Legislation introduced this spring in the New York state legislature would establish a new type of New York-domiciled insurance entity, a "domestic excess line insurance company," which could potentially increase the availability of excess lines coverage within the state. If adopted, the legislation would mark the second time in as many years that New York has broadened the options available to large commercial purchasers of insurance. (For a discussion of last year's legislation expanding the so-called insurance "Free Trade Zone" for large New York commercial insureds, see our Client Alert dated July 15, 2011, "Commercial Lines De-Regulation Comes to New York.")
This year's identical Senate and Assembly bills (S.B. 6808, introduced March 23, 2012; A.B. 9783, introduced April 2, 2012) are sponsored by, respectively, Sen. James Seward and Assemb. Joseph Morelle, the chairs of those chambers' insurance committees and influential voices on state insurance issues. The bills originated in those committees; the Senate version has since been reported out by that committee and referred to the Finance Committee. New Jersey adopted similar legislation last year. See N.J. Stat. §17:22-6.69a.
If adopted, the New York legislation would define a domestic excess line insurance company (hereinafter, a "Domestic EL Carrier") as an insurer organized and incorporated in New York which is granted a "certificate of eligibility" by the Superintendent of Financial Services ("Superintendent") to insure (1) risks placed by excess lines brokers permitted under Article 21 of the New York Insurance Law ("NYIL"), (2) "independently procured insurance to the extent permitted by law" and (3) excess and/or surplus lines risks for any insured whose home state is a state other than New York (provided the insurer is eligible to write such risks in such state). A Domestic EL Carrier would not be considered an "authorized insurer" within the meaning of the NYIL, however.
A Domestic EL Carrier would be exempt from
- policy rate and form requirements;
- premium taxes;
- assessments to defray Department of Financial Services expenses (analogous to the former "Section 332 assessments" imposed on insurers under the NYIL);
- state corporation tax and franchise taxes; and
- NYIL provisions relating to assigned risk and guaranty funds.
In addition, transactions by a Domestic EL Carrier would not be considered "doing an insurance business" for purposes of Section 1102(a) of the NYIL.
However, a Domestic EL Carrier would be subject to NYIL provisions governing
- admitted assets, deposits and reinsurance;
- permitted investments;
- holding companies;
- merger, consolidation and redomestication; and
- the surplus lines tax imposed by existing Article 21.
A Domestic EL Carrier would also be subject to the NYIL provisions on insurance company liquidation and rehabilitation. Furthermore, the legislation prescribes that all provisions of the NYIL applicable to eligible out-of-state and alien excess lines carriers would be applicable to Domestic EL Carriers "unless inconsistent" with the new provisions.
Each Domestic EL Carrier would be required to maintain minimum capital and surplus exceeding the greater of (1) the minimum amount required by New York for out-of-state and alien excess line carriers and (2) $45 million. (Based on the minimums required under current regulation, which are on a sliding scale, the minimum under the legislation would be effectively $45 million.) Under the legislation, a Domestic EL Carrier would be organized in the manner associated with incorporating other insurers, pursuant to the terms of Article 12 of the NYIL. Upon completing the incorporation process, the entity's board would deliver to the Superintendent a copy of its resolution declaring that the entity intends to act as a Domestic EL Carrier. Within 30 days of receipt of such resolution, the Superintendent must issue a certificate of eligibility.
The legislation states that a Domestic EL Carrier would be "deemed" a "nonadmitted insurer" for purposes of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203.