Relates to allowable investments and activities of employees of the department of insurance; allows the superintendent, any deputy or employee of the insurance department from owning shares of an investment company that may incidentally invest in securities issued to any licensee.
Ayes (60): Adams, Addabbo, Alesi, Aubertine, Bonacic, Breslin, DeFrancisco, Diaz, Dilan, Duane, Espada, Farley, Flanagan, Foley, Fuschillo, Golden, Griffo, Hannon, Hassell-Thomps, Huntley, Johnson C, Johnson O, Klein, Krueger, Kruger, Lanza, Larkin, LaValle, Leibell, Libous, Little, Marcellino, Maziarz, McDonald, Montgomery, Nozzolio, Onorato, Oppenheimer, Padavan, Parker, Perkins, Ranzenhofer, Robach, Saland, Sampson, Savino, Schneiderman, Serrano, Seward, Skelos, Smith, Squadron, Stachowski, Stavisky, Stewart-Cousin, Thompson, Valesky, Volker, Winner, Young
Excused (1): Morahan
BILL NUMBER: S4116
TITLE OF BILL :
An act to amend the insurance law, in relation to investments and activities of insurance department employees
PURPOSE OR GENERAL IDEA OF BILL :
This bill would permit employees of the Insurance Department to own shares of a mutual fund that may incidentally invest in the stock of a licensee of the Department. Ownership of shares in mutual funds that invest primarily or exclusively in the shares of licensees of the Insurance Department would be prohibited.
SUMMARY OF PROVISIONS :
Section 1 of the bill amends subsection (a) of Section 204 of the Insurance law to specify that the prohibition against ownership of securities or investments in licensees of the Insurance Department by Department employees is not applicable to investments in mutual investment companies (mutual funds) that my incidentally invest in the stock of a licensee of the Department An exception is provided for mutual funds that are designed to invest primarily or exclusively in the shares of licensees of the Department.
Section 2. Effective Date.
Section 204 of the Insurance Law was designed to ensure that the Department and its employees regulate the insurance industry in a disinterested and ethical manner. As a general matter, the statute continues to serve the legislative purposes underpinning its predecessor's enactment nearly one hundred and fifty years ago when the Insurance Department was first established, which include precluding not only impropriety but also the appearance of impropriety. Significant changes in the financial world and the nature of investments since the statute's reenactment in 1939 have raised questions as to the reach of Section 204.
The growth of mutual funds exemplifies the changes in the economic landscape. The first mutual fund, established in 1924, served around 200 investors and managed $392,000 in assets. By contrast, the Investment Company Institute in April 2007 estimated that over 8,800 mutual funds exist, serving 93.9 million individual shareholders nationwide and managing over $10.4 trillion in investor assets.
At the same time, even since Section 204 was last re-codified in 1984 (without substantive change) there has been significant horizontal and vertical integration of financial services and other companies. In 1999, when Congress passed the Gramm-Leach-Bliley Act, it repealed major provisions of the Glass-Steagall Act, which had prohibited commercial banks from also offering certain specific investment or insurance services. By ratifying a trend that was already emerging in the market, namely, the banking industry's push to offer customers a wider range of financial services, the Gramm-Leach-Bliley Act paved the way for the emergence of "financial supermarkets.: For example, in 2000, Citigroup, Inc. had holdings in the banking sector (Citibank), investment brokerage sector (Smith Barney), and insurance industry (Travelers), among others. Other market changes at the same time allowed corporations, like auto manufacturers, to vertically integrate, and thereby own or control the members of their supply chain, which could include insurers licensed by this Department.
Section 204 was not intended to prohibit passive investment in investment companies that incidentally own a securities of insurance companies or in securities of issuers that own licensees with insurance operations that are not material to the business of the issuers taken as a whole. Accordingly, this bill amends Section 204 in a reasonable manner that maintains the statutory intent.
The bill also provides an important safeguard in that it prohibits employees of the Insurance Department from investing in mutual funds that are designed to primarily or exclusively invest in the securities of licensees of the Department. Specialty funds, sometimes call "Sector Funds," may be designed to invest primarily in life insurance companies. An investment in such a fund by a Department employee would be prohibited by this bill.
Finally, Section 16(3)(d) of the New York State banking law as amended by Chapter 318 of the laws of 1995 to make changes similar to this bill for employees of the Banking Department. The employees of the two agencies should be treated in a a similar matter, and this bill accomplishes that goals.
PRIOR LEGISLATIVE HISTORY :
A similar bill was introduced in 2008. The bill S.7609 passed the Senate.
FISCAL IMPLICATIONS :
EFFECTIVE DATE : This bill would take effect immediately after it shall have become a law.
STATE OF NEW YORK ________________________________________________________________________ 4116 2009-2010 Regular Sessions IN SENATE April 13, 2009 ___________Introduced by Sen. BRESLIN -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance AN ACT to amend the insurance law, in relation to investments and activ- ities of insurance department employees THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Subsection (a) of section 204 of the insurance law is amended to read as follows: (a) Neither the superintendent, any deputy, nor any employee of the department, shall be interested, directly or indirectly, in the business of any insurer, agent, broker, adjuster, or other licensee of the department, whether as a security holder, director, officer, attorney, agent, or employee. NOTHING IN THIS SECTION SHALL BE CONSTRUED TO PROHIBIT THE SUPERINTENDENT, ANY DEPUTY, OR ANY EMPLOYEE OF THE DEPART- MENT FROM OWNING SHARES OF AN INVESTMENT COMPANY (MUTUAL FUND) THAT MAY INCIDENTALLY INVEST IN THE SECURITIES ISSUED BY ANY LICENSEE, PROVIDED THAT THE PURPOSE OF THE INVESTMENT PORTFOLIO OF THE INVESTMENT COMPANY MAY NOT BE TO INVEST PRIMARILY OR EXCLUSIVELY IN THE SECURITIES ISSUED BY THE LICENSEES. FOR PURPOSES OF THIS SECTION, INVESTMENT COMPANIES INCLUDE OPEN-END AND CLOSED-END INVESTMENT COMPANIES AND UNIT INVESTMENT TRUSTS AS THOSE TERMS ARE DEFINED IN AN ACT OF CONGRESS ENTITLED "THE INVESTMENT COMPANY ACT OF 1940," AS AMENDED. S 2. This act shall take effect immediately.EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD09480-01-9