Bill S2890A-2013

Increases the permitted foreign investments by life insurance companies from sixteen to twenty percent of the insurer's assets

Increases the permitted foreign investments by life insurance companies from sixteen to twenty percent of the insurer's assets.

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Actions

  • Jun 20, 2013: SUBSTITUTED BY A2130A
  • May 6, 2013: AMENDED ON THIRD READING 2890A
  • Mar 20, 2013: ADVANCED TO THIRD READING
  • Mar 19, 2013: 2ND REPORT CAL.
  • Mar 18, 2013: 1ST REPORT CAL.204
  • Jan 24, 2013: REFERRED TO INSURANCE

Calendars

Memo

BILL NUMBER:S2890A           REVISED MEMO 05/21/13

TITLE OF BILL: An act to amend the insurance law, in relation to the foreign investments of insurance companies

PURPOSE:

This bill would amend § 1405 of the insurance law relating to investments by life insurers to slightly increase the percentage of admitted assets that may be invested in foreign jurisdictions by life insurance companies. This bill would also create a new percentage of admitted assets limit for unhedged foreign currency investments by life insurers. This bill is necessary to enable life insurers authorized to do business in N.Y. to compete effectively in today's global marketplace and to provide them with safe and diversified investment opportunities that will ultimately benefit their present and future customers.

SUMMARY OF PROVISIONS:

This bill would amend section 1405(a)(7)(C) of the insurance law to establish that the aggregate percentage of admitted assets of a life insurer that may be invested in a foreign jurisdiction rated investment grade or better should be 20% and to establish that the percentage of admitted assets by such insurer that may be invested in any one investment grade foreign jurisdiction must be 7%. The bill would further amend section 1405(a)(7)(D) of the insurance law to establish that the aggregate percentage of admitted assets of life insurers eligible to be invested in foreign jurisdictions that are other than investment grade should not exceed 6% and that the percentage of admitted assets by such insurer that may be invested in any one other than investment grade foreign jurisdiction must be 3%. Lastly, this bill also provides for a new section 1405(f) of the insurance law that establishes a separate limit of 4% of admitted assets for unhedged foreign currency investments by life insurers.

EXISTING LAW:

Section 1405(a)(7)(C) of the insurance law currently provides that the aggregate percentage of admitted assets of a life insurer that may be invested in a foreign jurisdiction rated investment grade or better should be 16% and that the percentage of admitted assets by such insurer that may be invested in any one investment grade foreign jurisdiction must be 6%. Section 1405(a)(7)(D) of the insurance law currently provides that the aggregate percentage of admitted assets of life insurers eligible to be invested in foreign jurisdictions that are other than investment grade should not exceed 4% and that the percentage of admitted assets that may be invested in any one other than investment grade foreign jurisdiction must be 2%. Current law also includes the restrictions on unhedged foreign currency investment under subparagraph (D) of section 1405(a)(7) of the insurance law.

JUSTIFICATION:

This legislation is necessary for life insurers in N.Y. to compete effectively in today's global marketplace and to provide them with safe and diversified investment opportunities that will benefit their

present and future customers. The globalization of the world's economies, and the expansion of financing alternatives, continue to develop at an ever-increasing pace The ability of this state's life insurers to provide their customers with superior, risk-adjusted returns depends on their ability to make timely investment decisions. Foreign investments provide safety-enhancing diversification to domestic portfolios and expand investment alternatives. Accordingly, a modest expansion of existing foreign investment limitations, as contained in this bill will enable N.Y. life insurers to maintain their competitive position and to continue to provide their customers with the most popular life insurance products at affordable prices.

The liberalization of foreign investment regulations, the lessening of international trade barriers, economic reforms, and improved information technology all have had a significant impact on world markets, resulting in a tremendous globalization of the financial markets. It is likely the global market will continue to grow. In particular, those countries previously labeled as "developing" are rapidly closing the economic gap with established economies. As a result, investors, even those that do not operate multi-nationally, have greater opportunity to diversify their portfolios and invest in the most attractive financial markets. This dramatic change in the world's securities marketplace has resulted in an expansion of foreign investment opportunities for domestic life insurers. Non-insurers, which in many cases compete directly with domestic life insurers, have already responded by dramatically increasing their non-U.S. holdings.

Many pension funds and other asset managers have determined that, as a result of continued globalization of financial markets, an appropriate asset mix may include 20% or more of assets in foreign markets. To require N.Y. life insurers to limit their foreign holdings to 16% in investment grade jurisdictions not only places them at a competitive disadvantage, but also inhibits their ability to optimize overall returns and reduce risks. The limitation on foreign investments proposed in this bill will empower this state's life insurers to improve investment results and reduce risks through broader diversification.

Accordingly, this bill is essential to provide New York life insurers with the flexibility to compete effectively in the global marketplace and enhance their financial position by realizing higher risk-adjusted returns on more diversified portfolios By doing this, they are better able to service their customers, the consumers of this state, by offering them state-of-the-art products at reasonable prices.

In 1997, the National Association of Insurance Commissioners (NAIC) adopted two alternative versions of an Investment of Insurers Model Act. Both the Defined Limits Version (DLV) and Defined Standards Version (DSV) of the Model Act permit life insurers' to invest up to 20% of their admitted assets in foreign investments under their basic limit, as well as permitting additional foreign investments under a basket limit of 9% and 11%, for a total of 31% under the DLV Model and 29% under the DSV Model. Since then, a number of states, including Connecticut (33%), Illinois (30%), and Texas (25%), have revised their investment laws to permit their domestic insurers to increase the portion of their admitted assets invested in foreign investments.

Lastly, this bill conservatively limits permissible investments to allow for the largest percentage increase to occur only in foreign jurisdictions that fall within the highest ratings categories (A, AA or AAA). Thus, the law continues to provide for appropriate safeguards against insurer investments in foreign jurisdictions that are rated in the lower categories.

LEGISLATIVE HISTORY:

A.10773 of 2012

FISCAL IMPLICATIONS:

None.

EFFECTIVE DATE:

This act shall take effect immediately.


Text

STATE OF NEW YORK ________________________________________________________________________ 2890--A Cal. No. 204 2013-2014 Regular Sessions IN SENATE January 24, 2013 ___________
Introduced by Sen. SEWARD -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance -- reported favorably from said committee, ordered to first and second report, ordered to a third reading, amended and ordered reprinted, retaining its place in the order of third reading AN ACT to amend the insurance law, in relation to the foreign invest- ments of insurance companies THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Paragraph 7 of subsection (a) of section 1405 of the insur- ance law, subparagraph (C) as amended by chapter 60 of the laws of 2008 and subparagraph (D) as amended by chapter 162 of the laws of 1999, is amended to read as follows: (7) Foreign investments. (A) Canadian investments substantially of the same types as those eligible for investment under paragraphs one through six of this subsection, provided that, after giving effect to any investment made under this subparagraph, the aggregate amount of invest- ments made under this subparagraph and then held by such insurer shall not exceed ten percent of the insurer's admitted assets, except where a greater amount is permitted under subparagraph (B) below (in which case the provisions of this subparagraph shall not be applicable). (B) In the case of any domestic insurer that is authorized to do busi- ness in a foreign country or possession of the United States of America or that has outstanding insurance, annuity or reinsurance contracts on lives or risks resident or located in such foreign country or possession, investments in such foreign country or possession that are substantially of the same types as those eligible for investment under paragraphs one through six of this subsection; provided that, except where a greater amount is permitted under subparagraph (A) above, after giving effect to any investment in such foreign country or possession made under this subparagraph, the aggregate amount of cash in the
currency of such foreign country or possession and of investments in such foreign country or possession made under this subparagraph and then held by such insurer shall not exceed one and one-half times the amount of such insurer's reserves and other obligations under such contracts or the amount which such insurer is required by law to invest in such coun- try or possession, whichever shall be greater. (C) Investments in foreign countries, in addition to Canadian invest- ments and investments permitted by subparagraph (B) of this paragraph, that are substantially of the same types as those eligible for invest- ment under paragraphs one through six of this subsection, provided that, after giving effect to any investment made under this subparagraph, the aggregate amount of investments qualified under this subparagraph and then held by such insurer shall not exceed [sixteen] TWENTY percent of the insurer's admitted assets; and (i) the issuer or obligor is (I) a jurisdiction, which is rated in one of the four highest rating categories by an independent, nationally recognized United States rating agency, (II) any political subdivision or other governmental unit of any such jurisdiction, or any agency or instrumentality of any such jurisdiction, political subdivision or other governmental unit or (III) an institution which is organized under the laws of any such jurisdiction or, in the case of such paragraphs three and four of this subsection, the real property is located in any such jurisdiction; and (ii) [if the investment is denominated in any currency other than United States dollars, the investment is effectively hedged, substan- tially in its entirety, against the United States dollar: (I) for an insurer that has an approved derivative use plan under section one thousand four hundred ten of this article, pursuant to contracts or agreements entered into under and in accordance with that derivative use plan and subject to the counterparty exposure limits thereunder; or (II) for any other insurer, pursuant to contracts or agreements which are: (aa) issued by or traded on a securities exchange or board of trade regulated under the laws of the United States or Canada or a province thereof or (bb) entered into with: (aaa) a United States banking insti- tution which has assets in excess of five billion dollars and which has obligations outstanding, or has a parent corporation which has obli- gations outstanding, which are rated in one of the two highest rating categories by an independent, nationally recognized, United States rating agency; (bbb) a broker-dealer registered with the Securities and Exchange Commission which has net capital in excess of two hundred fifty million dollars; or (ccc) any other banking institution which has assets in excess of five billion dollars and which has obligations outstanding, or has a parent corporation which has obligations outstanding, which are rated in one of the two highest rating categories by an independent, nationally recog- nized, United States rating agency and which is organized under the laws of a jurisdiction which is rated in one of the two highest rating cate- gories by an independent, nationally recognized, United States rating agency; and (iii) provided that] an insurer shall not make any investment in any foreign country pursuant to this subparagraph, if such investment, together with all other investments in the same foreign country so made and then held by such insurer, would exceed [six] SEVEN percent of the insurer's admitted assets.
(D) In addition to the foreign investments permitted under the preced- ing subparagraphs of this paragraph, foreign investments that are substantially of the same types as those eligible for investment under paragraphs one through six of this subsection, provided that, after giving effect to any investment made under this subparagraph, the aggre- gate amount of investments made under this subparagraph and then held by such insurer shall not exceed [four] SIX percent of the insurer's admit- ted assets, and provided further that an insurer shall not make any investment in any foreign country pursuant to this subparagraph, if such investment, together with all other investments in the same foreign country so made and then held by such insurer, would exceed [two] THREE percent of the insurer's admitted assets. S 2. Section 1405 of the insurance law is amended by adding a new subsection (f) to read as follows: (F) ANY INVESTMENT MAY BE DENOMINATED IN A CURRENCY OTHER THAN UNITED STATES DOLLARS, PROVIDED THAT THE AGGREGATE AMOUNT OF ALL SUCH INVEST- MENTS (OTHER THAN INVESTMENTS MADE PURSUANT TO SUBPARAGRAPHS (A) AND (B) OF PARAGRAPH SEVEN OF SUBSECTION (A) OF THIS SECTION) THAT ARE NOT EFFECTIVELY HEDGED, SUBSTANTIALLY IN THEIR ENTIRETY, AGAINST THE UNITED STATES DOLLAR, REDUCED, ON A CURRENCY BY CURRENCY BASIS, BY THE AMOUNT OF FOREIGN-CURRENCY DENOMINATED INSURANCE LIABILITIES MAY NOT EXCEED FOUR PERCENT OF THE INSURER'S ADMITTED ASSETS. AN INVESTMENT SHALL BE DEEMED TO BE EFFECTIVELY HEDGED, SUBSTANTIALLY IN ITS ENTIRETY, IF IT HAS BEEN HEDGED: (1) FOR AN INSURER THAT HAS AN APPROVED DERIVATIVE USE PLAN UNDER SECTION ONE THOUSAND FOUR HUNDRED TEN OF THIS ARTICLE, PURSUANT TO CONTRACTS OR AGREEMENTS ENTERED INTO UNDER AND IN ACCORDANCE WITH THAT DERIVATIVE USE PLAN AND SUBJECT TO THE COUNTERPARTY EXPOSURE LIMITS THEREUNDER; OR (2) FOR ANY OTHER INSURER, PURSUANT TO CONTRACTS OR AGREEMENTS (DERIV- ATIVE TRANSACTIONS) WHICH ARE CLEARED THROUGH A "DERIVATIVES CLEARING- HOUSE" OR ENTERED INTO WITH A "QUALIFIED COUNTERPARTY", AS THOSE TERMS ARE DEFINED PURSUANT TO SUBSECTION (F) OF SECTION ONE THOUSAND FOUR HUNDRED TEN OF THIS ARTICLE. S 3. Paragraph 2 of subsection (c) of section 1410 of the insurance law, as added by chapter 650 of the laws of 1998, is amended to read as follows: (2) Transactions entered into to effectively hedge the currency risk of investments denominated in a currency other than United States dollars, pursuant to [subparagraph (C) of paragraph seven of subsection (a)] SUBSECTION (F) of section one thousand four hundred five of this article, shall not be included in the limits under paragraph one of this subsection. S 4. This act shall take effect immediately.

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