Posted on 16 Oct 2009
Exploring the possible revival of the New York Insurance Exchange is one of the priorities of the new superintendent of the New York State Insurance Department, a department official said.
The exchange would be a Lloyd’s of London-style marketplace through which buyers could purchase insurance and reinsurance, and where capital providers and others who want to take on risk could form syndicates. James J. Wrynn, confirmed as the insurance superintendent in September, likes the idea, said Matthew J. Gaul, special counsel at the department.
“He’s spoken very favorably about it with a number of people from industry and he’s very interested in the concept,” Mr. Gaul said in an interview Wednesday.
The original NYIE opened in 1980 but closed in 1987 due to soft market conditions, inadequate capital, poor claims experience, and other factors. Former Superintendent Eric Dinallo suggested in early 2008 that the Insurance Department consider reviving the exchange. Proponents of the idea say that the exchange could succeed this time because of lessons learned from the first exchange and the advances in technology during the past two decades.
The idea had been eclipsed by more pressing priorities related to the financial crisis but Mr. Wrynn’s appointment has given it more attention, Mr. Gaul said.
“It’s now coming to the fore again, particularly with the new superintendent coming in and reviewing what’s going on in the department (and) industry and setting the priorities for things he really wants to put his energies behind,” Mr. Gaul said.
Mr. Wrynn is evaluating a list of industry officials to form a potential advisory committee on the issue, Mr. Gaul said. The department planned to form such a committee late last year, but industry officials were reluctant to participate because of more pressing priorities, Mr. Gaul said. But reviving the exchange will need industry leadership to succeed, he said.
“It’s something that needs to be industry-driven—we can provide the framework, but ultimately the industry needs to step up and want to do this,” he said. “This is something former Superintendent Dinallo had said publicly that I know Superintendent Wrynn agrees with.”
Since Mr. Dinallo first floated the idea, the insurance industry and global economy have been hit by the credit crisis and the global financial crisis. But Mr. Gaul said such events have made industry, government officials and policyholders, in many cases, more interested in financial exchanges.
“If anything, I think the type of transparency and capital requirements that an exchange could put into place for large commercial risks and reinsurance would probably be viewed as a positive in light of everything that has happened over the last couple years,” Mr. Gaul said.
The Insurance Department also has been talking with local, state and federal government officials about the idea. The exchange may need favorable tax treatment to compete with offshore reinsurers in Bermuda, Ireland and elsewhere, Mr. Gaul said.
A reduction in or exemption from federal income taxes would require federal legislation, but New York State still has the law on the books authorizing an insurance exchange and giving the superintendent broad discretion in establishing one, Mr. Gaul said.
Mr. Gaul said there was no deadline for a decision.