PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following proposed rule:
Proposed Action:
Amendment of Subpart 80-1 (Regulation 52) of Title 11 NYCRR.
Statutory authority:
Financial Services Law, sections 202 and 302; and Insurance Law, sections 301, 306 and art. 15
Subject:
Holding Companies.
Purpose:
To conform with the National Association of Insurance Commissioners' amended Model Act, and for modernization measures.
Substance of proposed rule (Full text is not posted on a State website):
Insurance Regulation 52 (11 NYCRR 80-1) implements Article 15 of the Insurance Law, which governs the regulation of insurance holding company systems. The National Association of Insurance Commissioners ("NAIC") recently made amendments to its model Insurance Holding Company System Regulatory Act ("Model Act"), many of which are likely to become NAIC accreditation standards. Some of New York's holding company requirements do not match the Model Act, so updating Regulation 52 is necessary to ensure that New York maintains its accreditation status. The proposed amendments to Regulation 52 aim to modernize the Department's processes, to the benefit of both insurers and Department staff.
The Department made technical amendments to section 80-1.1.
The Department amended section 80-1.2 to require insurers to file a registration statement electronically, except in those instances where the Superintendent grants an exemption, and to require a registration statement to include language that provides that the board of directors oversees corporate governance and manages internal controls.
The Department made technical amendments to section 80-1.3.
The Department amended sections 80-1.4 and 80-1.6 to state that upon written application of a significant person or a controlled person who is an individual, the superintendent may permit the significant person to submit a certified public accountant compilation rather than an opinion of an independent certified public accountant, if the superintendent finds, upon review of the application, that submitting an opinion of an independent certified public accountant would constitute a hardship upon the significant person or controlled person. The written application must explain how submitting an opinion of an independent certified public accountant would constitute a hardship upon the significant person or controlled person.
The Department also amended section 80-1.4 to require every controlled insurer to submit to the Superintendent a list that identifies each insurer in the holding company system that is not an authorized insurer in New York State (an "unauthorized insurer") and that electronically filed its most recent annual statement with the NAIC, and for an unauthorized insurer that has not electronically filed its most recent annual statement with the NAIC, a copy of the most recent annual statement filed with the unauthorized insurer's state of domicile.
The Department amended section 80-1.5 to raise the threshold for when a property/casualty insurer must submit a reinsurance agreement to the Superintendent for review and raised the threshold for when an insurer must notify the Superintendent of any lease of real or personal property that does not provide for the rendering of services on a regular and systematic basis. The amendment to section 80-1.5 also would require an insurer to submit to the Superintendent notice of any management agreements, service contracts, tax allocation agreements, guarantees, or cost-sharing arrangements.
The Department made technical amendments to section 80-1.7.
The Department repealed section 80-1.8 and added a new section that states that where a holding company seeks to divest its controlling interest in a domestic insurer in any manner and the domestic insurer is aware of the proposed divestiture, the domestic insurer must file with the Superintendent notice of the proposed divestiture upon the earlier of 30 days prior to the proposed cessation of control or within ten days of becoming aware of the proposed divestiture; provided, however, that the domestic insurer need not file notice if a person seeking to acquire direct or indirect control of the domestic insurer submits an application for approval of acquisition of control.
The Department added a new section 80-1.9 that sets forth the way in which an insurer or a person may apply to the Superintendent for an exemption from the electronic filing requirement.
Text of proposed rule and any required statements and analyses may be obtained from:
David Neustadt, New York State Department of Financial Services, One State Street, New York, NY 10004, (212) 709-1690, email: david.neustadt@dfs.ny.gov
Data, views or arguments may be submitted to:
Joana Lucashuk, New York State Department of Financial Services, 25 Beaver Street, New York, NY 10004, (212) 480-2125, email: joana.lucashuk@dfs.ny.gov
Public comment will be received until:
60 days after publication of this notice.
Regulatory Impact Statement
1. Statutory authority: Financial Services Law §§ 202 and 302 and Insurance Law §§ 301 and 306 and Article 15. Financial Services Law § 202 establishes the office of the Superintendent of Financial Services ("Superintendent"). Financial Services Law § 302 and Insurance Law § 301, in material part, authorize the Superintendent to effectuate any power accorded to the Superintendent by the Financial Services Law, Insurance Law, or any other law, and to prescribe regulations interpreting the Insurance Law. Insurance Law § 306 permits the Superintendent to promulgate regulations to require an insurer or other person or entity to submit a filing or submission to the Superintendent electronically. Insurance Law Article 15 sets forth standards for the regulation of holding company systems.
2. Legislative objectives: Insurance Law Article 15 sets forth standards for the regulation of holding company systems. Further, Financial Services Law § 302 and Insurance Law § 301 authorize the Superintendent to prescribe regulations interpreting the Insurance Law, and to effectuate any power granted to the Superintendent under the Insurance Law to prescribe forms or otherwise make regulations. Insurance Law § 306 authorizes the Superintendent to promulgate regulations requiring that certain filings or submissions to the Superintendent be made electronically.
3. Needs and benefits: Insurance Law Article 15 sets forth standards for the regulation of holding company systems. 11 NYCRR Part 80-1 (Insurance Regulation 52) implements Article 15 by filling in the interstices of that statute. The Legislature first enacted Article 15 in 1969 and the Department promulgated Regulation 52 that same year. The Department last promulgated a substantive amendment to Regulation 52 in 1993. As a result, certain sections of Regulation 52 are out-of-date and do not reflect changes in technology. In addition, the National Association of Insurance Commissioners ("NAIC") adopted amendments to its model Insurance Holding Company System Regulatory Act ("Model Act") in December 2010. Many of these amendments likely will become NAIC accreditation standards in the next couple of years. NAIC accredited state departments must undergo a comprehensive review every five years by an independent review team to ensure they continue to meet baseline standards. The accreditation standards require that state departments have adequate statutory and administrative authority to regulate an insurer's corporate and financial affairs, and that they have the necessary resources to carry out that authority. Therefore, this rule updates Regulation 52 to reflect changes in technology and to adopt certain amendments made to the Model Act.
In addition, domestic controlled property/casualty insurers typically file between 275 and 300 reinsurance treaties or agreements per year with the Department's property bureau pursuant to Insurance Law § 1505(d). However, many of these reinsurance treaties or agreements are minor and it is not necessary for an insurer to file all of the treaties or agreements, since the Department will continue to receive notice of the treaties or agreements and may request a copy of the actual treaty or agreement in specific circumstances if necessary. Thus, this rule raises the threshold for when a domestic controlled property/casualty insurer must file reinsurance treaties or agreements consistent with the Model Act.
4. Costs: This rule does not impose compliance costs on state or local governments. The Department of Financial Services ("Department") does not anticipate additional costs to the Department, and by requiring electronic filings and reducing the paperwork that an insurer must submit in certain circumstances, the Department may reduce its costs. The rule may result in additional costs to domestic controlled insurers, because it imposes additional paperwork and reporting requirements on such insurers. However, the rule also may result in reduced costs to controlled insurers, because they no longer will be required to file paper copies in duplicate or triplicate and certain paperwork and reporting requirements will be reduced.
5. Local government mandates: This rule does not impose any requirement upon a county, city, town, village, school district, fire district, or other special district.
6. Paperwork: The rule would impose additional reporting requirements and paperwork by requiring a domestic controlled insurer to file notice with the Superintendent of a proposed divestiture of a holding company's controlling interest in the insurer, and requiring a domestic controlled insurer to notify the Superintendent of any management agreements, service contracts, tax allocation agreements, guarantees, or cost-sharing arrangements between the insurer and any person in its holding company system. However, the rule also would reduce the amount of paperwork for a controlled insurer, because the rule requires the insurer to file a registration statement electronically (unless it requests and receives an electronic filing exception), and eliminates the requirement that an insurer file paper copies in duplicate or triplicate. Furthermore, the rule raises the thresholds for when a domestic controlled property/casualty insurer must provide the Superintendent with a copy of a reinsurance contract, agreement or memorandum, and when a domestic controlled insurer must notify the Superintendent of any lease of real or personal property, thereby reducing reporting requirements and paperwork.
7. Duplication: This rule will not duplicate, overlap, or conflict with any existing state or federal rules or other legal requirements.
8. Alternatives: The Department received a report dated August 2011 from the New York City Bar Association's Insurance Law Committee (the "Committee") entitled, "Insurance Holding Company Regulation in New York in Light of the 2010 Amendments to the NAIC Model Act" (the "Report"). The Department also conducted outreach to insurance industry trade associations on the proposed rule.
The Report provides suggestions as to how the Department should implement the enterprise risk management ("ERM") reporting requirement and proposes strong confidentiality protections for these kinds of reports. Since the ERM reporting requirement applies to not only insurers subject to Article 15, but insurers subject to Articles 16 and 17 too, the Department decided that it would promulgate a separate regulation rather than amend Regulation 52. The Report also discusses other amendments, which the Department believes the Legislature must incorporate into Article 15.
A trade association requested that the proposed rule provide an exemption from the requirement that a domestic insurer submit notice of a proposed divestiture of control when a person has made a request for approval of acquisition of control of the insurer. The Department added such an exemption.
A trade association also requested that the proposed rule remove the phrase "is responsible for and" from a statement about corporate governance and internal controls in the registration statement. The Department removed the phrase.
In addition, the Department considered overhauling Regulation 52, particularly § 80-1.2, which applies to registration of controlled insurers, to match the Model Act. However, the Department decided not to make such a comprehensive amendment at this time, because an overhaul of the Regulation is not necessary for the Department to maintain its NAIC accreditation and the Report did not suggest such an overhaul.
The Department also considered including the own risk and solvency assessment ("ORSA") reporting requirement in this amendment, but decided that the requirement should be placed in a separate regulation for the same reasons as the ERM reporting requirement.
9. Federal standards: The rule does not exceed any minimum standards of the federal government for the same or similar subject areas.
10. Compliance schedule: Insurers must comply with the rule 60 days after Notice of Adoption in the State Register.
Regulatory Flexibility Analysis
Small businesses: The Department of Financial Services (“Department”) finds that this rule will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping, or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at insurers authorized to do business in New York State, none of which fall within the definition of a “small business” as found in State Administrative Procedure Act § 102(8). The Department has monitored annual statements and reports on examination of authorized insurers subject to this rule, and believes that none of the insurers falls within the definition of “small business” because no insurer is both independently owned and has fewer than 100 employees.
Local governments: The rule does not impose any impact, including any adverse impact, or reporting, recordkeeping, or other compliance requirements on any local governments. The basis for this finding is that this rule is directed at authorized insurers, which are not local governments.
Rural Area Flexibility Analysis
1. Types and estimated numbers of rural areas: Insurers affected by this rule operate in every county in this state, including rural areas as defined under State Administrative Procedure Act ("SAPA") § 102(10).
2. Reporting, recordkeeping and other compliance requirements; and professional services: The rule would impose additional reporting, recordkeeping, and other compliance requirements by requiring a domestic controlled insurer in a rural area to file notice with the Superintendent of Financial Services ("Superintendent") of a proposed divestiture of a holding company's controlling interest in the insurer, and requiring a domestic controlled insurer in a rural area to notify the Superintendent of any management agreements, service contracts, tax allocation agreements, guarantees, or cost-sharing arrangements between the insurer and any person in its holding company system.
However, the rule also would reduce current reporting, recordkeeping, and other compliance requirements, because the rule requires a controlled insurer in a rural area to file a registration statement electronically (unless it requests and receives an electronic filing exception), and eliminates the requirement that an insurer in a rural area file paper copies in duplicate or triplicate. Furthermore, the rule raises the thresholds for when a domestic controlled property/casualty insurer in a rural area must provide the Superintendent with a copy of a reinsurance contract, agreement, or memorandum, and when a domestic controlled insurer in a rural area must notify the Superintendent of any lease of real or personal property.
It is unlikely professional services will be needed in rural areas to comply with this rule.
3. Costs: The rule may result in additional costs to domestic controlled insurers in rural areas, because it imposes reporting, recordkeeping, and other compliance requirements on such insurers. However, the rule also may result in reduced costs to controlled insurers in rural areas, because they no longer will be required to file paper copies in duplicate or triplicate and certain reporting, recordkeeping, and other compliance requirements will be reduced. Also, any additional costs to insurers in rural areas should be the same for insurers in non-rural areas, and the costs should not differ between public and private entities in rural areas.
4. Minimizing adverse impact: The Department of Financial Services ("Department") considered the approaches suggested in SAPA § 202-bb(2) for minimizing adverse economic impacts. The rule is designed to minimize any adverse economic impacts on rural areas by allowing a controlled insurer in a rural area to request an exemption from the requirement that a controlled insurer electronically file a registration statement based upon undue hardship, impracticability, or good cause.
5. Rural area participation: Public and private interests in rural areas will have an opportunity to participate in the rule making process once the rule is published in the State Register and posted on the Department's website.
Job Impact Statement
This rule should not adversely impact jobs or employment opportunities in New York State. It is likely to have no impact whatsoever, since the rule updates Regulation 52 to account for advances in technology; adopts a few amendments that were made to the National Association of Insurance Commissioners’ model Insurance Holding Company System Regulatory Act (the “Model Act”); and raises the threshold for certain filings consistent with the Model Act.
