Relates to the life insurance company guaranty corporation of New York

Summary of provisions

Section 1 of the bill would amend Insurance Law § 7702 to provide that the purpose of Insurance Law Article 77 is to protect all policy owners, and not just resident policy owners, against failure in the performance of contractual obligations due to the impairment or insolvency of an insurer.

Section 2 would amend Insurance Law § 7703(a) to apply Insurance Law Article 77 to direct life insurance policies, health insurance policies, annuity contracts, funding agreements, and supplemental contracts issued by a life insurer licensed to transact life or health insurance or annuities in New York at the time such agreement was issued or on the date of entry of a court order of liquidation or rehabilitation with respect to such a company that is an impaired or insolvent insurer, as the case may be.

Section 2 also would amend Insurance Law § 7703(a) to state that except as otherwise provided in § 7703, Article 77 applies to the policies, contracts, and funding agreements specified in § 7703(a)(l) with regard to a person who is: (1) an owner or certificate holder under a policy, contract, or funding agreement and who is (i) a resident, or (ii) is not a resident, but only under certain specified conditions; or (2) the beneficiary, assignee, or payee of the foregoing person, regardless of where the person resides. Section 2 would add a new Insurance Law § 7703(c) to provide that Article 77 will not apply to a person: (1) who is a payee, or the beneficiary of a payee if the payee is deceased, of an owner resident if the payee (or beneficiary) is afforded any coverage by a guaranty entity of another state; or (2) covered under § 7703(a)(3)(A) if the guaranty entity of another state provides any coverage to the person.

Section 3 would amend Insurance Law § 7705 to amend the certain definitions of and add a definition of "supplemental contract."

Section 4 would amend Insurance Law § 7708(a) and (b) to make technical changes.

Section 5 would amend Insurance Law § 7708(h) to make technical changes and to permit the Corporation to fund a resolution facility established pursuant to new Insurance Law § 7719.

Section 6 would amend Insurance Law § 7709(e) (1) to eliminate the cap on assessments that may be imposed against member insurers.

Section 7 would add a new Insurance Law § 7719 to permit the Corporation to incorporate a resolution facility in connection with the liquidation of an insolvent domestic life insurer under Insurance Law Article 74 for the purpose of administering and disposing of the business of the insolvent insurer.

Section 8 would add a new Insurance Law § 1108(1) to exempt a resolution facility established pursuant to § 7719 from licensing and other requirements of the Insurance Law (except Article 74).

Section 9 would amend Insurance Law § 7503(f) to give the Corporation the power to fund a resolution facility.

Section 10 would provide that the bill takes effect immediately.

Existing law

Insurance Law § 7709(e)(1) currently caps the amount of total assessments against all member insurers for all impairments and insolvencies at $558 million. Insurance Law § 7712(b) grants a member insurer a tax credit for assessments paid subject to certain limitations. Article 77 currently applies to a "resident," defined by Insurance Law § 7705(k) as any person to whom contractual obligations are owed and who either: (1) resides in New York at the time a member insurer is determined to be an impaired or insolvent insurer; or (2) resided in New York at the time a member insurer issued a covered policy to the person.

A resolution facility (otherwise known as a "special purpose vehicle" or "SPV") currently may not be formed in New York because it would be doing an insurance business without a license in violation of the Insurance Law.

Insurance Law § 7705(h) currently defines a "member insurer" as a life insurer licensed to transact in New York any kind of insurance to which Article 77 applies This subsection also states that solely for the purposes of the definitions of "impaired insurer" and "insolvent insurer", the term "member insurer" also means a life insurer formerly licensed to transact in New York any kind of insurance to which Article 77 applies. If an insurer that is licensed in New York and writes policies or contracts here later gives up its New York license, it would not have to pay assessments if another insurer became impaired or insolvent As a result, other life insurers would have to make up the difference in order for resident policyholders or contract owners who have policies or contracts that were issued by the formerly New York-licensed insurer to have coverage under Article 77.

Justification

Insurance Law Article 77 was enacted to protect New York residents holding obligations issued by New York authorized life insurers against a life insurer's failure to perform its contractual obligations due to the insurer's impairment or insolvency, subject to certain limitations Article 77 established the Corporation to guarantee the payment of benefits and continuation of coverage. Every life insurer licensed to transact life insurance business in New York is a member of the Corporation, and the Corporation is funded by

assessments levied against its member insurers once a member insurer is declared impaired or insolvent by a court of law.

Insurance Law § 7709(e)(1) caps the amount of total assessments against all member insurers for all impairments and insolvencies at $558 million. The existing cap will be exhausted shortly after the payment of the Corporation's obligations associated with the liquidation of the Executive Life Insurance Company of New York ("ELNY") estate. All other states provide guaranty fund protection, yet no other state has a lifetime cap on the total amount that can be assessed against insurers for impairments and insolvencies. Notably, if a bill is not passed eliminating the cap, New York policyholders will have no guaranty fund protection in the event of a future life insurer insolvency.

In addition, Article 77 currently applies to resident policy owners. However the National Association of Insurance Commissioners' ("NAIC's") Life and Health Insurance Guaranty Association Model Act ("Model Act") provides protections to certain nonresidents, such as nonresident beneficiaries or payees, if: (1) the insurer that issued the policy or contract is domiciled in this state; (2) the state or states in which the person resides or reside has or have a guaranty entity or entities similar to the corporation formed by this state's laws; and (3) the person is not eligible for coverage by a guaranty entity in another state because the insurer was not licensed in that state at the time specified in the state's guaranty law. "Orphans" is a term used to refer to persons who, because they cannot meet all three of the above criteria, would not be covered by any state's guaranty fund association. This bill will extend the protections of the Corporation to these individuals.

Furthermore, if an insurer that is licensed in New York and writes policies or contracts here later decides to give up its license, it would not have to pay assessments if another insurer became impaired or insolvent. As a result, other life insurers would have to make up the difference so that resident policy owners or contract owners who have a policy or contract that was issued by the formerly New York-licensed insurer have coverage under Article 77. This bill will ensure that an insurer that gives up its New York license will be considered a member insurer for all purposes, including for assessments. The amendment is consistent with the Model Act.

Moreover, as part of the ELNY Plan of Liquidation, a resolution facility was formed in Washington, D.C. to hold all of ELNY's assets along with payments from various state guaranty associations, and to administer and pay out ELNY's liabilities. A resolution facility could not be formed in New York, because it would have to do an insurance business without a license in violation of the Insurance Law. This bill would permit the Corporation to form a resolution facility in New York in the event of a future liquidation and the resolution facility would not need to be licensed as an insurer.

Legislative history

New bill.

Fiscal implications

To be determined.

Effective date

Immediately.