NY State Senate Bill 2009-S7464

Senate Bill S7464

2009-2010 Legislative Session

Authorizes the superintendent to authorize or prescribe an analytical method that an insurer may use in lieu of a statistical rating organization

download bill text pdf

Archive: Last Bill Status - In Senate Committee Insurance Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Apr 13, 2010	referred to insurance

2009-S7464 (ACTIVE) - Details

See Assembly Version of this Bill:: A10259
Current Committee:: Senate Insurance
Law Section:: Insurance Law
Laws Affected:: Amd Ins L, generally

2009-S7464 (ACTIVE) - Summary

Authorizes the superintendent to authorize or prescribe an analytical method that an insurer may use in lieu of a statistical rating organization; replaces the term "nationally recognized securities rating agency" with "statistical rating organization recognized by the superintendent".

2009-S7464 (ACTIVE) - Sponsor Memo

                                 BILL NUMBER:  S7464

 TITLE OF BILL :
An act to amend the insurance law, in relation to ratings from a
statistical rating organization


 PURPOSE :
This bill would enable the Superintendent of Insurance
("superintendent"), by regulation, to authorize or prescribe an
analytical method that an insurer may use as an alternative to, or
must use in addition to, or in lieu of, ratings from a statistical
rating organization, when determining the suitability of securities
for an insurer's portfolios.

 SUMMARY OF PROVISIONS :

Section 1 of the bill adds a new Insurance Law § 1415 to enable the
Superintendent to authorize or prescribe an analytical method that an
insurer may use an an alternative to, or must use in addition to, or
in lieu of, ratings from a statistical rating organization with regard
to any reference in the Insurance Law to ratings from a statistical
rating organization.

Sections 2 through 17 make technical amendments to Insurance Law §§
1401(a)(2), 1404(a)(2), 1404(a)(6)(B), 1404(a)(7), 1405(a)(7)(C),

1410(f)(3), 4217(c)(4)(H), 4310(b)(2), 4310(k), 4526(a)(1),
4530(b)(3)(B), 6901(g)(4)(I)(i), 6901(k), 6901(n), 6901(s), and
6902(a)(4) to replace current language with the phrase "a statistical
rating organization recognized by the superintendent" to conform the
statutory language to industry usage.

Section 18 provides that this bill is effective immediately.

 EXISTING LAW :

Currently, the Insurance Law provisions that address the suitability
of insurer investments by reference to "ratings from statistical
rating organizations" use as criteria for determining if an investment
is suitable only those credit ratings.  By limiting considerations to
only those ratings, the statutes fail to take into account investment
risks other than credit.

Existing law also refers to "nationally recognized" rating agencies.
This language, which is similar to Securities and Exchange Commission
("SEC") references, suggests that insurance regulatory concerns take
into account a much broader range of issues than those addressed by
SEC-recognized credit assessment agencies, these statute do not allow
for full consideration of the true risk.

 LEGISLATIVE HISTORY :
This is a new bill.

Furthermore, most statistical rating organizations operate through an
"issuer pays" model. An entity that issues a security pays the rating
organization to analyze and rate the security. Such an arrangement may
result in pressure on the rating organization to give the security a
better rating than it otherwise would if the costs were not paid by
the issuer, but rather an investor or neutral third party. By
permitting the Superintendent, by regulation, to authorize or
prescribe an analytical method, this bill may alleviate this conflict
of interest.

Finally, New York has led the National Association of Insurance
Commissioners' ("NAIC's") efforts to develop an alternative analytical
method by which an insurer may analyze its investments in residential
mortgage-backed securities, and which addresses each of the
shortcomings of a statistical rating organization's ratings set out
above. This bill enables the Superintendent to authorize or prescribe
this analytical method to reflect better the risks inherent in an
insurer's portfolio, and to protect policyholders' interests.

;.U ON;BUDGET IMPLICATIONS :

This bill will not have an impact on State finances.

 EFFECTIVE DATE :
This bill would take effect immediately.

2009-S7464 (ACTIVE) - Bill Text download pdf

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

                                  7464

                            I N  S E N A T E

                             April 13, 2010
                               ___________

Introduced  by  Sen. BRESLIN -- (at request of the New York State Insur-
  ance Department) -- 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 ratings from a statis-
  tical rating organization

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

  Section 1. The insurance law is amended by adding a new  section  1415
to read as follows:
  S  1415. SUPERINTENDENT'S AUTHORITY TO PRESCRIBE A METHOD OF ANALYZING
INVESTMENTS. WITH REGARD TO ANY REFERENCE IN  THIS  CHAPTER  TO  RATINGS
FROM  A  STATISTICAL  RATING  ORGANIZATION, THE SUPERINTENDENT, BY REGU-
LATION, MAY AUTHORIZE OR PRESCRIBE AN ANALYTICAL METHOD THAT AN  INSURER
MAY  USE  AS  AN ALTERNATIVE TO, OR SHALL USE IN ADDITION TO, OR IN LIEU
OF, RATINGS FROM A STATISTICAL RATING ORGANIZATION.
  S 2. The opening paragraph of paragraph 2 of subsection (a) of section
1401 of the insurance law, as amended by chapter  500  of  the  laws  of
1991, is amended to read as follows:
  "Mortgage-related  security"  means  an obligation that is rated AA or
higher (or the equivalent thereto) by a [nationally  recognized  securi-
ties]  STATISTICAL rating [agency] ORGANIZATION RECOGNIZED BY THE SUPER-
INTENDENT and either:
  S 3. Clauses (i), (ii) and (iii) of subparagraph (A) of paragraph 2 of
subsection (a) of section 1404 of the insurance law, as amended by chap-
ter 324 of the laws of 1992, are amended to read as follows:
  (i) are adequately secured by  collateral  security  having  a  market
value  not  less  than  the principal amount thereof and have investment
qualities and characteristics wherein the speculative elements  are  not
predominant[, or];
  (ii)  are  rated A or higher (or the equivalent thereto) by a [securi-
ties] STATISTICAL rating [agency] ORGANIZATION recognized by the  super-
intendent, or if not so rated, are similar in structure and in all mate-
rial  respects to other obligations of the same institution which are so
rated[, or];
  (iii) are insured by one or more authorized insurance companies (other
than the investing insurer or any parent,  subsidiary  or  affiliate  of
such  insurer) who are licensed to insure obligations in this state and,

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD15515-01-0

S. 7464                             2

after considering such insurance, are rated Aaa (or the equivalent ther-
eto) by a [securities] STATISTICAL rating [agency]  ORGANIZATION  recog-
nized by the superintendent[,]; or
  S 4. Subparagraph (B) of paragraph 6 of subsection (a) of section 1404
of  the insurance law, as amended by chapter 324 of the laws of 1992, is
amended to read as follows:
  (B) Investments in any one possession of the United States or  in  any
one  foreign country, other than Canada, made pursuant to this paragraph
shall not exceed (i) in the case of any possession or country having the
highest sovereign [debt] CREDIT rating, as established by a [securities]
STATISTICAL rating [agency] ORGANIZATION recognized by  the  superinten-
dent,  three  percent  of  the insurer's admitted assets as shown by its
last statement on file with the superintendent, or
  (ii) in the case of any other possession or country one percent of the
insurer's admitted assets as shown by its last statement  on  file  with
the superintendent.
  S  5.  Paragraph  7 of subsection (a) of section 1404 of the insurance
law, as amended by chapter 324 of the laws of 1992, is amended  to  read
as follows:
  (7)  Development bank obligations. Obligations issued or guaranteed by
the international bank for reconstruction and development, the inter-Am-
erican development bank, the Asian development bank, the African  devel-
opment bank or the international finance corporation; provided that
  [(i)]  (A)  obligations  of  such  banks and the international finance
corporation are rated AA or higher (or  the  equivalent  thereto)  by  a
[securities]  STATISTICAL rating [agency] ORGANIZATION recognized by the
superintendent, or if not so rated are similar in structure and  in  all
material respects to other obligations of the same institution which are
so rated[, and];
  [(ii)] (B) the aggregate investment made pursuant to the provisions of
this  paragraph  in  each such bank and the international finance corpo-
ration at any time, shall not  exceed  five  percent  of  the  insurer's
admitted  assets  as shown by its last statement on file with the super-
intendent[,]; and
  [(iii)] (C) the aggregate investment made pursuant to  the  provisions
of this paragraph in all such banks and the international finance corpo-
ration shall not exceed fifteen percent of the insurer's admitted assets
as shown by its last statement on file with the superintendent.
  S 6. Subparagraph (C) of paragraph 7 of subsection (a) of section 1405
of  the  insurance law, as amended by chapter 60 of the laws of 2008, is
amended to read as follows:
  (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 percent of the insur-
er'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] A  STATISTICAL  rating  [agency]  ORGANIZATION
RECOGNIZED  BY  THE  SUPERINTENDENT,  (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

S. 7464                             3

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] A
STATISTICAL rating [agency] ORGANIZATION RECOGNIZED BY  THE  SUPERINTEN-
DENT;  (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] A STATISTICAL rating [agency] ORGANIZATION RECOG-
NIZED BY THE SUPERINTENDENT and which is organized under the laws  of  a
jurisdiction  which is rated in one of the two highest rating categories
by [an independent, nationally recognized, United States] A  STATISTICAL
rating [agency] ORGANIZATION RECOGNIZED BY THE SUPERINTENDENT; 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 percent of the insurer's
admitted assets.
  S 7. Paragraph 3 of subsection (f) of section 1410  of  the  insurance
law,  as added by chapter 650 of the laws of 1998, is amended to read as
follows:
  (3) For purposes of this section:
  (A) a "qualified counterparty" is a "qualified broker or dealer" or  a
"qualified  bank"  or  other  counterparty  rated AA-/Aa3 or higher by a
[nationally recognized] statistical rating organization [if it  is  also
approved] RECOGNIZED by the superintendent;
  (B)  a  "qualified  broker or dealer" means a broker or dealer that is
organized under the laws of a state and is registered under the  Securi-
ties Exchange Act of 1934, 15 U.S.C. SS 78a-78kk, and has net capital in
excess of two hundred fifty million dollars;
  (C) a "qualified bank" means a bank or trust company that:
  (i) is organized and existing, or in the case of a branch or agency of
a foreign banking organization is licensed, under the laws of the United
States or any state thereof;
  (ii) is regulated, supervised and examined by United States federal or
state  authorities  having  regulatory  authority  over  banks and trust
companies;

S. 7464                             4

  (iii) has assets in excess of five billion dollars;
  (iv)  has  senior obligations outstanding, or has a parent corporation
that has senior obligations outstanding, rated  AA  or  better  (or  the
equivalent  thereto)  by two [independent nationally recognized] statis-
tical rating organizations RECOGNIZED BY THE SUPERINTENDENT; and
  (v) has a ratio of primary capital to total assets of  at  least  five
and  one-half percent and a ratio of total capital to total assets of at
least six percent; and
  (D) "aggregate counterparty exposure" means the sum of: (i) the aggre-
gate statement value of options, swaptions, caps, floors,  and  warrants
purchased;  and (ii) the aggregate potential exposure of collars, swaps,
forwards and futures entered into.
  S 8. Subparagraph (H) of paragraph 4 of subsection (c) of section 4217
of the insurance law, as added by chapter 687 of the laws  of  1990,  is
amended to read as follows:
  (H) The provisions of this subparagraph shall apply to any life insur-
ance company which has life insurance policies or annuity or pure endow-
ment  contracts  in  effect  which  were issued in a foreign country and
under which premiums and benefits, and the assets supporting reserves in
respect thereof, are denominated in the currency of  a  foreign  country
which  is rated in one of the two highest rating categories by [an inde-
pendent, nationally  recognized  United  States]  A  STATISTICAL  rating
[agency]  ORGANIZATION RECOGNIZED BY THE SUPERINTENDENT. For the purpose
of determining the reference interest rate to be used  in  valuing  such
policies  and contracts, the superintendent may permit any such company,
or may by regulation require all  such  companies  (except  as  exempted
pursuant  to such regulation), to adjust the yield average of the appli-
cable index published by Moody's Investors Service, Inc. (or  the  yield
average  determined  on the basis of any substitute method applicable to
such policies or contracts and approved by the superintendent in accord-
ance with subparagraph (G) of this paragraph) in accordance with a meth-
od approved by the superintendent, or to substitute an alternative meth-
od approved by the superintendent  in  place  of  the  applicable  index
published  by  Moody's Investors Service, provided that any such substi-
tute or alternative method shall  produce  year-to-year  consistency  in
reserving methods and shall appropriately reflect the difference between
the yield average on corporate bonds issued in the United States and the
yield  average  on  corporate  bonds issued in such foreign country. Any
company which  adjusts  yield  averages  in  accordance  with  a  method
approved  by  the  superintendent  pursuant  to  this subparagraph shall
continue to use such method with respect to the valuation of such  poli-
cies  and  contracts  until  the superintendent permits or requires such
company to cease using such method.
  S 9. Paragraph 2 of subsection (b) of section 4310  of  the  insurance
law,  as added by chapter 681 of the laws of 2004, is amended to read as
follows:
  (2) A corporation  maintaining  cash  and  reserve  investments  under
subsection (a) of section one thousand four hundred four of this chapter
(except  paragraphs  eight  and  ten of subsection (a) of such section),
free from any lien or pledge, which, when valued in accordance with  the
provisions  of  this  chapter,  equal ten percent or more of net premium
income for the most recent twelve month period, as shown by such  corpo-
ration's  last  sworn  statement,  annual or quarterly, on file with the
superintendent, may, in addition to the investments permitted  by  para-
graph one of this subsection, invest up to fifteen percent of its admit-
ted  assets  in  investments permitted under paragraph two of subsection

S. 7464                             5

(a) of section one thousand four hundred four of this chapter,  provided
however  that  such  investments  need not meet the otherwise applicable
qualitative standards of such paragraph two so long as all such  invest-
ments are rated at BBB or higher (or the equivalent thereto) by a [secu-
rity]  STATISTICAL rating [agency] ORGANIZATION recognized by the super-
intendent.
  S 10. Subsection (k) of section 4310 of the insurance law, as  amended
by chapter 370 of the laws of 2003, is amended to read as follows:
  (k)  Notwithstanding  the  provisions  of any other law, a corporation
subject to the provisions of this  article  which  has  admitted  assets
greater  than  five  hundred  million  dollars on its last annual report
filed with the superintendent may enter into a transaction for an inter-
est rate swap in an amount not to exceed the amount of debt on the books
of the corporation on the effective date of  this  subsection  that  was
incurred  within  twelve months of the construction of the corporation's
home office, provided that such interest  rate  swap  shall  provide  an
initial  new  interest  rate  that  is at least two hundred basis points
lower than the interest rate on the existing debt. The  counterparty  to
this  transaction  shall meet the qualifications of a qualified counter-
party as provided in subparagraph (A) of paragraph three  of  subsection
(f)  of  section  fourteen  hundred  ten  of  this  chapter except that,
notwithstanding clause (iv) of subparagraph (C) of  such  paragraph,  in
the event that such counterparty is a qualified bank, such bank shall be
rated  A  or  better  (or  the  equivalent  thereto) by two [independent
nationally recognized] STATISTICAL rating  organizations  RECOGNIZED  BY
THE SUPERINTENDENT. Any such transaction shall be approved by the corpo-
ration's board of directors prior to its implementation.
  S  11.  Paragraph 1 of subsection (a) of section 4526 of the insurance
law, as amended by chapter 659 of the laws of 2004, is amended  to  read
as follows:
  (1)  are rated BBB or higher (or the equivalent thereto) by a [securi-
ties] STATISTICAL rating [agency] ORGANIZATION recognized by the  super-
intendent, or if not so rated, are similar in structure and in all mate-
rial  respects to other obligations of the same institution which are so
rated, or
  S 12. Subparagraph (B) of paragraph 3 of  subsection  (b)  of  section
4530  of  the insurance law, as added by chapter 22 of the laws of 2008,
such paragraph as renumbered by chapter 289 of  the  laws  of  2009,  is
amended to read as follows:
  (B)  maintained  a minimum claims-paying, financial strength or equiv-
alent rating from  at  least  one  [nationally  recognized]  statistical
rating  organization  RECOGNIZED  BY  THE  SUPERINTENDENT  in one of the
organization's three highest  rating  categories  for  the  time  period
during  which  this  section  applies  to  the society provided that the
rating shall not depend on a guarantee or other credit enhancement  from
another entity; and shall not be modified or otherwise qualified to show
dependence  of the rating on the performance or a contractual obligation
of, or the society's affiliation with, another society.
  S 13.  Clause (i) of subparagraph (I) of paragraph 4 of subsection (g)
of section 6901 of the insurance law, as amended by chapter 672  of  the
laws of 2005, is amended to read as follows:
  (i)  is  organized and existing under the laws of the United States or
any state thereof or, in the case of a non-domestic  financial  institu-
tion,  has  a  branch  or  agency  office licensed under the laws of the
United States or any state thereof and is domiciled in a member  country
of  the  Organisation for Economic Co-operation and Development having a

S. 7464                             6

sovereign rating in one of the top two generic lettered  rating  classi-
fications  by  a  [securities] STATISTICAL rating [agency acceptable to]
ORGANIZATION RECOGNIZED BY the superintendent;
  S 14.  Subsection (k) of section 6901 of the insurance law, as amended
by chapter 605 of the laws of 2004, is amended to read as follows:
  (k)  "Governmental unit" means the United States of America, Canada, a
member country of the Organisation for Economic Co-operation and  Devel-
opment  having a sovereign rating in one of the top two generic lettered
rating classifications by  a  [securities]  STATISTICAL  rating  [agency
acceptable  to]  ORGANIZATION  RECOGNIZED  BY  the  superintendent, OR a
state, territory or possession of the  United  States  of  America,  the
District  of  Columbia, a province of Canada, a municipality, or a poli-
tical subdivision of any of the  foregoing,  or  any  public  agency  or
instrumentality thereof.
  S 15.  Subsection (n) of section 6901 of the insurance law, as amended
by chapter 529 of the laws of 1996, is amended to read as follows:
  (n) "Investment grade" means that:
  (1)  the  obligation  or parity obligation of the same issuer has been
determined to be in one of the top four generic lettered rating  classi-
fications  by  a  [securities] STATISTICAL rating [agency acceptable to]
ORGANIZATION RECOGNIZED BY the superintendent;
  (2) the obligation or parity obligation of the same  issuer  has  been
identified  in  writing by such STATISTICAL rating [agency] ORGANIZATION
to be of investment grade quality; or
  (3) if the obligation or parity obligation of the same issuer has  not
been submitted to any such STATISTICAL rating [agency] ORGANIZATION, the
obligation  is  [determined  to  be  investment grade (as indicated by a
rating in category] GIVEN A DESIGNATION OF 1 or 2[)] by  the  Securities
Valuation Office of the National Association of Insurance Commissioners.
  S 16.  Subsection (s) of section 6901 of the insurance law, as amended
by chapter 672 of the laws of 2005, is amended to read as follows:
  (s)  "Utility  first  mortgage  obligation" means any obligation of an
issuer secured by a first priority mortgage on utility property owned by
or leased to an investor-owned or cooperative-owned utility company  and
located  in the United States, Canada or a member country of the Organi-
sation for Economic Co-operation  and  Development  having  a  sovereign
rating  in one of the top two generic lettered rating classifications by
a [securities] STATISTICAL rating [agency  acceptable  to]  ORGANIZATION
RECOGNIZED  BY  the superintendent; provided that the utility or utility
property or the usage fees or other similar utility rates or charges are
subject to regulation or oversight by a governmental unit.
  S 17. Paragraph 4 of subsection (a) of section 6902 of  the  insurance
law,  as  amended by chapter 605 of the laws of 2004, is amended to read
as follows:
  (4) a financial guaranty insurance corporation's  investments  in  any
one  entity insured by that corporation shall not exceed four percent of
its admitted assets at last year-end, except that this limit  shall  not
apply  to  investments  payable or guaranteed by a United States govern-
mental unit or New York state if such investments payable or  guaranteed
by  the United States governmental unit or New York state shall be rated
in one of the top two  generic  lettered  rating  classifications  by  a
[securities]  STATISTICAL  rating  [agency  acceptable  to] ORGANIZATION
RECOGNIZED BY the superintendent.
  S 18. This act shall take effect immediately.

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