So the New York Insurance Exchange is back in the news (via the NY Times) again this week with Gov. David A. Paterson announcing plans for a Lloyd’s of London style insurance and reinsurance exchange. Aiming to specialise in complex risks such as hurricane, other catastrophe, terror risks and hard to place liabilities the thought is that the exchange could work in a syndicate type fashion as Lloyd’s does.
There seems little point reproducing Lloyd’s across the pond though. While that might seem like a good idea for New York it isn’t going to help the market so much as capacity and interest from participants is finite and one exchange would end up stealing from the other to survive in future years.
What would work is creating a center of alternative risk transfer excellence which allows hedge funds and investors to get their fill of risks in a regulated insurance exchange set up specifically to create capital market capacity. Exchange based catastrophe bonds would be an interesting idea. Maybe that’s the plan, it isn’t clear yet, we’ll bring you more as this unfolds.