Transfers the liability for Metropolitan Life Insurance Company (MetLife) claim-over payments to the abandoned property fund

Summary of specific provisions

Section one amends Insurance Law section 7435 by adding a new subsection (c), providing that effective January 1, 2009, the liability for claim- over payments due and payable to former owners of single premium deferred annuities (SPDA) issued by MetLife pursuant to the plan for rehabilitation for ELNY, issued March 26, 1992, shall be deemed trans- ferred to the Abandoned Property Fund. It further requires the Super- intendent of Insurance to notify affected claimants that, effective January 1, 2009 they may make application to the Office of Unclaimed Funds for amounts due and owing pursuant to the rehabilitation plan.

Section two adds a new paragraph (4) to section 7435(d) of the Insurance Law to define "Claim-overpayment" as the amount owed, including accrued interest, as of January 1, 2009 pursuant to the plan for rehabilitation of ELNY, issued March 26, 1992 to former ELNY policyholders who elected to exchange a SPDA contract issued by such company for a SPDA, contract issued by MetLife and, subsequent to such exchange, fully surrendered their MetLife SPDA before the applicable surrender charges decreased to zero, pursuant to the terms of the rehabilitation plan.

Section three adds a new section 1423 to the Abandoned Property Law establishing a mechanism for the payment to claimants by the State Comp- troller from the Abandoned Property Fund for these claim-overs. It further directs that future claim-over payments made pursuant to the terms of the ELNY rehabilitation plan shall be made to Abandoned Proper- ty Fund and shall be deemed an asset of such fund.

Section four is the effective date.

Effects of present law which this bill would alter

All provisions are new.

Justification

Under the terms of the 1992 ELNY settlement, owners of SPDA contracts issued by ELNY were given an option to either surrender their SPDA and receive the cash surrender value in four equal annual installments or to exchange their ELNY SPDA for one issued by MetLife. Surrender charges on these MetLife SPDAs began at seven percent and declined one percent per year until the eighth year, when they reached zero. These surrender charges were substantially higher than those applicable on the ELNY SPDAs they replaced and as a result the rehabilitation plan allowed a claim against the ELNY estate, with interest computed at four percent per annum. For persons incurring these surrender charges; hence the term "claim-over". It is estimated that there are approximately 19,000 outstanding claim-overs averaging $2,000 to $3,000 apiece, totaling $32 million.

The problem this legislation attempts to rectify stems from a provision within the rehabilitation plan that prevents payment of claim-overs "... until the earlier of (i) such time as the ELNY estate is liquidated and a payout of 95% or 97.5%, as appropriate, of obligations to SPIA (single premium immediate annuity) beneficiaries, has been funded with certainty or (ii) such time as the Rehabilitator has determined with certainty that, due to ELNY's ownership of sufficient assets having appropriate quality and liquidity, SPIA beneficiaries will receive 95% or 97.5%, as appropriate, of the total obligations owing to them." (Plan for Rehabil- itation for ELNY. March 26, 1992).

Over 14 years have now elapsed since the rehabilitation plan was filed and it is still unclear when either of these thresholds will be reached, meaning that those entitled to claim-over payments are essentially being denied payment indefinitely. In some instances these persons have died and the claim-over payments must be made to an estate. Enactment of this legislation would enable claimants to be paid, and the State's Abandoned Property Fund would then be repaid from the ELNY estate.

Prior legislative history

New bill.

Fiscal implications for state and local governments

Pursuant to recent correspondence from Mark G. Peters, special deputy superintendent in charge, as of February 20, 2008, there are 19,714 claim-overs with a total liability of $35,289.117.95 (principal of $20,772,120.80 and interest of $14,516,997.15). Claim-overs continue to accrue interest at a rate of four percent annum as prescribed by the ELNY Rehabilitation Plan.

The total claim-overs liability could be paid out of the State's Aban- doned Property Fund, which currently holds more than $685 million in assets. These payouts would eventually be repaid with interest from the ELNY estate. No cost to local governments.

Effective date

Upon enactment.