New York Insurance Exchange may revive by 2009

By Lilla Zuill

HAMILTON, Bermuda (Reuters) - New York Insurance Superintendent Eric Dinallo said on Monday a revival of the defunct New York Insurance Exchange could happen as early as next year.

Dinallo, in a telephone interview from New York, said the next 18 months was a "realistic horizon" to revive what is seen as the U.S. equivalent of the Lloyd's of London market.

The original New York exchange, which created a centralized marketplace for brokering and underwriting, was founded to great fanfare in 1980 but later that decade closed its doors after the industry was hit by a severe period of losses. New York laws permitting the exchange still exist.

This time around Dinallo sees the exchange as better positioned for success. "It is only going to work if there is client demand, but I believe that is falling into place."

The exchange would allow underwriters to form syndicates to reinsure, and insure unusual or very large exposures.

Dinallo, who is forming a working group to set out exactly how the exchange could operate, has already tapped the views of a wide range of industry participants including both U.S. and foreign insurers, some of the major insurance brokerages and possible investors.

Several private equity, hedge fund and large investment banks have expressed interest, said Dinallo, seeing the exchange as a diversification tool.

"Non-traditional capital is looking for uncorrelated risk, which I think generally reinsurance, catastrophe and terrorism (risk) is... about as uncorrelated as you are going to get."

Dinallo said regulatory oversight would seek to ensure risks insured by the exchange were not dominated by one geographical region or type of risk. Investors who backed claims paying ability of the exchange, would also have a role in policing the risks accepted by syndicates.

NATIONAL ACCESS

The exchange would seek permission to sell coverage across the United States, Dinallo said. That could help insurers who want to do business across the United States but are faced with the expense of state-by-state licensing and regulation.

The insurance industry has been lobbying U.S. lawmakers to create a federal insurance regulator but there is also resistance to the proposal.

The National Association of Insurance Commissioners, a body that represents state insurance regulators, has been lukewarm to a national regulator, concerned it could erode consumer rights.

Dinallo said the exchange could bypass some of these issues, by creating "federalization without federalization." The idea was well received when he broached the topic with other state regulators earlier this year.

He said the exchange could be run on an electronic platform but also have physical space for clients to meet with brokers.