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New York Senate Bill S9006, passed by the Senate on May 31, 2022 (“New York GCC Bill”) is “[a]n Insurance Act Amendment Relating to Group Capital Calculations, Liquidity Stress Testing and Confidentiality’, which would amend the New York Insurance Act to require an annual group capital calculation (GCC). The legislature ended on June 2, 2022 with no action by the Assembly on the bill, and as such the bill must be reintroduced at a re-session of the Legislature for further consideration.
For reasons discussed below, even if enacted as proposed, the Bill may not fully comply with the Covered Agreements between the US and the EU or the United Kingdom (the Covered Agreements) or could New York exempts federal agencies unless accompanied by appropriate regulations consistent with the National Association of Insurance Commissioners (NAIC) Insurance Holding System Supervision Act (the Model Act). If legislation isn’t passed by fall 2022, New York could also fail to comply with the covered agreement and be subject to federal right of first refusal.
The recorded agreements state:
“In relation to a Home Party insurance or reinsurance group operating in the Host Party and which is subject to a Home Party group capital assessment [covering groupwide risks and
vesting appropriate remedial powers in the regulatory body
enforcing the assessment]; the host’s supervisory authority [may] not impose a group capital assessment or requirement at the global parent company level […]
“Where a home party insurer or reinsurer is subject to a group capital requirement in the home party jurisdiction, the supervisor of the host Member State [may] not impose a group capital requirement or assessment at the global parent company level
(US-EU Comprehensive Agreement, 22 September 2017, Section 4(h))
This provision imposes a reciprocity requirement on jurisdictions that require a group-wide capital assessment for a local insurer. Where the parent company of such an insurer is located in another jurisdiction, the local jurisdiction generally may not require such an assessment. The purpose of the provision is to align the supervision of insurance groups by the different parties to the relevant Covered Agreement. Such alignment avoids the need for duplicate valuations of capital. In this context, only the domiciliary court of the parent company can assert such a requirement.
The Model Law was amended in 2020 to reflect this requirement of the Covered Agreements. The changes require a home insurer to file a GCC but are exempt from this requirement as provided for in the Covered Arrangements:
“An insurance holding company system whose non-US group-wide regulator is within mutual jurisdiction1 […] which recognizes US states’ regulatory approach to group supervision and group capital.’
(Model Law, Section 4.L.(2)(c))
Unlike the Model Act, the New York GCC Act would not specifically exempt insurance holding companies headquartered in a mutual jurisdiction under the covered arrangements from the New York GCC requirement. The New York GCC Act empowers the Superintendent of Financial Services (the Superintendent) “to exempt a holding company from filing [a GCC] according to the criteria set out in a regulation” (New York GCC Bill s 2). This appears to be contemplating a regulation that would embody the reciprocity concepts of the covered agreements and the model law amendments.
This raises concerns that the New York GCC Act would fail to fulfill the arrangements covered by the Convention unless it expressly exempts holding companies in mutual jurisdictions. Once the regulation containing the reciprocity exception is enacted, these concerns would subside. However, the lack of a specific reference in the statute to the concept of reciprocity appears to render the New York GCC statute vulnerable to preemption under the federal statute authorizing the covered arrangements (Dodd-Frank Wall Street Reform and Consumer Protection Act, 31 USC SS 313-14). .
Any of the following three actions would address these concerns: (1) amend the New York GCC Act to expressly include an exception to reciprocity, such as the Model Act; (2) amend the New York GCC Act to expressly provide that the Superintendent issue regulations to exempt insurers with parent companies in mutual jurisdictions; or (3) couple the New York GCC bill with related proposed Department of Financial Services regulations.
1. In this context, “mutual jurisdiction” refers not only to the EU and the UK (ie the parties to the respective Covered Agreements), but also to “qualified jurisdictions” entitled to parallel treatment with US states have “recognize and accept” reinsurance purposes under NAIC guidelines and US regulatory approaches for crediting.
The content of this article is intended to provide a general guide to the topic. Professional advice should be sought in relation to your specific circumstances.
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