Archive for the ‘Insurance Regulatory’ Category:

A Challenge to the Cuomo Administration

One of the hallmarks of the first several months of the administration of New York’s Governor Cuomo was the presentation and adoption of his plan to consolidate the regulation of financial services, including the merger of the banking and insurance departments to be effective on October 3, 2011.  Over the coming months there will be considerable scrutiny by banking and insurance industry participants and observers to see whether or not the merger can or will meet the stated goal of the law “To establish a modern, dynamic, attentive, twenty-first century system of regulation, rule making and adjudication, that is responsive to the needs of the banking and insurance industries, as well as the state’s consumers and citizens; . . .”

Understandably, this initial scrutiny will be focused on the routine day-to-day interaction between the regulators, the regulated companies and the service providers to the regulated companies. Will there be the same access to the department as you were accustomed to in the past? Will you be dealing with the same department people? Will former banking regulators be handling insurance regulatory issues and vice versa? Will things that used to take forever now take forever and a day? People dislike having their routines changed, and how the merger will change routines both for the employees of the merged agencies as well as those dealing regularly with the agencies, is of the utmost immediate concern for many. But there is another longer-term issue that needs to be addressed as well: What does the new Financial Services Law portend for the future of the business of insurance in New York?

Here is a link to my web site page where you can access a copy of my article, “A Challenge to the Cuomo Administration” (Articles Web Page) urging the administration to carry out and support the stated goals of the new merger law, and to demonstrate that these objectives are not just a salve to calm industry skepticism.  The article focuses on three examples where the new department has an opportunity to prove it is prepared to support meaningful alternative market initiatives: the “free zone”, captives and the insurance risk exchange. The purpose is to promote a continuing dialogue on the goals of the new law and the intent of the administration in its execution.

The article is also slated to be published in the September 28, 2011 issue of Insurance Advocate magazine.


In response to yesterday’s entry on the two statutorily required reports of the New York Superintendent of Insurance, I was asked how many of the 961 Insurance Department employees work for the Liquidation Bureau. The answer is none, nada, nil, zero. The Liquidation Bureau is not a state agency and its employees are not state employees (See Dinallo v. DiNapoli, NY Court of Appeals, No. 111, October 11, 2007, discussed in my October 12, 2007 web entry).

The Superintendent’s report as receiver does not include any information on the Liquidation Bureau’s staffing or budget. The “consolidated” statements contain some information on salaries and expenses relating to estates in liquidation, but this information does not include all estates, and there is no presentation on the Bureau itself. The Superintendent’s Annual Report to the Legislature, at page 237, states that the Liquidation Bureau has “a staff of 450 and a budget of $100 million.” There is no further information, however, on the details of this staffing or the expenses.


Two annual reports of the Superintendent of Insurance required by New York’s insurance law have been issued in the last few weeks: one of which is readily available and the other that is available only through a request under the Freedom of Information Law.

The readily available report is the 2007 Annual Report of the Superintendent of Insurance to the New York Legislature required by Section 206 of the Insurance Law. This 268 page report, which is available as a pdf document through the Department’s website (, is cram full of information about the insurance business in New York and the regulation of the business. For instance, the report contains consolidated summaries of the statements filed by insurers showing such things as the number and kinds of authorized insurers by class of business, total assets, liabilities, premiums written and insurance in force. On the regulatory side, the report includes summaries of new regulations and circular letters, lists of reports of examinations completed, and lists of insurers organized, admitted, merged withdrawn, or placed in liquidation, rehabilitation or conservation.

If you dig statistics, as I do, you may find some of the data on the Department itself to be most fascinating. For instance, did you know that for the calendar year 2007 the Insurance Department:

Employed 961 people of whom 647 were located in New York City, 289 in Albany and 25 elsewhere?

Employed more attorneys (69) than actuaries (61) or investigators (43)?

Issued 153,909 licenses during 2007 to adjusters, agents, brokers, consultants, reinsurance intermediaries and service contract registrants?

Collected receipts totaling $742,245,640.94 and incurred Department expenses of $188,250,888.74?

Much of this information is required by the laundry list set forth in Section 206, although the report has evolved over the years into a very comprehensive annual almanac. If you are interested in researching the business of insurance in New York or in the minutia of the activities of the New York Insurance Department, this report is a great place to start.

The second report of note is the 2007 Annual Report of the Superintendent of Insurance as Liquidator or Rehabilitator required by Section 7405(g). This report is required to include a financial review of the assets and liabilities, and the claims paid or approved for each domestic insurer in liquidation or rehabilitation, and a summary of all other corporate activity and a narrative of the actions of the liquidator or rehabilitator for each company. (This statutorily dictated report should not be confused with the “2007 Year-End Report” posted by the New York Liquidation Bureau on its web site back in January, which basically rehashes all of the Bureau’s 2007 press releases).

The report required by Section 7405(g) – while not nearly as comprehensive as reports required by solvent companies — is the only meaningful information required to be compiled by the Superintendent of Insurance about the companies for which he acts as receiver. Yet this report cannot be found on the web site of either the Insurance Department or the Liquidation Bureau, and can only be obtained by making a Freedom of Information Law (FOIL) request to the Insurance Department.

The justification for this restrictive availability, I have been told, is that the information contained in the report is unaudited. However, even though the Liquidation Bureau has announced that it is having audits of each estate performed (a process that has been ongoing almost as long as the period being audited), there is no requirement in the law for audited statements of companies in liquidation or rehabilitation. The Section 7405(g) report is the only statutorily required statement of the receiver, and limiting its accessibility does not appear to be within the intent and purpose of the statute.

Furthermore, despite the Bureau’s repeated published statements about being more transparent, the Report actually appears to be a step backwards from prior administrations. For some reason the current administration decided to present the data on the individual companies in liquidation (with one exception) on a consolidated basis rather than by separate statements. While this approach may show the totality of the Bureau’s realm, it is not consistent with the statutory requirements or the reality of the process where each estate is a separate and distinct entity.

The report can be obtained by making a FOIL request of the New York Insurance Department. You can get it without cost using the Department’s online FOIL request form indicating you want it sent via e-mail. Hard copy costs 25¢ per page. Do not direct a request to the Liquidation Bureau – it will deny the request on the basis that it is not a state agency subject to FOIL. Once again, so much for transparency!


For almost a year now, the New York Superintendent of Insurance, Eric Dinallo, has been stating publicly that he is considering re-opening the old New York Insurance Exchange. He points out that the statute (NY Insurance Law Article 62) is still on the books, and perhaps an exchange facility could be used to address areas of coverage that lack adequate capacity. Does such a resurrection make any sense?

For those of you too young to remember, the New York Insurance Exchange was opened in 1980 as a Lloyd’s type marketplace with business submitted to member syndicates through member brokers. It was publicly touted as the US answer to Lloyd’s and, after a slow start, blossomed over the next several years, with over $300 million in GWP in 1983. By the end of 1984 the Exchange was the eighth largest US reinsurer by premium volume and fifth largest in surplus. By November 1987, however, the Exchange was closed and all its syndicates either in run-off or liquidation. For more information on the brief mercurial life and rapid demise of the Exchange, see my 2004 article “What Ever Happened to the New York Insurance Exchange (And Why Do We Care)?”

The question is, if the Exchange was such a failure in the 1980s, why consider re-opening an exchange today? My short answer is another question: Is Lloyd’s still a relevant market today? Given the renewed vibrancy of Lloyd’s over the past decade after its own financial tribulations (see Equitas), a Lloyd’s type facility not only can work, it can thrive. The financial woes of the New York Exchange and Lloyd’s bore many similarities, but the major difference was that Lloyd’s had three centuries of developed institutional and market support and New York did not. Done right, however, an exchange should be able to thrive in the US as well. The keys, of course, are defining and following through with “doing it right.”

To assist in this consideration, I offer a few principles that, in my view, should form the basis of any proposal to go forward:

  • The concept should be industry rather than regulator driven. The regulators can provide the forum and support for the development of a plan, but the primary force needs to come from inside the insurance and financial services industries if there is to be any lasting success.
  • The capital requirements for syndicates will need to be significantly greater (by many multiples) than the requirements of the old exchange.
  • There will need to be a strong commitment on the part of both the regulators and the industry to self-regulation and control of the market: with the regulators allowing the facility to develop rules controlling the operation and security of the market; and with the industry having the will to enforce its rules and its financial security requirements – a major failing of the old exchange.
  • And a new exchange will need to take full advantage of the technical developments over the decades since the original exchange, including instant communications, virtual trading capabilities and real time access to and use of transactional and other data.

There are many other issues that will need to be addressed by any group studying the possible resurrection of an insurance exchange, not the least of which are the types or lines of business to be allowed on a new exchange and the tax and regulatory considerations that force most new insurance capital off shore. But all of those issues can be considered within the framework of the foregoing principles.

Superintendent Dinallo appears to be taking a studied view and careful approach to the exchange resurrection prospects. It will be interesting to see if his interest can translate into real consideration. I, for one, hope so.

(For the record, I was the Vice President, Secretary and General Counsel of the New York Insurance Exchange from its opening in 1980 through 1985. I am also the author of Exchange: A Guide to an Alternative Insurance Market, NILS Publishing Co., 1987.)

Principles to Live By

On November 5th the New York Superintendent of Insurance, Eric Dinallo, issued a press release and a draft regulation that Mr. Dinallo states “would make the New York Insurance Department the first in the nation to establish principles-based regulation.” The press release states that the aim of principles-based regulation is to “reduce unnecessary regulatory and administrative burdens . . .”, and sets forth the principles for both the regulated and the regulators (the proposed regulation just sets forth the principles for the regulated — I guess they figure a regulator cannot issue a regulation regulating itself). To see copies of the press release and proposed regulation go to and look under the heading “New Item”.

In essence, the proposal sets for rules to live by, both for the regulated companies and for the regulators. The rules themselves are mostly common sense rules that, it could be argued, are what is supposed to be the case in any event – such as Principle #1 for the companies: “A licensee shall lawfully conduct its business with integrity, due skill, and diligence.” Commentators have already taken shots at the principles, basically arguing that they could even lead to more regulation or litigation as regulators start to “define” the elements of the principles more narrowly than under current rules. One only need look at the body of law and disagreement over that simple document of principles called the U.S. Constitution to understand the possibilities.

On the other hand, any attempt to reduce or simplify the regulatory process should be welcomed by the industry, and it should diligently pursue this initiative with the Superintendent to try and make it work. For the most part those of us that have dealt with regulators for decades are understandably skeptical, particularly when it comes to regulatory initiatives. However, I believe the Superintendent should be given a chance to put some meaningful substance to the bones of the principles.

There is one principle that should be added to the Regulators list. The Regulators should be required to acknowledge that licensees are for-profit entities and that their owners are entitles to a fair return on their investment. Mr. Dinallo has frequently stated in public forums that he is anxious to bring new investment into the industry. A starting point for investors would be to know that if they do so successfully, they can and will be rewarded. If the regulators cannot make this principle commitment, why should investors make a principal commitment?

A Lesson in Insurance/Reinsurance Economics

Vincent J. Dowling, Jr., (Dowling & Partners, an outspoken analyst of the insurance industry, was the keynote speaker at the annual meeting of ARIAS-US* last week. Speaking before an opening session crowd of over 650 arbitrators, company (cedant and reinsurer) representatives, lawyers and industry consultants, Mr. Dowling made a number of thought provoking statements that started the proceedings off to a rollicking start. One of his more interesting observations for the arbitrators present was that reinsurance recoverables as a percentage of policyholder surplus in the US is down from 50% in 2001 to 30% today (perhaps helping to explain the anecdotal perception among the arbitrators present that the number of arbitrations has ebbed the last couple of years). While he regaled the audience with criticisms of the arbitration process, his most provocative comments were aimed at the investment community, concluding that the property/casualty insurance and reinsurance business is and will continue to be a “lousy” business “for the invest-able future.”
For instance, Mr. Dowling stated that:

* Underwriters’ reported financial statements are always wrong.

* Rating Agencies are the de-facto regulators of the industry.

* Investing in the insurance/reinsurance business is like a roach motel – easy to get in but impossible to get out.

* Bermuda is the “Better Mousetrap” for investors because of the regulatory climate and the ability to actually make an adequate return on capital.

* If you want to invest in the insurance business, control the customer – become an intermediary not an underwriter.

* New capital has managed to come in to the industry on short tail business, but has not yet figured out how to come in with enough capital for long tail business.

* We are in a soft market cycle and can expect another round of company insolvencies in the foreseeable future.

All of these statements were supported by lots of charts and schedules, all of which I am sure VJ would be delighted to share with anyone who asks.

* ARIAS-US ( is an organization that “promotes improvement of the insurance and reinsurance arbitration process for the international and domestic markets.” I am an ARIAS certified arbitrator and umpire.