funds or private equity firms – which could access the insurance market to provide capital.
Another crucial item would be the creation of improved technology and underwriting criteria, so participants could have a better understanding of risk, department officials said.
As far as legislative requirements are concerned, much of the groundwork already exists in the enabling legislation for the original New York Insurance Exchange, which still remains on the books in that state.
There are some obstacles and concerns, however. One is the possible need for tax breaks or other incentives that would encourage foreign and domestic firms to participate in the market. Some incentives may be needed to help an exchange compete with Lloyd’s or the reinsurance markets in Bermuda, for example.
Still, Wrynn said that tax breaks or incentives are not a prerequisite to reopening the New York Insurance Exchange.
The exchange could also provide a new venue for foreign companies to more easily access the U.S. insurance market, which would help add capacity and likely put downward pressure on rates.
A reborn exchange could have tremendous implications throughout the country. If coverage could be sold in any state, the New York Insurance Exchange may provide a means for new players to enter the market for risk without the time and expense of licensing and seeking regulatory approval. That could have significant impact on shaping the debate over federal versus state regulation of the insurance industry, since it would allow new or even international players into markets currently regulated by individual states.
Agents groups applauded the announcement by Gov. Paterson.
“The reintroduction of the (New York Insurance Exchange) will help stimulate a struggling New York state economy,” said Kevin M. Ryan, president of the Professional Insurance Agents of New York. “An exchange would provide the opportunity to bring much-needed business activity back into the state.”
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