Authorizes the superintendent of financial services to suspend crediting of underwriting earnings for a fiscal year for the purpose of accumulating a subscriber's operating reserve

Title of bill

An act to amend the insurance law, in relation to authorizing the superintendent of financial services to suspend crediting of underwriting earnings for a fiscal year for the purpose of accumulating a subscriber's operating reserve

Purpose or general idea of bill

To authorize the superintendent of the department of financial services to suspend continued funding of subscriber operating reserves in appropriate circumstances.

Summary of specific provisions

Section 1 would amend section 6109 of the insurance law entitled "Subscriber's operating reserve". Section 2 of the bill provides for an immediate effective date.

Existing law

Under current law, the superintendent may approve alternative methods for accumulating Subscriber operating reserves upon application from a reciprocal's Attorney-in-Fact. However, the existing law does not specifically provide that the Superintendent s discretion would include suspension of further crediting of underwriting earnings to a Subscribers operating reserve.

Justification

Municipal Insurance Reciprocals are licensed by the State to provide a long term stable and secure market for New York States local governments. A priority of municipal reciprocals is to avoid the volatility in pricing which is an anathema for municipal budgets.

An existing requirement of the Insurance Law's statutory provisions for financing and funding of all reciprocals, including municipal reciprocals since 1986, requires 25% of each year underwriting earnings to be credited to member operating reserves. A Subscriber may, however, upon withdrawal from membership, and after giving notice to the Attorney-in-Fact, withdraw the amount of its operating reserve. As the amounts in municipal subscriber operating reserves have built up over time, they can provide an artificial incentive for New York's local governments to exit a municipal reciprocal insurer, if only to access those funds which have accumulated in the operating reserve. This likelihood is even more acute in the current fiscal environment where municipal budgets are subject to a property tax cap and to exploding expenditures for pension and health benefits which municipal leaders and legislatures have virtually no control over.

The New York Municipal Insurance Reciprocal (NYMIR) has raised this issue with the Department over the past several years and inquired whether the Superintendent could exercise the existing ("approve other methods") authority pursuant to section 6109 (a) (3) to address this problem which will only continue to grow as NYMIR matures further. The Department has concluded that the existing statute provides insufficient authority to permit the Superintendent to suspend further contribution to member operating reserves. This legislation would specifically authorize the Superintendent, on an annual basis and only when requested by the Attorney-in-Fact for a municipal reciprocal, to suspend further crediting of such underwriting earnings to operating reserves, and to instead redirect those funds directly to municipal subscribers in the year immediately following the fiscal year for which said underwriting earnings were generated. PRIOR LEGISLATIVE HISTORY :

New Bill.

Fiscal implications

None, except that it would have a salutatory effect on the more than 860 local government members of NYMIR in any future year in which the reciprocal generates underwriting earnings, and the Superintendent would agree that the financial position of NYMIR (currently A Excellent rated by AM Best) would support a direct return of earnings to members.

Effective date

Immediately.