Increases the permitted foreign investments by life insurance companies from sixteen to twenty percent of the insurer's assets

Summary of provisions

This bill would amend section 1405(a)(7)(C) of the insurance law to establish that the aggregate percentage of admitted assets of a life insurer that may be invested in a foreign jurisdiction rated investment grade or better should be 20% and to establish that the percentage of admitted assets by such insurer that may be invested in any one investment grade foreign jurisdiction must be 7%. The bill would further amend section 1405(a)(7)(D) of the insurance law to establish that the aggregate percentage of admitted assets of life insurers eligible to be invested in foreign jurisdictions that are other than investment grade should not exceed 6% and that the percentage of admitted assets by such insurer that may be invested in any one other than investment grade foreign jurisdiction must be 3%. Lastly, this bill also provides for a new section 1405(f) of the insurance law that establishes a separate limit of 4% of admitted assets for unhedged foreign currency investments by life insurers.

Existing law

Section 1405(a)(7)(C) of the insurance law currently provides that the aggregate percentage of admitted assets of a life insurer that may be invested in a foreign jurisdiction rated investment grade or better should be 16% and that the percentage of admitted assets by such insurer that may be invested in any one investment grade foreign jurisdiction must be 6%. Section 1405(a)(7)(D) of the insurance law currently provides that the aggregate percentage of admitted assets of life insurers eligible to be invested in foreign jurisdictions that are other than investment grade should not exceed 4% and that the percentage of admitted assets that may be invested in any one other than investment grade foreign jurisdiction must be 2%. Current law also includes the restrictions on unhedged foreign currency investment under subparagraph (D) of section 1405(a)(7) of the insurance law.

Justification

This legislation is necessary for life insurers in N.Y. to compete effectively in today's global marketplace and to provide them with safe and diversified investment opportunities that will benefit their

present and future customers. The globalization of the world's economies, and the expansion of financing alternatives, continue to develop at an ever-increasing pace The ability of this state's life insurers to provide their customers with superior, risk-adjusted returns depends on their ability to make timely investment decisions. Foreign investments provide safety-enhancing diversification to domestic portfolios and expand investment alternatives. Accordingly, a modest expansion of existing foreign investment limitations, as contained in this bill will enable N.Y. life insurers to maintain their competitive position and to continue to provide their customers with the most popular life insurance products at affordable prices.

The liberalization of foreign investment regulations, the lessening of international trade barriers, economic reforms, and improved information technology all have had a significant impact on world markets, resulting in a tremendous globalization of the financial markets. It is likely the global market will continue to grow. In particular, those countries previously labeled as "developing" are rapidly closing the economic gap with established economies. As a result, investors, even those that do not operate multi-nationally, have greater opportunity to diversify their portfolios and invest in the most attractive financial markets. This dramatic change in the world's securities marketplace has resulted in an expansion of foreign investment opportunities for domestic life insurers. Non-insurers, which in many cases compete directly with domestic life insurers, have already responded by dramatically increasing their non-U.S. holdings.

Many pension funds and other asset managers have determined that, as a result of continued globalization of financial markets, an appropriate asset mix may include 20% or more of assets in foreign markets. To require N.Y. life insurers to limit their foreign holdings to 16% in investment grade jurisdictions not only places them at a competitive disadvantage, but also inhibits their ability to optimize overall returns and reduce risks. The limitation on foreign investments proposed in this bill will empower this state's life insurers to improve investment results and reduce risks through broader diversification.

Accordingly, this bill is essential to provide New York life insurers with the flexibility to compete effectively in the global marketplace and enhance their financial position by realizing higher risk-adjusted returns on more diversified portfolios By doing this, they are better able to service their customers, the consumers of this state, by offering them state-of-the-art products at reasonable prices.

In 1997, the National Association of Insurance Commissioners (NAIC) adopted two alternative versions of an Investment of Insurers Model Act. Both the Defined Limits Version (DLV) and Defined Standards Version (DSV) of the Model Act permit life insurers' to invest up to 20% of their admitted assets in foreign investments under their basic limit, as well as permitting additional foreign investments under a basket limit of 9% and 11%, for a total of 31% under the DLV Model and 29% under the DSV Model. Since then, a number of states, including Connecticut (33%), Illinois (30%), and Texas (25%), have revised their investment laws to permit their domestic insurers to increase the portion of their admitted assets invested in foreign investments.

Lastly, this bill conservatively limits permissible investments to allow for the largest percentage increase to occur only in foreign jurisdictions that fall within the highest ratings categories (A, AA or AAA). Thus, the law continues to provide for appropriate safeguards against insurer investments in foreign jurisdictions that are rated in the lower categories.

Legislative history

A.10773 of 2012

Fiscal implications

None.

Effective date

This act shall take effect immediately.