United States: For NY-Domiciled Life Insurers, 2016 Brings New Flexibility On Governance, Dividends

Legislation signed into law by Governor Cuomo in late December 2015 provides new flexibility to New York-domiciled stock life insurers on director independence as well as dividend-paying capacity.

Director Independence

Senate Bill 3012, signed into law on December 22, expands an existing exemption from independent-director requirements. Under these requirements as previously in effect codified at Section 1202(b) of New York Insurance Law (NYIL), at least one- third of the board of directors of a New York-domiciled stock life insurance corporation, as well as at least one-third of each committee of the board, must be persons who

  • are not officers or employees of the company or of any entity controlling, controlled by or under common control with the company and
  • are not beneficial owners of a controlling interest in the voting stock of the company or any such entity.

At least one such independent person must be included in any board or committee. In addition, the board must establish one or more committees, comprising exclusively of independent persons, with responsibility over audit matters, nominations and officer compensation.

Under the old Section 1202(b), an insurer that was a subsidiary of a New York-domiciled life insurer was exempted from these independence requirements if the parent insurer was compliant with such requirements. The December 2015 amendment expands the exemption to cover any insurer that is controlled by an "insurance company" (regardless of domicile), a mutual insurance holding company (MIHC) or a "publicly held corporation" that is compliant with the independence requirements. As a result, it is now easier for NY-domiciled life carriers to "piggyback" off the board independence requirements imposed on affiliates, notably an affiliate such as a publicly held parent company subject to federal securities laws and stock exchange listing requirements. The amendment thus reflects the utility of such requirements, including those under the Sarbanes-Oxley Act of 2002, in implementing a level of independence not only at the listed parent level but also throughout the enterprise. It also recognizes that most state MIHC statutes impose their own independent director requirements at the parent level when a mutual insurer is converted to a subsidiary of a new MIHC. The amendment also brings New York law into closer conformity with the National Association of Insurance Commissioners' (NAIC) model audit rule1, which includes board independence requirements.

The amendment takes immediate effect.

Dividend-Paying Capacity

New York-domiciled life insurers may also have additional dividend-paying capacity as a result of legislation amending Section 4207 of the NYIL. The amended dividend provision makes New York law somewhat more permissive on such dividends than the NAIC model,2 but it falls short of the entire amount of capacity provided for in the version of the model adopted in other key states such as California, Texas, Illinois and New Jersey.

Under the prior version of Section 4207, dividends paid by New York-domiciled stock life insurance companies could not exceed the lesser of the following without prior notice to the New York Superintendent of Financial Services and expiration of a 30-day waiting period without that official's disapproval:

  1. A 10 percent surplus to policyholders as of the immediately preceding calendar year, understood to mean December 31 of that year.
  2. A net gain from operations for the immediately preceding calendar year, not including realized capital gains (referred to herein as Adjusted Operating Gains).

Under the amended provision, which takes immediate effect, lesser of has been changed to greater of, deviating (in a manner more favorable to the insurer) from the NAIC's lesser of formulation. However, further changes to prong (B) of the formula, summarized below, have the effect of moderating this increase. Consequently, when New York is compared to other states with a greater of statutory dividend formulation (as opposed to the NAIC's lesser of), the dividend-paying capacity of a New York-domiciled life company is smaller than that of such a company domiciled elsewhere.

The amended law caps (B), Adjusted Operating Gains, at:

  1. 15 percent of the prior year's surplus to policyholders if Adjusted Operating Gains have been negative in one or more of the preceding three calendar years;
  2. otherwise, 25 percent of surplus to policyholders "as of" the immediately prior calendar year (likely referring to year-end).

The amendment also adds a provision to Section 4207 prohibiting any dividends without the Superintendent's prior approval if Adjusted Operating Gains from the prior calendar year were negative. Under the prior law, dividends that do not exceed the threshold described above involving prongs (A) and (B), commonly known as ordinary dividends, could be paid without prior notice to the Superintendent. Under the law as amended, even ordinary dividends are subject to prior notice to the Superintendent. Such notice must be made within five days after declaration and at least 10 days prior to payment. Extraordinary dividends must still be disclosed to the Superintendent at least 30 days in advance, and the Superintendent may disapprove such an extraordinary dividend within the 30-day period. Unlike in the case of an extraordinary dividend, the statute is silent on the Superintendent's authority to disapprove or otherwise prevent the payment of an ordinary dividend.

The legislation also adds a new final paragraph to Section 4207(a), mandating that a domestic stock life insurance company's remaining surplus after distributions of dividends must be "reasonable" in relation to the company's outstanding liabilities and adequate to meet its financial needs. This requirement mirrors the NAIC model law. While the NAIC model lists various criteria by which the regulator may determine the adequacy of surplus, the New York law lacks an explicit list of factors.

Footnotes

1 NAIC Annual Financial Reporting Model Regulation (Model 205).

2 NAIC Insurance Holding Company System Regulatory Act (Model 44).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.