senate Bill S2893

Relates to authorizing the issuance of certain annuity contracts

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Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
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actions

  • 24 / Jan / 2013
    • REFERRED TO INSURANCE
  • 08 / Jan / 2014
    • REFERRED TO INSURANCE

Summary

Authorizes the issuance of certain annuity contracts involving alternative accounts.

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Bill Details

See Assembly Version of this Bill:
A9962
Versions:
S2893
Legislative Cycle:
2013-2014
Current Committee:
Senate Insurance
Law Section:
Insurance Law
Laws Affected:
Amd §§4223, 4240 & 6901, Ins L
Versions Introduced in 2011-2012 Legislative Cycle:
S3365, A6748

Sponsor Memo

BILL NUMBER:S2893

TITLE OF BILL: An act to amend the insurance law, in relation to
authorizing the issuance of certain annuity contracts

PURPOSE: To authorize the sale, issuance and delivery of contingent
deferred annuity contracts or certificates in the state

SUMMARY OF PROVISIONS: Section 1 of the bill would amend § 4223(b)(1) of
the Insurance Law (standard nonforfeiture law for annuities) to clarify
that contingent deferred annuity contracts or certificates may be
authorized for issuance in New York

Section 2 of the bill would add a new Subsection (g) to § 4240 of the
Insurance Law (separate accounts) to allow domestic or authorized life
insurers to issue group or individual contingent deferred annuity
contracts and certificates in the state, that provide benefits based
upon the value or decline in value of assets held in or relating to an
alternative account as defined therein In no instance shall such alter-
native accounts be deemed separate accounts or be subject to regulation
as such. The Superintendent of Insurance would be empowered to require
that such domestic or authorized life insurers issuing such annuities
establish adequate systems of control and reporting to ensure that the
underlying assets held in or related to an alternative account ate
authorized and approved by such insurer

Section 3 of the bill would amend § 6901(a)(2) of the Insurance Law
(financial guaranty insurance) to specifically exclude contingent
deferred annuities from being considered as financial guaranty insur-
ance.

Section 4 of the bill would provide for an immediate effective date.

JUSTIFICATION: In exchange for a periodic premium under a contingent
deferred annuity arrangement, a life insurance company would issue a
contract or certificate that obligates the insurer to pay the annuitant
a specified guaranteed minimum amount for life if: (1) the annuitant
manages the underlying securities investments in the alternative account
in accordance with a prescribed investment strategy approved by such
insurer; and (2) the value of the alternative account is exhausted
through a prescribed series of periodic withdrawals while the annuitant
is still living. These contingent deferred annuity arrangements are
similar to guaranteed minimum or lifetime withdrawal benefits offered by
insurers in variable annuities, but are linked to an investment portfo-
lio in an alternative account owned and controlled by the annuitant,
rather than to assets held in an insurer's separate account.

Protection of existing principal assets is a critical component of
current retirement investment strategies, especially for Baby Boomers
nearing retirement The value of the conservation of capital has been
taught by the recent market downturns. As such, New York consumers need

the option of purchasing contingent deferred annuities to ensure a last-
ing, safe retirement income stream.

This legislation is necessitated because the New York State Department
of Insurance has opined that contingent deferred annuity contract or
certificate may not be sold, issued or delivered in the state because
they constitute an impermissible form of financial guaranty insurance
(see Office of General Counsel (OGC) Opinion 09-06-11 (June 25, 2009)
lum:jwww.ins.state.ny,us/ogco2009/rg090611.htm ) because it purports to
provide indemnification for "financial loss...as a result of... changes
in the value of specific assets " However, such contingent deferred
annuities are meant to provide the annuitants protection against longev-
ity risk, with only incidental market risk protection due to volatility
in the securities markets.

In two private letter rulings,
http://www.irs.gov/pub/irs-wd/09419007.pdf
http://www.irs.gov/pub/irs-wd/0919036.pdf the Internal Revenue Service
(IRS) has opined that contingent deferred annuities that commence
payments upon the occurrence of an event, e.g., the total depletion of
the underlying securities investments held in the alternative account,
but not as financial guaranty reimbursement for market losses incurred
in such investment account, shall be treated as an "annuity contract"
for tax purposes under the provisions of Internal Revenue Code (IRC)
72 and applicable Treasury regulations. Moreover, the issuance of such
contingent deferred annuity contracts or certificates do not adversely
affect certain tax consequences of the underlying investment securities
held in the alternative account, including the ability to deduct losses
on such securities, nor diminish the risk of loss on investment assets
for purposes of determining eligibility for the reduced tax rate on
qualified dividends under IRC § 1(h)(11), nor does it trigger "straddle
rules" which could result in deferral of losses realized on an invest-
ment account asset under IRC § 1092.

Over 30 other states have approved the sale, issuance and delivery of
contingent deferred annuity contracts or certificates in their jurisdic-
tions. This bill would authorize such annuities in New York, allowing
consumers to purchase longevity protection (insuring consumers who may
outlive their own investment assets), increase opportunities to access
lifetime income guarantees, maintain full liquidity of underlying
investment assets in the alternative account, and obtain protection for
changing retirement income needs without incurring penalties The bill
would also authorize an approval process within the Department of Insur-
ance to allow it to examine both product design and the risk management
strategies employed by insurers to support the guarantees in the contin-
gent deferred annuity contract or certificate. The Department can review
insurers' internal investment risk limits, including concentration
limits, economic exposure limits and solvency limits. It is contemplated
that the Department would periodically review and monitor insurers' risk
limits governance, risk management and hedging performance, and adequacy
of reserves and surplus

LEGISLATIVE HISTORY: S 3365 of 2011-12

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: Immediately.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  2893

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                            January 24, 2013
                               ___________

Introduced  by  Sen.  SEWARD -- 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 authorizing the  issu-
  ance of certain annuity contracts

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Subparagraph (H)  of  paragraph  1  of  subsection  (b)  of
section  4223  of the insurance law is relettered subparagraph (I) and a
new subparagraph (H) is added to read as follows:
  (H) GROUP OR INDIVIDUAL ANNUITY CONTRACT OR CERTIFICATE AUTHORIZED  BY
SUBSECTION  (G) OF SECTION FOUR THOUSAND TWO HUNDRED FORTY OF THIS ARTI-
CLE.
  S 2. Section 4240 of the insurance law is  amended  by  adding  a  new
subsection (g) to read as follows:
  (G)  A DOMESTIC OR AUTHORIZED LIFE INSURER MAY ISSUE GROUP OR INDIVID-
UAL ANNUITY CONTRACTS AND CERTIFICATES THAT PROVIDE BENEFITS BASED  UPON
THE VALUE OR DECLINE IN VALUE OF ASSETS HELD IN OR RELATING TO AN ALTER-
NATIVE  ACCOUNT  AT ANY TIME THE CONTRACT OR CERTIFICATE IS OUTSTANDING.
FOR PURPOSES OF  THIS  ARTICLE,  "ALTERNATIVE  ACCOUNT"  MEANS  A  TRUST
ACCOUNT,   CUSTODIAL  ACCOUNT,  SECURITIES  BROKERAGE  ACCOUNT,  MANAGED
ACCOUNT, ACTUAL OR SYNTHETIC INVESTMENT PORTFOLIO, OR,  IF  APPROVED  BY
THE  SUPERINTENDENT,  ANY  OTHER  ACCOUNT OR INVESTMENT ARRANGEMENT, THE
INVESTMENTS IN OR RELATED TO WHICH SHALL BE AS AUTHORIZED OR APPROVED BY
THE DOMESTIC OR AUTHORIZED LIFE INSURER ISSUING SUCH CONTRACT OR CERTIF-
ICATE. FOR PURPOSES OF THIS SUBSECTION, "ACTUAL OR SYNTHETIC  INVESTMENT
PORTFOLIO"  SHALL MEAN A PORTFOLIO OF INVESTED ASSETS LEGALLY OR BENEFI-
CIALLY OWNED BY THE OWNER OR BENEFICIARY OF  SUCH  CONTRACT  OR  CERTIF-
ICATE, OR A NOTIONAL PORTFOLIO OF INVESTED ASSETS THAT NEED NOT BE OWNED
BY  THE  OWNER  OR  BENEFICIARY  OF SUCH CONTRACT OR CERTIFICATE BUT THE
ADDITION OR REMOVAL OF ASSETS FROM SUCH NOTIONAL PORTFOLIO  ARE  SUBJECT
TO  THE  CONTROL OF THE OWNER OR BENEFICIARY OF SUCH CONTRACT OR CERTIF-

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD06629-01-3

S. 2893                             2

ICATE. ALTERNATIVE ACCOUNTS SHALL NOT BE  DEEMED  SEPARATE  ACCOUNTS  OR
SUBJECT  TO  REGULATIONS APPLYING TO SEPARATE ACCOUNTS AND THE GROUP AND
INDIVIDUAL  ANNUITY  CONTRACTS  AND  CERTIFICATES  DESCRIBED   IN   THIS
SUBSECTION  SHALL  NOT  BE  SUBJECT  TO  REGULATIONS CONCERNING SEPARATE
ACCOUNT PRODUCTS.
  THE SUPERINTENDENT MAY PROMULGATE REGULATIONS TO:
  (1) DEFINE TERMS USED  IN  THIS  SUBSECTION  THAT  ARE  NOT  OTHERWISE
DEFINED;
  (2)  REQUIRE  THAT  THE  DOMESTIC OR AUTHORIZED LIFE INSURER ESTABLISH
ADEQUATE SYSTEMS OF CONTROL AND REPORTING TO ENSURE THAT THE ASSETS HELD
IN OR RELATED TO AN ALTERNATIVE ACCOUNT ARE AUTHORIZED  OR  APPROVED  BY
SUCH  INSURER,  AND  THAT  A  SUMMARY  OF SUCH SYSTEMS BE FILED WITH THE
SUPERINTENDENT, AND UPON FILING SHALL BE DEEMED APPROVED  UNLESS  WITHIN
THIRTY  CALENDAR  DAYS  AFTER FILING THE SUPERINTENDENT DISAPPROVES SUCH
SUMMARY AND PROVIDES TO THE FILING INSURER A DETAILED EXPLANATION OF THE
BASIS FOR SUCH DISAPPROVAL; AND
  (3) THE PROVISIONS OF THIS SUBSECTION SHALL NOT BE DEEMED TO AUTHORIZE
THE SUPERINTENDENT TO PROMULGATE ANY RULE OR REGULATION, CIRCULAR LETTER
OR DIRECTIVE, THAT IN ANY WAY EXPANDS THE SUPERINTENDENT'S AUTHORITY  TO
(I)  APPROVE  OR  REGULATE  THE INSURER'S ENTIRE INVESTMENT PORTFOLIO OR
INVESTMENT STRATEGY OR THE ASSETS HELD IN OR RELATED TO THE  ALTERNATIVE
ACCOUNT,  OR  (II)  IMPOSE  STANDARDS  ON  CORPORATE GOVERNANCE THAT ARE
EITHER STRICTER OR CONTRARY TO THE PROVISIONS CONTAINED IN THIS  ARTICLE
OR THE BUSINESS CORPORATION LAW.
  S  3.  Clause  (V)  of item (ii) of subparagraph (J) of paragraph 2 of
subsection (a) of section 6901 of the insurance law, as added by chapter
605 of the laws of 2004, is amended to read as follows:
  (V) the financial guaranty insurance policies provide that  if,  prior
to  payment  by the insurer under the financial guaranty insurance poli-
cies, the guaranty fund has paid a claim under  such  contracts  for  an
amount  that, when added to the amount payable under the financial guar-
anty insurance  policies,  would  exceed  the  amount  owed  under  such
contracts,  then the financial guaranty insurer shall pay the portion of
the amount payable in excess of the contract  amounts  to  the  guaranty
fund instead of to the beneficiary under such contracts; [or]
  S 4. Subparagraph (K) of paragraph 2 of subsection (a) of section 6901
of  the insurance law, as relettered by chapter 605 of the laws of 2004,
is relettered subparagraph (L) and a new subparagraph (K)  is  added  to
read as follows:
  (K)  GROUP  OR INDIVIDUAL ANNUITY CONTRACTS OR CERTIFICATES AUTHORIZED
BY SUBSECTION (G) OF SECTION FOUR THOUSAND TWO  HUNDRED  FORTY  OF  THIS
CHAPTER; OR
  S 5. This act shall take effect immediately.

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