Relates to the distribution of dividends

Summary of provisions

Subsection (a) of § 4207 of the insurance law authorizes domestic stock life insurers to distribute shareholder dividends when such insurer does not exceed the specified threshold test provided for in the law. This bill amends § 4207(a)(1) to provide that the standard for the threshold test should be that the aggregate amount of such insurer's dividends in any calendar year must not exceed the "greater of either: 10% of surplus to policyholders, as of the immediately preceding calendar year, or; its net gain from operations for the immediately preceding calendar year, excluding realized capital gains. Current law establishes this test using the "lesser of either 10% of surplus to policyholders or net gain from operations. This bill also amends § 4207(a)(1)(B) by prohibiting an ordinary dividend distribution by a domestic stock life company in a year following one where such company had an operating loss; and limiting permissible ordinary dividend distributions to 10-25% of surplus, depending on the recent financial history of the company; companies that have had a sustained period of gain from operations, looking back three years or more, could make the largest ordinary dividend distribution (25% of surplus), where their net gain from operations is greater than 10% of surplus; companies which have had an operating loss over the past two - three years would be limited to an ordinary dividend of not more than 15% of surplus, again, where their net gain from operations in the previous calendar year is greater than 10% of surplus and where they did not have an operating loss in the previous calendar year; companies operating under circumstances where 10% of their surplus is a larger number than net gain from operations would be limited to a 10% of surplus ordinary dividend distribution, so long as they did not have an operating loss in the immediately preceding calendar year. This bill also creates new paragraphs (3), which requires notice to the Department prior to a dividend distribution pursuant to subsection (OM and (4). which requires that surplus to policyholders following a dividend distribution must be reasonable in relation to liabilities and adequate to meet its financial needs. Both of these provisions are contained in National Association of Insurance Commissioners' (NAIC) Models and Guidance relating to this provision, which is enacted in 30 some other states.

Justification

Contrary to the law in 33 other states, current New York insurance law provides that New York stock life insurers may only distribute

dividends to shareholders when the aggregate amount of such dividends does not exceed the "lesser of either: 10% of surplus to policyholders; or net gain from operations in the immediately preceding calendar year, excluding realized capital gains Although New York law is consistent with the provisions of section 5B of the National Association of Insurance Commissioners (NAIC) Insurance Holding Company System Regulatory Act, most other states have not followed this provision and have, instead, authorized domestic stock life insurers in their states to utilize this same threshold test using a "greater of standard. The "greater of standard is provided for in the laws of states that have a substantial presence of domestic life insurance companies and a history of strong insurance regulation, such as California, Connecticut, Illinois, Iowa, Maine, Massachusetts, Michigan, Minnesota, New Jersey and Texas.

This bill amends the insurance law in New York regarding the distribution of shareholder dividends by New York stock life insurers to bring it into conformance with the laws of the vast majority of the rest of the country This change will allow New York stock life insurers to be regulated and reviewed by credit rating organizations on the matter of shareholder distributions in the same manner as their competitors in other states The amendments provided for in this bill have been the law in most other states with a substantial domestic life insurance presence for many years, with no negative financial consequences to stock life insurers or their policyholders. Therefore, it would seem logical to place New York domestic insurers on the same competitive playing field as their out-of-state competitors by enacting this legislation.

Legislative history

S.6508 of 2014

Fiscal implications

None.

Effective date

Immediately