To print this article, all you need to do is register or log in to Mondaq.com.
New York Senate Bill S9006, passed by the Senate on May 31, 2022 (the “New York GCC Bill”) is “[a]n an act to amend insurance law regarding group capital calculations, liquidity stress tests, and confidentiality,” which amends New York insurance law to require an annual group capital calculation (GCC). The legislative session ended on June 2, 2022, without the Assembly taking a decision on the bill, so when the legislature reconvenes, the bill must be reintroduced for further consideration.
For the reasons set forth below, even if the bill were enacted as presented, it may not fully comply with the Safeguard Agreements between the US, the EU, and the United Kingdom, respectively (the Safeguard Agreements), or it may leave New York open to federal precedent repayment, if it is not accompanied by relevant regulatory acts in accordance with the National Association of Insurance Commissioners Insurance Holding Company Systems Regulation Act (Model Law). If no bill is passed by the fall of 2022, New York could also be out of compliance with the Covered Agreement and subject to federal foreclosure.
The applicable agreements state:
“Regarding the insurance or reinsurance group of the country of origin, which carries out operations in the host country and is subject to the assessment of the capital of the group in the country of registration [covering groupwide risks and
vesting appropriate remedial powers in the regulatory body
enforcing the assessment]; supervisory authority of the host country [may] not set group capital valuations or requirements at the level of the global parent company […]
“If the insurer or reinsurer of the country of origin is subject to group capital requirements in the territory of the country of origin, the supervisory authority of the host country [may] not set group capital requirements or valuation at the level of the global parent company
(Applicable US/EU Agreement, September 22, 2017, Section 4(h))
This provision establishes a reciprocity requirement for jurisdictions that mandate a group-wide capital assessment for a local insurer. Generally, if the parent company of such an insurer is located in another jurisdiction that is a party to the agreement, the local jurisdiction may not impose such an assessment. The purpose of this provision is to harmonize the supervision of insurance groups by the various parties to the relevant covered agreement. Such reconciliation prevents capital from being re-evaluated. Under this system, only the parent company’s jurisdiction can make such a claim.
In 2020, the Model Law was amended to align this requirement with covered agreements. The amendments require a local insurer to submit a GCC, but exempt from this requirement as provided in the Covered Agreements:
“The system of an insurance holding company whose supervisory authority outside the United States is within the limits of mutual jurisdiction1 […] which recognizes the US regulatory approach to group supervision and group capital’.
(Model Law Sec. 4.L.(2)(c))
Unlike the Model Law, the New York GCC Bill does not exempt from the requirements of the New York GCC insurance holding companies headquartered in the reciprocal jurisdiction under the Covered Agreements. New York’s GCC bill authorizes the Financial Services Inspector (the Inspector) to “exempt a holding company from filing [a GCC] in accordance with the criteria set forth in the regulations” (New York GCC Bill, Clause 2). This obviously involves a regulation that would embody the concepts of reciprocity of the covered agreements and the amendments to the Model Act.
This raises concerns that New York’s GCC bill will not satisfy covered agreements because it does not exempt holding companies in reciprocal jurisdictions. Once a provision containing a mutual release is issued, this concern will be reduced. However, the lack of specific reference in the statutory text to the concept of reciprocity would make New York’s GCC bill vulnerable to preemption under federal law allowing covered transactions (the Dodd-Frank Wall Street Reform and Consumer Protection Act , 31 USC ss 313-14).
Any of the following three actions would address this concern: (1) amend New York’s GCC bill to specifically include a reciprocal exemption as the Model Law; (2) amend the New York GCC bill to specifically provide that the Superintendent must issue regulations exempting insurers whose parent companies are located in reciprocal jurisdictions; or (3) combine New York’s GCC bill with the Department of Financial Services’ proposed regulations thereon.
1. In this context, “reciprocal jurisdiction” refers not only to the EU and the UK (i.e. the parties to the relevant agreements covered), but also to “qualified jurisdictions” entitled to parallel treatment to US states for credit – for reinsurance purposes under by NAIC management and which “recognize and accept” US regulatory approaches.
The content of this article is intended to provide a general guide to the subject. You should seek specialist advice regarding your specific circumstances.
POPULAR ARTICLES: Insurance from the USA