The New York Insurance Exchange - Mark 2? 

In January 2009 it was revealed that New York governor David Paterson plans to revive the New York Insurance Exchange (NYIE) and it was said that regulatory authorities were looking to form a working group of industry experts to move the project - much favoured by New York Insurance Superintendent James Wrynn - forward.

As we are always in favour of intelligent, solvent and innovative underwriting capacity, we must start by welcoming any move that could lead there. In our news items section we will report on developments.

However, those of our readers wearing short trousers (Bermudas don’t count) in the 1990s or blessed with short memories may not have realised that there once was an operational NYIE. So for their benefit a very abridged history follows (our memory is far from perfect so this information comes with a ‘health warning’ regarding its accuracy).

The 1978 New York Free Trade Zone and insurance exchange legislation led on to the opening of the NYIE on 31 March 1980 with 16 syndicates.  During the last three quarters of 1980 it underwrote premiums of circa USD17m, mainly reinsurance, and a 1982 study commissioned by its Governors anticipated that by 1986 premium would rise to USD1.2bn and to USD5bn by 1991. Growth did indeed occur - by end 1984 it was the eighth largest U.S. reinsurer by premium (USD345.6m) with 35 syndicates trading through over 100 brokerage organisations.

Like Lloyd’s at the time, the NYIE was a broker only market operated from a trading floor with central processing of deals and wrapped in a system of self-regulation with a syndicate-funded central security fund.

As with so many ventures in life, timing was crucial. The market was not ‘hard’ when the Exchange opened and rapidly ‘softened’. To no intelligent observer’s surprise, many risks on offer (and accepted) had not received an ‘enthusiastic’ reception in other marketplaces and loss ratios quickly declined. In 1985 premium volume compared with 1984 was down over 10% (the first fall since the inception of the NYIE), and losses continued to mount. The position was probably aggravated by inappropriate regulatory arrangements, insufficient data and back-office problems. Despite actions to bolster elements of the market, the writing was on the wall and five syndicates were declared insolvent in August 1986 (most were liquidated) and a year later the NYIE sought the liquidation of another three; all of which was quite enough to cause other capacity to decide to withdraw.

The death knell was probably sounded in September 1987 when the underwriting members were called upon to produce the security deposits (USD500,000 each) to cover anticipated claims arising from already insolvent syndicates. A result was that most remaining syndicates petitioned to withdraw from the Exchange and in November 1987, as recommended by the NYIE Governors, the remaining members voted for a temporarily suspension of the underwriting of all business.

What happened thereafter is largely a story for another day, but suffice for now to note that some commentators estimated that the liabilities of the circa 50 participants in the NYIE may have been in the region of treble their income of USD1bn+.

We believe that ultimately seven syndicates were liquidated, three experienced Court supervised rehabilitations and over time the remainder withdrew from the Exchange and their obligations were taken on by others (usually entities affiliated to their parent and in some cases SPVs formed in Bermuda or elsewhere). Finally, in February 1996, the NYIE as an entity was itself liquidated in the New York Supreme Court.

We look forward to learning of developments concern the revival of an Insurance Exchange in New York and once again cannot resist on reflecting on the wisdom of Spanish-born, US-educated philosopher, poet, literary and cultural critic George Santayana who said “Those who cannot remember the past are condemned to repeat it.”

Although perhaps a more modern version of the sentiment is that once expressed by English football player/ team manager/ Club CEO/ pundit, sometime fiction writer, one time drinking club owner and all-round geezer Terry Venables (AKA 'El Tel') who was reported to have said "If history repeats itself, I should think we can expect the same thing again".

We wish New York good fortunate and look forward to developments with genuine interest.