NY insurance supt seeks to revive insurance mart
By Lilla Zuill
NEW YORK, Jan 14 (Reuters) - New York Insurance Superintendent Eric Dinallo said he will renew his push to revive the defunct New York Insurance Exchange, and sees revenue from this market potentially adding to state coffers.
Dinallo, on the sidelines of an industry forum hosted by the Insurance Information Institute and other trade groups, said late Tuesday that New York could benefit financially because the exchange could draw business away from Bermuda, a large reinsurance market.
"We could compete for a lot of that business that goes to Bermuda," said Dinallo. "It would be a great alternative for reinsurance and insurance," he added.
The original New York exchange, which created a centralized marketplace for brokering and underwriting, was founded in 1980, but later in the decade closed its doors after the industry was hit by a severe period of losses. New York laws permitting the exchange still exist.
The mart could be similar to the Lloyds of London model, with companies set up in a central location, and brokers able to shop for various types insurance.
This time around, Dinallo sees the exchange as better positioned for success. He said some major insurance companies had pledged support, but declined to identify them.
The exchange would allow underwriters to form syndicates to insure and reinsure unusual or very large exposures.
Reinsurers provide back-up coverage to other insurers, spreading the risk of loss between multiple carriers.
Dinallo has formed a working group to see how the exchange could operate, and said technology would play a large role.
He began to look at a revival of the New York market last year, but said work was temporarily delayed by fallout from the subprime mortgage crisis.
He was appointed by U.S. officials with overseeing American International Group Inc's (AIG.N) sale of some assets to help repay the hefty debt it incurred as part of a $150 billion federal rescue package after it nearly collapsed under the weight of bad mortgage bets.
Dinallo said the timing was right to draw business away from Bermuda, calling the mid-Atlantic British colony "a really expensive place to do business" because of the high cost of goods and living expenses.
Still, Bermuda has built itself into one of the largest reinsurance markets over several decades because of its low corporate tax rate and a regulatory environment that is seen as less onerous than other places, including the United States, where insurers have to deal with a different regulator in each state.
Dinallo said the exchange could help resolve complaints about U.S. state-by-state regulations because members could do business across the nation through the exchange, bypassing the need to apply to each regulator individually.
There is a rising backlash in the U.S. against the Bermuda market. An increasingly vocal group of insurers, including W.R. Berkley Corp (WRB.N) and Berkshire Hathaway Inc's (BRKa.N)(BRKb.N) General Re Corp, are pushing legislators to raise the excise tax charged on foreign reinsurance from the current rate of 1 percent.
Some Bermuda-based insurers and reinsurers include XL Capital Ltd (XL.N), RenaissanceRe Holdings Ltd (RNR.N) and Aspen Insurance Holdings Ltd (AHL.N). Ace Ltd , a large property-casualty insurer also has a large presence, but last year shifted its place of incorporation to Switzerland.
An association that represents Bermuda's largest insurers said the companies pay taxes on any business done in the U.S., and provide significant reinsurance capacity to domestic insurers.
According to the Association of Bermuda Insurers and Reinsurance, Bermuda companies provide about 40 percent of the property-catastrophe reinsurance coverage that U.S. insurers buy, and about 57 percent of U.S. crop coverage, on both an insurance and reinsurance basis. (Reporting by Lilla Zuill; editing by Jeffrey Benkoe)
