New York Senate Bill S9006, which passed the Senate on 31 May 2022 ('New York GCC Bill'), is '[a]n act to amend the insurance law, in relation to group capital calculations, liquidity stress tests, and confidentiality', which would amend the New York insurance law, imposing an annual group capital calculation (GCC) requirement. The legislative session ended on 2 June 2022 without Assembly action on the bill and therefore, when the legislature reconvenes, the bill must be re-introduced so that it can be considered further.
For the reasons discussed below, even if the bill were enacted as presented it may not fully satisfy the Covered Agreements between the US and the EU and the UK, respectively (the Covered Agreements), or it may leave New York open to federal pre-emption if not accompanied by appropriate regulations consistent with the National Association of Insurance Commissioners' (NAIC) Insurance Holding Company Systems Regulatory Act (the Model Act). If no bill is adopted by the autumn of 2022, New York might also be in non-compliance with the Covered Agreement and subject to federal pre-emption.
The Covered Agreements state:
'With regard to a Home Party insurance or reinsurance group with operations in the Host Party and that is subject to a group capital assessment in the Home Party [covering groupwide risks and vesting appropriate remedial powers in the regulatory body enforcing the assessment]; the Host supervisory authority [may] not impose a group capital assessment or requirement at the level of the worldwide parent [...]
'Where a Home Party insurer or reinsurer is subject to a group capital requirement in the territory of the Home Party, the Host supervisory authority [may] not impose a group capital requirement or assessment at the level of the worldwide parent [...]'
(US/EU Covered Agreement, 22 September 2017, section 4(h))
This provision imposes a reciprocity requirement on jurisdictions that mandate a groupwide capital assessment on a local insurer. Generally, where the parent of such an insurer is in another jurisdiction party to the agreement, the local jurisdiction may not impose such an assessment. The purpose of the provision is to align the oversight of insurance groups by the various parties to the respective Covered Agreement. Such alignment prevents duplicative capital assessments from being required. Under this framework, only the jurisdiction with domiciliary authority over the parent company can assert such a requirement.
The Model Act was amended in 2020 to conform to this requirement of the Covered Agreements. The amendments require a domiciliary insurer to submit a GCC but exempt from this requirement, as contemplated by the Covered Agreements:
'An insurance holding company system whose non-U.S.
group-wide supervisor is located within a Reciprocal
Jurisdiction1 [...] that recognizes the U.S. state
regulatory approach to group supervision and group
capital.'
(Model Act, section 4.L.(2)(c))
Unlike the Model Act, the New York GCC Bill would not specifically exempt from New York's GCC requirement insurance holding companies headquartered in a reciprocal jurisdiction under the Covered Agreements. The New York GCC Bill empowers the Superintendent of Financial Services (the Superintendent) to 'exempt a holding company from filing [a GCC] in accordance with criteria set forth in a regulation' (New York GCC Bill s 2). This apparently contemplates a regulation that would embody the reciprocity concepts of the Covered Agreements and the Model Act amendments.
This raises a concern that, by not specifically exempting holding companies in reciprocal jurisdictions, the New York GCC Bill would not satisfy the Covered Agreements. Once the regulation that contains the reciprocity exemption is issued, this concern would abate. Nevertheless, the lack of a specific reference in the legislative text to the reciprocity concept would appear to leave the New York GCC Bill vulnerable to pre-emption under the federal statute authorising the Covered Agreements (Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 U S C ss 313-14).
Any of the following three actions would address this concern: (1) amend the New York GCC Bill to specifically include a reciprocity exemption, like the Model Act; (2) amend the New York GCC Bill to specifically provide that the Superintendent shall issue regulations to exempt insurers with parent companies in reciprocal jurisdictions; or (3) couple the New York GCC Bill with proposed regulations from the Department of Financial Services to this effect.
Footnote
1. In this context, 'Reciprocal Jurisdiction' refers not only to the EU and the UK (ie, the parties to the respective Covered Agreements) but also to 'qualified jurisdictions' that are entitled to parallel treatment with US states for credit-for-reinsurance purposes under NAIC guidance and that 'recognize and accept' US regulatory approaches.
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