Relates to providing for increased efficiency for certain insurance regulations

Purpose of the bill

The purpose of this bill is to amend the insurance law to enhance regulatory efficiency and efficacy.

Summary of provisions

Section 1 of the bill would amend Insurance Law § 110(a) to permit the sharing of confidential and privileged materials with members of a supervisory college, as described in new Insurance Law § 302.

Section 2 would add a new Insurance Law § 302 pertaining to supervisory colleges.

Section 3 of the bill would add a new definition of "enterprise risk" to Insurance Law § 1501 for purposes of Article 15.

Section 4 would amend Insurance Law § 1503(a) to require every person who becomes a controlled insurer to amend its registration within 30 days after any material change to the information provided in the registration, and would require the registration to be in such form and to contain such matters as the Superintendent of Financial Services ("Superintendent") prescribes. It also would delete the current language in Insurance Law § 1503(b), which currently requires a registrant to furnish the Superintendent with certain information regarding its holding company, and add a new subsection (b) requiring a holding company to adopt a formal enterprise risk management function and to file an enterprise risk report with the Superintendent by April 30 of each year.

Section 5 would amend Insurance Law § 1504 to require any controlled insurer to produce information not in the insurer's possession if the insurer can obtain access to such information. It further requires that, if the insurer cannot obtain such access, the insurer provide a detailed explanation as to why it could not obtain the information and the identity of the holder of the information. It also provides for a daily penalty not to exceed $500 if, after notice and a hearing, the Superintendent determines that the detailed explanation is without merit.

Section 6 would amend Insurance Law § 1505(d) to require a domestic controlled insurer to notify the Superintendent of any reinsurance treaties or agreements between the insurer and any person in its holding company system at least 45 days before entering into such treaty or agreement and would raise the threshold for when a domestic controlled insurer must notify the Superintendent of any sales, purchases, exchanges, loans, or extensions of credit between the insurer and any person in its holding company system.

Section 7 would amend Insurance Law § 1506(a) to require a person seeking to acquire control of an authorized insurer to agree to provide the annual report specified in Insurance Law § 1503 for so long as control exists.

Section 8 would add a new Insurance Law § 1506(f) to require a holding company seeking to divest its controlling interest in a domestic insurer to notify the Superintendent at least 30 days in advance of such divestiture.

Section 9 would add a new Insurance Law § 1510(d) to provide that a violation of Insurance Law § 1506 that prevents a full understanding of the enterprise risk to the insurer posed by the holding company may serve as an independent basis for disapproving dividends or distributions or as grounds for rehabilitation or liquidation.

Section 10 would amend Insurance Law § 1603(a) to prohibit a domestic insurer from acquiring control of any other domestic insurer unless the insurer obtains the Superintendent's prior approval.

Section 11 would add a new insurance Law § 1604 to require an authorized domestic insurer subject to Insurance Law Article 16 to register with the Superintendent. It also would require an authorized domestic insurer, other than a domestic insurer required to register as a controlled insurer pursuant to Insurance Law § 1503, to adopt a formal enterprise risk management function and to file an enterprise risk report with the Superintendent by April 30 of each year. In addition, it would add a new definition of "enterprise risk" for purposes of Insurance Law Article 16.

Section 12 would add a new Insurance Law § 1608(e) to require a domestic insurer subject to Insurance Law Article 16 to notify the Superintendent before entering into certain transactions with the insurer's subsidiary.

Section 13 would amend Insurance Law § 1702 to make technical changes to certain definitions and to add a new definition of "enterprise risk" for purposes of Insurance Law Article 17.

Section 14 would amend Insurance Law § 1710 to require any parent corporation seeking to divest its controlling interest in a domestic insurer to notify the Superintendent at least 30 days before divestiture.

Section 15 would amend Insurance Law § 1712 to require a parent corporation to notify the Superintendent before entering into certain transactions with the parent corporation's subsidiary.

Section 16 would add a new Insurance Law § 1717 to require a parent corporation subject to Insurance Law Article 17 to register with the Superintendent. It also would require a parent corporation, other than a parent corporation required to register as a controlled insurer pursuant to Insurance Law § 1503, to adopt a formal enterprise risk management function and to file an enterprise risk report with the Superintendent by April 30 of each year.

Section 17 would amend Insurance Law § 1110(d) to increase the requisite reserve threshold above which a charitable organization must obtain a permit to issue charitable gift annuity contracts from the current $500,000 to $1 million.

Section 18 would add a new Insurance Law § 1110(f) to give the Superintendent discretionary authority to examine charitable annuity societies who have not obtained a permit because their reserves do not exceed $1 million.

Section 19 would amend Insurance Law § 307(a)(1) to permit the Superintendent to accept an electronic filing of a foreign insurer's annual statement.

Section 20 would amend Insurance Law § 7428(b) to increase the threshold from $2,500 to $25,000 at which the Superintendent, as receiver, may dispose of property or debts without court approval.

Section 21 would amend Insurance Law § 7602(g) to create a threshold of $25,000, below which the Superintendent may allow security fund claims payments without court approval.

Section 22 would set the effective date for the legislation.

Existing law

Insurance Law § 1505(d) requires a domestic controlled insurer to notify the Superintendent of its intention to enter into sales, purchases, exchanges, loans or extensions of credit or investments with any person in its holding company system, involving more than

one half of one percent but less than five percent of the insurer's admitted assets at last year-end. That section also requires a domestic controlled insurer to notify the Superintendent at least 30 days before entering into any reinsurance treaties or agreements with any person in its holding company system.

Generally, the New York State Department of Financial Services ("Department" or "DFS") issues a circular letter each year pursuant to Insurance Law § 308 that requires an authorized domestic insurer or a parent corporation subject to Insurance Law Articles 16 or 17, respectively, to furnish the Superintendent with (1) a copy of the National Association of Insurance Commissioners ("NAIC") insurance holding company system annual registration statement if the insurer or its parent authorized insurer filed the statement in another state; and (2) a report in advance of engaging in any activity that results in the insurer acquiring control or in advance of engaging in certain other transactions.

Articles 16 and 17 of the Insurance Law do not require a domestic insurer or parent corporation subject to these articles to register with the Superintendent. In addition, Articles 15, 16, and 17 of the Insurance Law do not require a holding company system, domestic insurer, or parent corporation to file with the Superintendent notice of its proposed divestiture of its controlling interest in a domestic insurer. Articles 15, 16, and 17 also do not require holding companies or parent insurers to have formal enterprise risk management functions or to file enterprise risk reports with the Superintendent.

Further, the Insurance Law does not explicitly authorize the Superintendent to participate in supervisory colleges and does not require each insurer to be liable for the reasonable expenses of the Superintendent's participation in a supervisory college. While Insurance Law § 110 permits the Superintendent to share confidential information with other state, federal, or international regulatory agencies or law enforcement authorities, it does not expressly address sharing with members of a supervisory college.

Article 15 does not require an insurer to try to obtain information that is not in the insurer's possession when the Superintendent needs the information.

Insurance Law § 1110(d) requires a charitable organization with $500,000 in reserves to obtain a permit from the Superintendent before it may issue an annuity contract in New York. Insurance Law § 307(a)(1) requires every insurer and every fraternal benefit society that is authorized to do an insurance business in New York, and every pension fund, retirement system or state fund that is required to report to the Superintendent or is subject to the Superintendent's examination, to file an annual statement with the Superintendent, executed in duplicate and verified by the oath of at least two of its principal officers, showing its condition at last

year-end or, in the case of a pension fund or retirement system, on such date in the year next preceding as the Superintendent may approve.

Insurance Law § 7602(g) requires court approval before the Property/Casualty Security Fund or the Motor Vehicle Liability Security Fund may pay a claim.

Insurance Law § 7428(b) permits the Superintendent, in rehabilitation or liquidation proceedings, to settle claims of $2,500 or less without court approval.

Prior legislative history

This is a new bill.

Statement in support

This bill would amend the Insurance Law to conform to the National Association of Insurance Commissioner's ("NAIC") Model Insurance Holding Company System Regulatory Act. Enactment of the amendments would provide uniformity with other states and will improve efficiency by reducing the number of certain holding company filings.

Specifically, the bill would amend the current requirement that all domestic insurers file with the Superintendent, for his review, all reinsurance treaties or agreements with any member of their holding, company systems. With regard to domestic property/casualty insurers, the bill only requires them to file reinsurance treaties or agreements that meet a certain threshold, unless otherwise requested by the Superintendent. The bill makes a distinction between different kinds of insurers, because property/casualty insurers typically enter into large numbers of reinsurance treaties and agreements, but many of them are for relatively small and ascertainable exposures: The dollar threshold would ensure that the Superintendent will review the material transactions that have the potential for negatively impacting domestic property/casualty insurers.

However, reinsurance treaties and agreements entered into by life insurers generally are complex, often involving off-shore affiliates, captives, and securitizations, and it would generally not be known in advance whether a reinsurance treaty or agreement involving, a life insurer would meet a certain threshold because of the nature of life insurance. With regard to accident and health insurers, the volume of reinsurance treaties and agreements is not as great as those entered into by property/casualty insurers. It addition, holding company arrangements involving many accident and health insurers affect entities dually regulated by the DFS and Department of Health, so it is necessary for the Superintendent to review reinsurance treaties and agreements to ensure compliance not only with the Insurance Law, but the Public Health Law as well.

Adoption of the amendments also may be necessary for the Department to maintain its NAIC accreditation. Accredited state insurance departments must undergo a comprehensive review every five years by an independent review team to ensure they continue to meet baseline standards. The accreditation standard's require that state departments have adequate statutory and administrative authority to regulate an insurer's corporate and financial affairs, and that they have the necessary resources to carry out that authority.

In addition, the bill would require a holding company or parent insurer to establish a formal risk management function and to file an annual report that would identify material risks that could pose enterprise risk to New York authorized insurers.

The bill also would authorize the Superintendent to participate in a "supervisory college", which is defined by the NAIC as "a forum for cooperation and communication between the involved supervisors established for the fundamental purpose of facilitating the effectiveness of supervision of entities which belong to an insurance group; facilitating both the supervision of the group as a whole on a group-wide basis and improving the legal entity supervision of the entities within the insurance group."

Further, the bill would permit the Superintendent to impose daily penalties when an insurer fails to provide a meritorious explanation as to why it could not obtain information that the Superintendent needs when the information was not in the insurer's possession. In addition, the bill provides that, where it appears to the Superintendent that any person has committed a violation of Insurance Law § 1506 in connection with the acquisition of control of the insurer and the violation prevents a full understanding of the enterprise risk posed to the insurer by the holding company system, the violation may serve as an independent basis for disapproving dividends or distributions or as grounds for rehabilitation or liquidation.

The bill would amend the Insurance Law to facilitate the issuance of annuities by charitable annuity societies by providing that charitable annuity societies with reserves on outstanding annuity agreements of less than $1 million need not obtain a permit to issue such annuities. This amendment to the Insurance Law would save many charitable gift annuity societies from the burdens and expenses associated with having to obtain a permit to issue charitable gift annuities, while retaining the authority of the Superintendent to examine such societies as needed to protect the interests of consumers.

In addition, the Department no longer requires foreign insurers to file hard copies of the annual statements, since they are available to the Department electronically on the NAIC's website. However, the Department must collect hard copies of the jurat pages (i.e. the annual statement signature page), which Department staff logs in and files. When insurers do not file the jurat pages, staff must contact

insurers and try to get them to file the pages. Staff also must send these documents to the State Archives after three years. This bill would amend Insurance Law § 307(a)(1) to permit the Superintendent to accept an electronic filing of a foreign insurers annual statement that does not contain the signatures or verification of the officers provided that the foreign insurer had filed, in its state of domicile, an annual statement verified by the oath of at least two of its principal officers. In such a situation, the officers of the foreign insurer shall be deemed to have given their oath in this state. This amendment would result in increased efficiency and efficacy, which should result in savings for the Department.

The current $2,500 cap on the value of assets disposable without court approval, adopted 33 years ago, prevents the Superintendent, as receiver, from efficiently disposing of low-value assets and increases administrative expenses. The Insurer Receivership Model Act sets a higher threshold (the lesser of $1 million or ten percent of the general assets of the estate), which has been adopted in states such as Texas. Other states have adopted various other thresholds on the value of the sale of assets by receivers that do not require court approval. For example, Illinois, California, and Kentucky have maximums of $25,000, $20,000, and $10,000, respectively. A $25,000 threshold for court approval properly balances the desire to streamline the sales process and reduce the related selling costs with the need for active judicial oversight for asset sales of a significant size.

Furthermore, the administrative costs of drafting and processing the requisite court orders on all eligible security fund claims are significant. The proposed amendment would increase the speed of and lower the administrative cost associated with payments out of the security funds, but without impacting the court's role in supervising estates. The amendment would set a reasonable dollar threshold at which judicial allowance of individual claims is required, and below which it is not. This amendment has the potential to greatly reduce the administrative costs associated with the payment of security fund claims. In each of the past three years 70-80% of all paid Property/Casualty Security Fund claim payments were for $25,000 or less (70% in 2010, 75% in 2011, and 82% from 2012 to date).

Fiscal implications

There are no fiscal implications to the State from this bill.

Effective date

This bill would take effect immediately, except that: (1) sections four, eleven, and sixteen of this bill would take effect 90 days after the bill becomes law; and (2) the amendments made by sections six, twelve, and fifteen of this bill would apply only to transactions entered into on or after the effective date of this bill.