Authorizes the superintendent to authorize or prescribe an analytical method that an insurer may use in lieu of a statistical rating organization

Title of bill

An act to amend the insurance law, in relation to ratings from a statistical rating organization

Purpose

This bill would enable the Superintendent of Insurance ("superintendent"), by regulation, to authorize or prescribe an analytical method that an insurer may use as an alternative to, or must use in addition to, or in lieu of, ratings from a statistical rating organization, when determining the suitability of securities for an insurer's portfolios.

Summary of provisions

Section 1 of the bill adds a new Insurance Law § 1415 to enable the Superintendent to authorize or prescribe an analytical method that an insurer may use an an alternative to, or must use in addition to, or in lieu of, ratings from a statistical rating organization with regard to any reference in the Insurance Law to ratings from a statistical rating organization.

Sections 2 through 17 make technical amendments to Insurance Law §§ 1401(a)(2), 1404(a)(2), 1404(a)(6)(B), 1404(a)(7), 1405(a)(7)(C), 1410(f)(3), 4217(c)(4)(H), 4310(b)(2), 4310(k), 4526(a)(1), 4530(b)(3)(B), 6901(g)(4)(I)(i), 6901(k), 6901(n), 6901(s), and 6902(a)(4) to replace current language with the phrase "a statistical rating organization recognized by the superintendent" to conform the statutory language to industry usage.

Section 18 provides that this bill is effective immediately.

Existing law

Currently, the Insurance Law provisions that address the suitability of insurer investments by reference to "ratings from statistical rating organizations" use as criteria for determining if an investment is suitable only those credit ratings. By limiting considerations to only those ratings, the statutes fail to take into account investment risks other than credit.

Existing law also refers to "nationally recognized" rating agencies. This language, which is similar to Securities and Exchange Commission ("SEC") references, suggests that insurance regulatory concerns take into account a much broader range of issues than those addressed by SEC-recognized credit assessment agencies, these statute do not allow for full consideration of the true risk.

Legislative history

This is a new bill.

Furthermore, most statistical rating organizations operate through an "issuer pays" model. An entity that issues a security pays the rating organization to analyze and rate the security. Such an arrangement may result in pressure on the rating organization to give the security a better rating than it otherwise would if the costs were not paid by the issuer, but rather an investor or neutral third party. By permitting the Superintendent, by regulation, to authorize or prescribe an analytical method, this bill may alleviate this conflict of interest.

Finally, New York has led the National Association of Insurance Commissioners' ("NAIC's") efforts to develop an alternative analytical method by which an insurer may analyze its investments in residential mortgage-backed securities, and which addresses each of the shortcomings of a statistical rating organization's ratings set out above. This bill enables the Superintendent to authorize or prescribe this analytical method to reflect better the risks inherent in an insurer's portfolio, and to protect policyholders' interests.

;.U ON;BUDGET IMPLICATIONS :

This bill will not have an impact on State finances.

Effective date

This bill would take effect immediately.