Four former superintendents of the New York Insurance Department (NYID) argued Sunday that the regulating body didn’t have the authority to approve bond insurer MBIA’s February 2009 restructuring.

Eric Dinallo — the NYID superintendent who approved the decision and now teaches at New York University’s Stern School of Business  — said in February 2009 that his department had performed “a lot of stress-testing” before allowing MBIA to restructure.

His predecessors, petitioned to speak on behalf of the 11 banks suing MBIA, strongly disagreed.

The Article 78 proceeding against MBIA and the NYID was filed in May 2009 by major financial institutions that hold insurance policies issued for structured finance products, including residential mortgage-backed securities.

The banks contend the value of MBIA’s guarantee was irreparably harmed when the insurer split its structured finance portfolio from its safer portfolio of municipal bonds. The restructuring involved the transfer of more than $5 billion of assets as MBIA sought to shelter its half-trillion-dollar public finance portfolio from its more toxic structured-finance holdings.

Gregory Serio, superintendent from May 2001 to January 2005, told the New York Supreme Court on Sunday that the review process leading to the NYID’s approval was “seriously deficient.” No third-party expertise was sought, he noted, and a single employee was assigned to analyze MBIA’s financial condition over a five-week period.

The employee, supervising risk-management specialist Jack Buchmiller, referred to his assignment as “Mission Impossible.” He had not submitted his conclusion by the time Dinallo went ahead and approved the restructuring.

“The transformation transactions violated fundamental principles of insurance regulation by favoring one group of policyholders over another,” Serio said in his affidavit.

Richard Stewart, superintendent from 1967 to 1970, called the NYID’s role in the restructuring “unprecedented” and said it ignored its core duty of protecting policyholders.

“I am not aware of any provision in the New York Insurance Law authorizing such an extraordinarily harmful transaction to policyholders,” added Edward Muhl, who headed the department from 1995 to 1997.

Dinallo stated at the time of the approval that the restructuring would reinvigorate the municipal market by giving issuers around the country access to a stable insurer. Instead, National Public Finance Guarantee Corp. has been unable to attain high-ratings because of ongoing ­litigation.

James Corcoran, superintendent from 1983 to 1990, said Dinallo’s policy objective exceeds the NYID’s role as regulator. He also said the split sets “a dangerous precedent” for policyholders of New York insurance companies and the public generally.

In an e-mail response Monday, MBIA chief financial officer Chuck Chaplin called the affidavits “without merit,” maintaining the department conducted a “thorough and careful analysis” before approving the restructuring. He also pointed out that MBIA Insurance Corp. remains solvent today, “two years and two unqualified audit opinions later.”

The commissioners downplayed the fact that MBIA has continued paying all its claims, pointing out that certain structured-finance policies are “long-tailed” liabilities where full payment is not due for decades.

Serio said MBIA executives were fully conscious the restructuring would create a good bank-bad bank situation. His affidavit cited one e-mail dated Nov. 11 in which Chaplin refers to MBIA Insurance Corp. as “the leavebehindco.”

Two other former superintendents have not participated in the proceeding.

All four affidavit were submitted in early March and published Sunday. They and selected internal e-mails from MBIA executives have been posted under “legal filings” at http://www.policyholdersuit.com.

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