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January

2010

New York Insurance Exchange, Revisited

Blogs, Life Insurance

New York Governor David Paterson has outlined a comprehensive economic plan for New York, to include the establishment of an infrastructure for a revived New York Insurance Exchange (NYIE).

Citing an increase in insurance transactions taking place outside of New York to jurisdictions such as Bermuda, Ireland and Switzerland, Governor Paterson proposes to “attract international investors by providing tax benefits and an efficient and secure regulatory environment.” You may view Governor Paterson’s “fact sheet” describing the proposed NYIE. 

According to Governor Paterson, although New York’s attempt to establish an insurance exchange in the 1980s failed, the current insurance markets today, including a “contraction” in the capital, have created a “demand for facilities that provide greater transparency, better regulation, and better risk management.” Governor Paterson also points out that an exchange may help eliminate “unnecessary links in financial services supply chains.”

The NYIE would operate similar to Lloyd’s of London. As one expert on NYIE issues explained, the NYIE operated only for seven years, from 1980-1987, but the outcome resulted in greater flexibility among regulators to deal with financially troubled insurers and reinsurers:

In 1980 the New York Insurance Exchange opened to great
fanfare and expectations as a Lloyd’s type market to help
stem the flow of capital and premiums out of the U.S. Seven
years later the Exchange ceased to operate, and many of its
underwriting syndicates were insolvent and facing
liquidation.

* * *

In February 1996 an order of liquidation was entered in
the New York Supreme Court for the Exchange entity itself.
Although its life was brief, the consequences of the Exchange
– both good and bad – continued to be felt in the industry
some seventeen years after it closed its doors. Some of these
consequences are obvious to any ceding company “stuck”
with an Insurance Exchange certificate participated on by
insolvent or untraceable syndicates. More importantly,
however, may be the developments arising from the ashes of
the insolvent syndicates and the contributions of those
syndicates to the development of better ways to address the
run-off or winding up of professional reinsurance entities,
and the increase in flexibility of the regulators in addressing
the problems of financially troubled insurers and reinsurers.

Peter H. Bickford, What Ever Happened to the New York Insurance Exchange (And Why Do We Care)?, November, 2004.

As another observer noted, since the time of the original NYIE, there is more global investment, as well as investment into risks that are uncorrelated to the financial market, conditions which may make a revived NYIE successful. Meg Fletcher, Lloyd’s-Like insurance exchange gets fresh scrutiny in N.Y., Business Insurance Indus