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Insurance Update: Classroom or Courtroom?

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After a series of high-profile actions in his position as New York’s top insurance regulator–the most powerful regulator’s post in the country, thanks to its proximity to Wall Street–Eric Dinallo is leaving the job at the New York State Insurance Department effective July 3, amid a swirl of rumors that he may intend to seek the position of state Attorney General.

While his immediate destination, according to the office of New York Governor David Paterson, is the classroom (Dinallo will be the Henry Kaufman visiting professor of finance at New York University’s Stern School of Business) there is talk that if current Attorney General Andrew Cuomo decides to run against David Paterson for the governorship, that will create a vacancy Dinallo would like to fill.

Dinallo, a former prosecutor, is no stranger to the courtroom. Previously chief of the Securities Bureau under former Attorney General Eliot Spitzer, he led investigations in a number of headline-grabbing cases involving the financial services industry, including matters of conflict of interest regarding IPOs and analysts. He was also instrumental in investigations of the mutual fund industry.

In 2002, when he was head of the investor protection bureau under Spitzer, Dinallo prevailed over Merrill Lynch in requiring the company to overhaul its research practices, and to disclose in its analysts’ reports whether it sought business from the companies being evaluated.

Prior to that, Dinallo had been an assistant district attorney in the New York County District Attorney’s office. There he worked on matters ranging from insider trading to securities fraud.

Dinallo also logged time as a senior regulatory lawyer at Morgan Stanley in 2003. But in mid-2005, his responsibilities changed in the wake of the departure of Philip Purcell, Morgan Stanley’s embattled CEO. Purcell was replaced by John J. Mack.

Appointed to the office of Superintendent by then-Governor Spitzer in 2007, Dinallo didn’t hesitate to wade into tough situations. Among his actions in office, he presided over the largest regulatory settlement in U.S. history, $2 billion, between insurers and the developer of the World Trade Center, Larry Silverstein, over losses sustained on September 11, 2001. He also approved Berkshire Hathaway’s entrance into bond insurance, and led a task force that instituted reforms in workers’ compensation, increasing benefits received by workers while simultaneously saving money for employers.

Dinallo has testified before Congress numerous times, and called for regulation of the credit default swaps that played such a large role in the current state of the economy. He was also active in the efforts to rescue AIG, and, according to the New York State Insurance Department, chaired NAIC’s 50-state task force “charged with safeguarding AIG insurance interests during the federal government’s stewardship of AIG.” Dinallo has also chaired NAIC’s Life and Annuities Committee since the beginning of 2008.

Dinallo was unavailable for comment on his future plans, according to Andy Mais, a spokesperson at his office. Marissa Shorenstein, at the governor’s office, said that as yet there are “no updates” regarding who may be appointed to serve in Dinallo’s stead. If no one has been named by July 3, she added, “statutorily, the first deputy will become acting commissioner.”

Governor Paterson thanked Dinallo in a statement “for all he has done at the department to promote a competitive marketplace while also effectively protecting New York’s consumers . . . Eric Dinallo has been a stalwart advocate for New Yorkers, a trusted advisor to me and my administration, and a committed public servant.”

Dinallo, in a statement released by the governor’s office, voiced satisfaction with his work to help “foster an insurance system that works fairly for all . . . Our efforts aimed at financial fairness and economic protection for policyholders of all kinds, from new homeowners to the largest employers, are vitally important to New York’s future.”

Roger Sevigny, president of NAIC, issued the following statement on behalf of the organization: “For the past two-and-a-half years, Superintendent Dinallo has been an exemplary leader and valuable member of our association. In addition to serving as chair of the NAIC Life Insurance and Annuities Committee, Eric provided sound leadership as chair of the working group to mobilize the NAIC’s pursuit of consumer protection during the AIG situation. It was a tremendous effort that was recognized with the Esprit de Corps award to Eric and the New York State Insurance Department this past December.”

Marlene Y. Satter, a freelance business writer who can be reached at [email protected].