July 2 (Bloomberg) -- New York’s insurance department will be led by First Deputy Superintendent Kermitt Brooks as the governor seeks a replacement for Eric Dinallo.

“A search is currently under way” to replace Dinallo, who announced in May he would step down effective July 3, said Marissa Shorenstein, a spokeswoman for Governor David Paterson, in an interview today. “The first deputy superintendent immediately steps in as acting superintendent.”

The superintendent’s post is considered the most important in the U.S. regulating insurance, as the companies are overseen by the states, and New York is the nation’s financial capital. Dinallo spoke out about the need for cooperation between state and federal regulators after the U.S. bailout of American International Group Inc. and testified in Congress about efforts to protect the New York-based firm’s policyholders.

Brooks is an “unbelievable person,” with experience managing the department, Dinallo told CNBC on June 8. Dinallo said he resigned to take a teaching post at New York University.

The department has about 2,000 employees, a $220 million budget and 33 offices. Brooks currently oversees the agency’s operations and other deputy superintendents and directly supervises the Life Insurance Bureau, according to a biography from the New York State Insurance Department Web site. Brooks previously worked for almost eight years in the office of then- Attorney General Eliot Spitzer.

Law Enforcement

As Deputy Attorney General, Brooks led an investigation into employee benefit insurance, which resulted in a settlement with Universal Life Resources Inc., a California-based firm, for steering business to insurers in exchange for payoffs.

Brooks also worked at New York-based MetLife Inc., the largest U.S. life insurer. He received his law degree in 1989 from the University of Michigan School of Law, according to his biography.

Dinallo was appointed to the insurance post by then- Governor Spitzer in 2007. Dinallo helped bolster the business of insuring municipal bonds after companies including MBIA Inc. and Ambac Financial Group Inc. were overwhelmed by losses on securities backed by home loans.

Dinallo in 2007 approved the entry of Warren Buffett’s Berkshire Hathaway Inc. into the business, then brokered deals to allow money-losing guarantors to make partial payments on insurance contracts with banks. A graduate of New York University, Dinallo previously worked for Willis Group Holdings Ltd., the world’s third-largest insurance broker.

A spokesman for the New York State Insurance Department declined to comment.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net; Tian Huang in New York at thuang57@bloomberg.net

Last Updated: July 2, 2009 14:14 EDT