The Office of General Counsel issued the following informal opinion on December 2, 2002, representing the position of the New York State Insurance Department.

Capital Markets Securities Transactions

Questions:

1. Do the Securities described herein constitute insurance contracts under the New York Insurance Law?

2. Does the issuance and sale of the Securities constitute the "doing of an insurance business" by any of the parties described herein under the New York Insurance Law?

3. Would the ownership of the Securities by residents of New York have any consequences for owners thereof under the New York Insurance Law?

4. Would any provision of the New York Insurance Law cause the Securities to be unenforceable under their terms?

Would the underwriters or selling agents of the Securities (or their personnel):

Conclusions:

1. The Securities described herein would not constitute insurance contracts under the New York Insurance Law.

2. The issuance and sale of the Securities would not constitute the "doing of an insurance business" by any of the parties described herein under the New York Insurance Law.

3. The ownership of the Securities by residents of New York would not have any consequences for owners thereof under the New York Insurance Law.

4. No provision of the New York Insurance Law would cause the Securities to be unenforceable under their terms.

5. The underwriters or selling agents of the Securities (or their personnel) would not:

Facts:

A group of individuals ("Donors") will transfer each of their insurable interests to a charity or charities (the "Charities") and a Delaware business trust (the "Issuer Trust"). The Charities will in turn acquire life insurance policies and supplemental life insurance policies on the lives of the Donors and will deposit specified interests in such policies into the Issuer Trust. In return for their deposits the Charities will receive trust certificates providing for periodic distributions by the Issuer Trust (the "Charity Certificates"). The Issuer Trust will acquire life annuities based on the lives of the Donors.

In order to finance the acquisition of the life annuities, the Issuer Trust will issue trust certificates (the "Investor Certificates" or "Securities"). These sales will occur in transactions exempt from the registration requirements of the Securities Act of 1934.

Each life annuity procured will provide for periodic payments during the life of the respective Donor, and each life policy (together with the related supplemental life policy) will provide for death benefits upon the death of the related Donor. The benefits accruing upon the maturation of these policies will ultimately be used: (i) to pay policy premiums as well as the fees and expenses of the trustee and policy servicing agents, and (ii) to pay distributions of income and returns of capital under the Investor Certificates and Charity Certificates.

You have suggested that the proposed transaction essentially resembles other insurance product securitization transactions, such as when an intermediary Special Purpose Vehicle issues securities and then uses the proceeds from such offering to obtain guaranteed investment contracts. As with such of those transactions that have been opined upon by the Department, the purchasers of the Investor Certificates ("Investors") herein would have no recourse against the issuers of the life policies, supplemental life polices or annuities; their contractual privity (and sole recourse) would be limited to the Issuer Trust.

None of the Donor Insureds will be residents of New York State and all activities involving contact with the Donors regarding the obtaining of the insurance coverage at issue herein will occur outside New York State. Similarly, none of the issuers of the life insurance policies or life annuities will be licensees of New York State. The Securities will, however, be marketed in part to New York Investors by intermediaries located in New York State.

Analysis:

As suggested by the promoters of this transaction and their counsel, the instant transaction is essentially a novel variation upon the securitization of guaranteed investment contracts or funding agreements, each of which has been examined previously by this Office. In this case, however, the economic impetus is not a differential in interest rates but rather the recognition of the arbitrage opportunity presented by the variance of underwriting standards employed by the life insurance industry for life policies and life annuities.

In the case presented, the Securities are not insurance contracts 1 because there is no obligation on the part of the Issuer Trust to "confer benefit of pecuniary value" upon the Investors upon the happening of a fortuitous event in which the Investor has, or is expected to have, a pecuniary interest which will be adversely effected by the event. The Securities are unlike insurance contracts because the purchasers of Securities commit their resources in order to achieve investment returns. The investment transaction is complete upon purchase, payment by the Security holder, and delivery of the Security to the Investor by the Issuer Trust. An insurance contract, on the other hand, involves an ongoing undertaking to deliver a benefit of some kind in the future upon the happening of an event, which may or may not happen. Since the Securities do not meet the definition of an insurance contract under the New York Insurance Law, the underwriters or dealers in the Securities do not have to be licensed by this Department to sell the Securities in New York and would not be considered to be engaging in an insurance business in New York State.

The Department has often opined on the permissibility of securitizations of funding agreement/guaranteed investment contracts. As noted, these transactions are similar to the type described in the instant inquiry.

In an analysis of the securitization of a funding agreement or guaranteed investment contract transaction, the following factors are relevant in determining the applicability of the New York Insurance Law. First, the purchasers of the Securities issued by the Issuer Trust must have no privity of contract with the insurance company issuing the funding agreement. Second, there must be no guarantee of the Issuer Trust’s Securities by the insurer or any other entity, i.e., the Issuer Trust must be the sole source of payment on the Securities. Finally, the Securities of the Issuer Trust must not be represented to prospective investors as a type of insurance contract or product. Each of these elements is satisfied in the proposed transaction.

As indicated above, based upon the descriptions of the proposed offering, the activities do not constitute the doing of an insurance business. Similarly, no entities are acting in the state of New York as an agent for any unauthorized insurer.

In the proposed transaction, the Issuer Trust will not be conducting an insurance business and the Securities will not be marketed as an insurance product. Thus, the activities of any of the parties in New York would not violate the prohibition on aiding unlicensed insurers contained in N.Y. Ins. Law § 2117(a) (McKinney 2000). 2

 For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.

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1 N.Y. Ins. Law Section 1101(a)(1)(McKinney 2000) defines an insurance contract as, "(a)ny agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event."

2   That Section provides, in pertinent part, as follows: