New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following opinion on January 28, 2003, representing the position of the New York State Insurance Department.

Re: N.Y. Ins. Law § 1307- Contingent Liability for Borrowings

Question Presented:

Does N.Y. Ins. Law § 1307 (McKinney 2000) require the Superintendent’s approval in all situations where an insurer borrows monies and incurs a debt?

Conclusion:

No. N.Y. Ins. Law § 1307 requires the Superintendent’s approval only for monies borrowed that shall be used as part of the surplus requirement and that "shall not be part of the legal liabilities of such insurer."

Facts:

A mutual life insurer is going to enter into a "Synthetic Lease (Sale/leaseback) as the lessee, which for accounting purposes will be treated as debt, but for commercial tax purposes will be treated as a lease." Sufficient information regarding the "synthetic lease" transaction was not set forth by the inquirer which is important since that term is not used in the Insurance Law. Thus, this response is general in nature.

Analysis:

N.Y. Ins. Law § 1307 (McKinney 2000) provides in relevant part that:

(a) any domestic stock, mutual, co-operative insurance company or reciprocal insurer may, without pledging any of its assets, receive advances or borrow funds to:

. . .

(2) enable it to comply with any surplus requirement or make good any impairment or deficiency or other requirement of this chapter,

. . .

(c) Any sum so advanced or borrowed shall not be part of the legal liabilities of such insurer and shall not be a basis of any set-off . . .

(d) No such insurance company or reciprocal insurer shall directly or indirectly make any agreement for any advance or borrowing pursuant to this section unless such agreement is in writing and shall have been approved by the superintendent as not unfair, misleading or contrary to law.

Thus, pursuant to § 1307, the Superintendent’s approval is required only for monies borrowed that shall be used as part of the surplus requirement and that "shall not be part of the legal liabilities of such insurer." Therefore, in the case where an insurer borrows monies for use as surplus, it must receive the approval of the Superintendent. If, however, the insurer borrows the monies as a liability, it does not need the approval of the Superintendent.

For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.