The factors rating agencies use to rate financial institutions do not necessarily well serve insurance companies, according to New York's top regulator.

Speaking at a meeting of the Association of Professional Insurance Women (APIW), New York Insurance Superintendent Eric Dinallo said rating agencies have some basic issues and conflicts that they have to manage going forward, particularly involving their business model. But he also said rating agencies in general use some criteria that do not work well for insurance companies.

The rating system, Mr. Dinallo said, is based on factors such as franchise value, expansion and return on equity. These factors, he noted, work better for "widget makers" rather than insurance companies.

He explained that the business of insurance is about making promises, being around for those promises and keeping them, but rating agencies do not give enough credit to these areas.

Rating agencies will not give a "triple-A" rating to a non-double-digit return-on-equity company, he said. But for insurers, that could be a positive factor because the company will have more capital for a doomsday scenario.

Mr. Dinallo also heaped praise on New York Gov. David Paterson.

Gov. Paterson took over after former Gov. Eliot Spitzer resigned his post, and Mr. Dinallo said he has been asked what it has been like to work with the new governor. "I have had a very positive experience with him," Mr. Dinallo said.

Gov. Paterson's openness creates confidence, Mr. Dinallo said. "He leads by consensus," he added, noting that Gov. Paterson's "high-order emotional state helps people agree on a general direction to go in."

"It's not easy to be a leader when you have bad news," Mr. Dinallo said. "It's easy to lead with everyone behind you on good stuff...but he's out there talking about us heading into a great recession."

One area mentioned specifically by Mr. Dinallo was Gov. Paterson's leadership on the issues surrounding AIG. By showing leadership there, Mr. Dinallo said, Gov. Paterson acted as a catalyst and helped lay the groundwork for a much larger program from the Fed.

Speaking to insurer American International Group's situation, Mr. Dinallo said he is "actually a little bit disappointed" by the press and its handling of news regarding outings and retreats organized by AIG companies after the government agreed to extend an $85 billion loan to the company.

He said AIG should certainly worry about the "optics" surrounding the outings, but press reports that focus on this issue and damage the company's reputation fail to consider the larger picture that was envisioned when the government decided to extend the loan.

"I really believe that people should step back and think--if we wanted to ruin the company, we could have done Chapter 11. That was a real option," Mr. Dinallo said.

That option did not come about because it was thought that it would cause "tremendous stress" on AIG's operating companies, Mr. Dinallo said. And the strength of the operating companies, he added, was why the government felt comfortable doing the $85 billion loan.

AIG is experiencing problems executing transactions that will raise capital to repay the loan, Mr. Dinallo said, because of market forces rather than the quality of the company's assets. In the current market, he said, it is difficult to finance even the most basic transactions. Once the market eases, he noted, transactions will likely unlock.