Posted on 11 Sep 2009
New York's former insurance industry regulator, who may make a run for statewide office next year, defended one of his most controversial regulatory decisions Thursday.
In February, Eric Dinallo, then New York's Insurance Superintendent, allowed bond insurer MBIA Inc. to split its municipal bond insurance business from its troubled structured finance business. The move triggered lawsuits against the company, the New York Insurance Department and Dinallo himself in his regulatory capacity.
In evaluating his approval of MBIA's split, Dinallo said Thursday, "The test is what we knew at the time," not how the plan plays out in the longer term. He made the comments after a lunch-time speech at an insurance conference in New York sponsored by Keefe, Bruyette & Woods Inc.
Dinallo resigned as the Empire State's top insurance regulator in July; a month later he formed a campaign committee to run for state attorney general should the current AG, Andrew Cuomo, not run for re-election and instead run for governor.
Dinallo approved MBIA's petition in February. Within months, 18 banks with exposure to MBIA through its structured finance business filed a lawsuit over the split.
The issue was $5 billion in capital that MBIA diverted to the municipal bond business in the split. The banks argued the money should be available to cover potential losses in their structured finance holdings.
The 18 financial institutions, which include Barclays PLC , Bank of America Corp. and JPMorgan Chase & Co., said the insurance department had no right to approve the move, which they said benefitted some policyholders at the expense of others.
The banks are asking a New York State Court to void that approval.
Dinallo said Thursday that in the event a troubled insurance company is seized, "all policies are not created equal" under the law.