Assembly Bill A10532

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

                                  10532

                          I N  A S S E M B L Y

                              June 4, 2012
                               ___________

Introduced  by COMMITTEE ON RULES -- (at request of M. of A. Morelle) --
  read once and referred to the Committee on Insurance

AN ACT to amend the insurance law,  in  relation  to  derivative  trans-
  actions and derivative instruments

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

  Section 1. Subsection (a) of section 1401  of  the  insurance  law  is
amended by adding three new paragraphs 19, 20 and 21 to read as follows:
  (19)  "OVER  THE  COUNTER  DERIVATIVE  INSTRUMENT"  MEANS A DERIVATIVE
INSTRUMENT WHICH IS AUTHORIZED UNDER THIS CHAPTER OTHER THAN  A  DERIVA-
TIVE INSTRUMENT (A) CLEARED THROUGH A UNITED STATES OR FOREIGN CLEARING-
HOUSE  OR  (B)  TRADED ON OR THROUGH A UNITED STATES OR FOREIGN EXCHANGE
PROVIDING CLEARING SERVICES.
  (20) "CLEARINGHOUSE" MEANS A DERIVATIVES CLEARING  ORGANIZATION  WHICH
ACTS  AS  A MEDIUM FOR CLEARING, OR EFFECTING SETTLEMENTS OF, DERIVATIVE
INSTRUMENTS SUCH THAT THE CLEARINGHOUSE  IS  SUBSTITUTED  AS  THE  OTHER
PARTY TO THE DERIVATIVE TRANSACTION.
  (21)  "MASTER  AGREEMENT" MEANS A WRITTEN MASTER AGREEMENT RELATING TO
DERIVATIVES TRANSACTIONS THAT PROVIDES FOR NETTING OF PAYMENTS  OWED  BY
THE RESPECTIVE PARTIES, AND THE DOMICILIARY JURISDICTION OF THE COUNTER-
PARTY  IS  EITHER  WITHIN  THE UNITED STATES OR IF NOT WITHIN THE UNITED
STATES, WITHIN A FOREIGN (NOT UNITED STATES) JURISDICTION DEEMED BY  THE
SECURITIES  VALUATION  OFFICE  OF  THE NATIONAL ASSOCIATION OF INSURANCE
COMMISSIONERS, OR ANY SUCCESSOR OFFICE ESTABLISHED BY THE NATIONAL ASSO-
CIATION OF INSURANCE COMMISSIONERS, AS ELIGIBLE FOR NETTING.
  S 2. 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:
  (f)(1) The counterparty exposure under [a] AN OVER THE COUNTER deriva-
tive instrument entered into by an insurer authorized to engage in tran-
sactions pursuant to this section shall be deemed to be an obligation of
the institution to which the insurer is exposed to credit risk and shall
be included in determining compliance with any single or aggregate quan-
titative  limitation  on investments made by an insurer under this chap-
ter.

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

                                                           LBD15578-03-2

A. 10532                            2

  (2) Notwithstanding any single or aggregate quantitative limitation on
investments made by an insurer under this chapter, AN INSURER  MAY  ONLY
TRANSACT AN OVER THE COUNTER DERIVATIVE INSTRUMENT WITH:
  (A) A QUALIFIED COUNTERPARTY; OR
  (B)  A  COUNTERPARTY  OTHER  THAN A "QUALIFIED COUNTERPARTY" IF, AFTER
GIVING EFFECT TO THAT TRANSACTION, the aggregate  counterparty  exposure
OF  THE  INSURER  under  one or more OVER THE COUNTER derivative [trans-
actions] INSTRUMENTS to:
  [(A) any single counterparty, other than a  "qualified  counterparty",
shall  be  limited  to one] (I) THAT NON-QUALIFIED COUNTERPARTY DOES NOT
EXCEED ONE percent of [an] THE insurer's admitted assets; and
  [(B)] (II) all counterparties, other  than  qualified  counterparties,
[are  limited  to]  DOES  NOT EXCEED three percent of [an] THE insurer's
admitted assets.
  (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 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;
  (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 statistical
rating organizations; 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)]  COUNTERPARTY  WITH  WHICH  THE INSURER HAS ENTERED INTO A MASTER
AGREEMENT, TOGETHER WITH A CREDIT SUPPORT ANNEX OR  OTHER  DOCUMENTATION
PROVIDING FOR THE COLLATERALIZATION OF THE COUNTERPARTY'S OBLIGATIONS TO
THE  INSURER  UNDER  THE  MASTER  AGREEMENT  AND  WHICH MEETS ONE OF THE
FOLLOWING RATING STANDARDS:
  (I) AN INVESTMENT GRADE CREDIT RATING FROM  AT  LEAST  ONE  NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATION;
  (II)  WHOSE PARENT HAS AN INVESTMENT GRADE CREDIT RATING FROM AT LEAST
ONE NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION; OR
  (III) THAT HAS CREDIT ENHANCEMENT FOR ALL OF ITS FINANCIAL OR  SETTLE-
MENT  OBLIGATIONS  UNDER  THE OVER THE COUNTER DERIVATIVE INSTRUMENT FOR
THE DURATION OF THE DERIVATIVE INSTRUMENT FROM AN  ENTITY  THAT  HAS  AN
INVESTMENT  GRADE  CREDIT RATING FROM AT LEAST ONE NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION FOR THE BENEFIT OF THE INSURER; AND
  (B) "aggregate counterparty exposure"  means  the  [sum  of:  (i)  the
aggregate  statement  value  of  options,  swaptions,  caps, floors, and
warrants  purchased;  and  (ii)  the  aggregate  potential  exposure  of
collars, swaps, forwards and futures entered into] AGGREGATE, NET AMOUNT

A. 10532                            3

OF  CREDIT  RISK ATTRIBUTABLE TO ALL OVER THE COUNTER DERIVATIVE INSTRU-
MENTS ENTERED INTO WITH A COUNTERPARTY, CALCULATED AS FOLLOWS:
  (I)  IF  THERE  IS NO MASTER AGREEMENT IN PLACE WITH THE COUNTERPARTY,
THE SUM OF THE MARKET VALUES OF ALL OVER THE COUNTER DERIVATIVE  INSTRU-
MENTS  WITH THE COUNTERPARTY THAT HAVE A POSITIVE MARKET VALUE, LESS ANY
COLLATERAL; OR
  (II) IF A MASTER AGREEMENT IS IN  PLACE  WITH  THE  COUNTERPARTY,  THE
GREATER OF ZERO OR THE NET SUM PAYABLE TO THE INSURER IN CONNECTION WITH
ALL  OVER  THE  COUNTER  DERIVATIVE  INSTRUMENTS  SUBJECT  TO THE MASTER
NETTING AGREEMENT, LESS ANY COLLATERAL.
  S 3. This act shall take effect immediately.