senate Bill S3365

2011-2012 Legislative Session

Relates to authorizing the issuance of certain annuity contracts

download bill text pdf

Sponsored By

Archive: Last Bill Status - In Committee


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

do you support this bill?

Actions

view actions (6)
Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Jan 04, 2012 referred to insurance
Jun 24, 2011 committed to rules
May 11, 2011 advanced to third reading
May 10, 2011 2nd report cal.
May 09, 2011 1st report cal.551
Feb 17, 2011 referred to insurance

Votes

view votes

May 9, 2011 - Insurance committee Vote

S3365
15
1
committee
15
Aye
1
Nay
2
Aye with Reservations
0
Absent
0
Excused
0
Abstained
show Insurance committee vote details

Insurance Committee Vote: May 9, 2011

nay (1)
aye wr (2)

S3365 - Bill Details

See Assembly Version of this Bill:
A6748
Current Committee:
Law Section:
Insurance Law
Laws Affected:
Amd §§4223, 4240 & 6901, Ins L

S3365 - Bill Texts

view summary

Authorizes the issuance of certain annuity contracts involving alternative accounts.

view sponsor memo
BILL NUMBER:S3365

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 §4140 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 alternative 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 are 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
deterred annuities from being considered as financial guaranty
insurance.

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 p0l1folio 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 lasting, 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)
http://www.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 longevity 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/0949007.pdf
http://www.irs.gov/pub/irs-wd/0949036.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
investment 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
jurisdictions. 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 Insurance to allow it to examine
both product design and the risk management strategies employed by
insurers to support the guarantees in the contingent 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:
New bill.

FISCAL IMPLICATIONS:
None.

EFFECTIVE DATE:
Immediately.

view full text
download pdf
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  3365

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                            February 17, 2011
                               ___________

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.
                                                           LBD08908-01-1

S. 3365                             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.

Comments

Open Legislation comments facilitate discussion of New York State legislation. All comments are subject to moderation. Comments deemed off-topic, commercial, campaign-related, self-promotional; or that contain profanity or hate speech; or that link to sites outside of the nysenate.gov domain are not permitted, and will not be published. Comment moderation is generally performed Monday through Friday.

By contributing or voting you agree to the Terms of Participation and verify you are over 13.