Next New York Insurance Chief Could Have Political Bent

At a critical time for insurers, the industry's key regulator, New York Insurance Superintendent Eric Dinallo, is stepping down. It's an open question who will replace him; industry opinion is leaning toward a political pick.

The top qualification for Dinallo's replacement "will be somebody who will help the governor get re-elected," said Andrew Barile, a reinsurance consultant in Rancho Santa Fe, Calif. Barile said that the insurance department's staff has extensive experience in the industry, while the superintendent frequently has a political rather than an insurance background.

Indeed, the announcement of Dinallo's departure was made not by the Insurance Department, but by New York Governor David A. Paterson, who faces a tough re-election fight next year.

The financial crisis has hit insurers nearly as hard as banks, and several of the most troubled insurers are New York-based, which means that the New York insurance office is the main regulator in charge. Dinallo played a major role in American International Group's (AIG) rescue plan. He also helped broker negotiations between investment banks that owned mortgage-backed securities and the bond insurers that guaranteed payments, such as MBIA Inc. (MBI).

Dinallo and his predecessor Howard Mills both had political experience, though Dinallo also spent some time as general counsel for insurance broker Willis Group Holdings.

"The position is so high profile at this time it may go to a more political" figure, said Peter Kochenburger, executive director of the insurance law center at the University of Connecticut School of Law.

A candidate with an insurance industry background might be acceptible, but only from an insurance company "that has managed to stay above this fray," he said, though a background as an insurance executive might not make for a "great candidate."

Dinallo leaves on July 3, after two and a half years in the job, to join the faculty of New York University's Stern School of Business, and reportedly to prepare to run for New York Attorney General.

A spokesman for Dinallo referred reporters to Paterson's office for comment. A spokeswoman for Paterson's office said the governor had not yet set a timetable for making a choice, and no potential candidates have been mentioned publicly.

-By Lavonne Kuykendall, Dow Jones Newswires; [phone]; [e-mail]