This Office of General Counsel issued the following opinion on April 27, 2004, representing the position of the New York State Insurance Department.
Re: Charitable Gift Annuities
1) Does the New York State Insurance Department regulate charitable annuity societies?
2) What investment requirements pertain to charitable annuity societies?
1) Yes. However, pursuant to N.Y. Ins. Law § 1108(a) (McKinney 2000), a charitable annuity society is exempt from licensing and other provisions of the N.Y. Insurance Law, provided that it complies with the requirements of N.Y. Ins. Law § 1110 (McKinney Supp. 2004).
2) N.Y. Ins. Law § 1110(b) (McKinney Supp. 2004) and N.Y. Ins. Law § 1110(d) (McKinney Supp. 2004) contain the admitted asset and investment requirements applicable to charitable annuity societies.
No facts were presented. The questions are general in nature.
A charitable gift annuity has two components. The first is the gift to the charitable institution and the second is the purchase of a fixed income for life. It is the second component, the annuity, which makes the charitable annuity society subject to regulation by the New York State Insurance Law. However, this is a limited degree of regulation as compared to the Departments regulation of a life insurance company. To this end, N.Y. Ins. Law § 1108(a) (McKinney 2000) provides:
Insurers exempt from licensing and other requirements. The following insurers, their officers, agents, representatives and employees shall be exempt from licensing and other requirements imposed by the provisions of this chapter (except article seventy-four hereof) to the extent specified below: (a) Any charitable annuity society which complies with the requirements of section one thousand one hundred ten of this article, to the extent therein stated.
Accordingly, a charitable annuity society is exempt from licensing and other provisions of the New York Insurance Law provided that it complies with the requirements of N.Y. Ins. Law § 1110 (McKinney Supp. 2004).
N.Y. Ins. Law § 1110(a) (McKinney Supp. 2004), which provides a mechanism for the issuance of a special permit to an eligible charitable organization, states:
Charitable annuity societies exempt; special permits. (a) The superintendent may, in his discretion, issue a special permit to make annuity agreements with donors to any duly organized domestic or foreign non-stock corporation or association conducted without profit and engaged in active operation for at least ten years prior thereto solely in bona fide charitable, religious, missionary, educational or philanthropic activities. The permit shall authorize such corporation or association to receive gifts of money conditioned upon, or in return for, its agreement to pay an annuity to the donor, or his nominee, and to make and carry out such annuity agreement. Every such corporation or association shall, before making such agreement, file with the superintendent copies of its forms of agreements with annuitants and a schedule of its maximum annuity rates, which shall be computed on the basis of the annuity standard adopted by it for calculating its reserves so as to return to it upon the annuitant's death a residue at least equal to one-half the original gift or other consideration for such annuity.
N.Y. Ins. Law § 1110(b) (McKinney Supp. 2004) contains the admitted asset and investment requirements applicable to charitable annuity societies. It provides:
(b) Every such domestic corporation or association shall maintain admitted assets at least equal to the greater of (i) the sum of its reserves on its outstanding agreements, calculated in accordance with section four thousand two hundred seventeen of this chapter, and a surplus of ten per centum of such reserves, or (ii) the amount of one hundred thousand dollars. In determining such reserves a deduction shall be made for all or any portion of an annuity risk which is reinsured by a life insurance company authorized to do business in this state. The required admitted assets shall be invested in accordance with the prudent investor standard as defined in section 11-2.3 of the estates, powers and trusts law and shall not be subject to the investment limitations set forth in this chapter. Such assets shall be segregated as separate and distinct funds, independent of all other funds of such corporation or association, and shall not be applied to pay its debts and obligations or for any purpose except the aforesaid annuity benefits.
Notwithstanding the general requirement that a corporation or association not issue any annuity agreements until it has obtained a special annuity permit, N.Y. Ins. Law § 1110(d) (McKinney Supp. 2004) contains the following exception applicable to small issuers:
No such corporation or association shall make or issue in this state any annuity contract before obtaining a permit issued in accordance with the provisions of this section except that if its requisite reserve on its outstanding annuity agreements computed in accordance with section four thousand two hundred seventeen of this chapter does not exceed the amount of five hundred thousand dollars, it may make gift annuity agreements in this state and shall be exempted from securing a permit provided it maintains the reserve required by section four thousand two hundred seventeen of this chapter and a surplus of at least twenty-five per centum of such reserve. If the superintendent finds, after notice and hearing, that any such corporation or association, having such a permit, has failed to comply with the requirements of this section, he may revoke or suspend such permit or order it to cease making new annuity contracts until it complies. The superintendent may, in his discretion, either dispense with the requirement of annual statements by such corporations or associations or accept a sworn statement by two or more of its principal officers, in such form as will satisfy the superintendent that the requirements of this section are being complied with.
Thus, an eligible charitable institution is exempt from the requirement that it hold a permit until the requisite reserves on its outstanding annuity agreements (computed in the same manner as would be required if it had a permit) exceed $500,000. In order to take advantage of this small issuer exception, the corporation or association must apply for a permit. The Department then pre-clears the permit application with the requirement that when the charitys required reserves are approximately $500,000, it amend its permit application to update it and resubmit it to the Department for approval.
Depending upon whether a charitable annuity society operates pursuant to a permit or whether it is a small issuer, it must have admitted assets in the amount required by either N.Y. Ins. Law § 1110(b) (McKinney Supp. 2004) or N.Y. Ins. Law § 1110(d) (McKinney Supp. 2004). The corporation or association must invest its admitted assets in accordance with the prudent investor standard as defined in N.Y. Est., Powers and Trust Law § 11-2.3 (McKinney 2001). The organization or association must maintain the admitted assets segregated as separate and distinct funds, independent of all of its other funds, and may not be apply such funds to pay any debts or obligations or for any purpose except for the annuity benefits.
The remaining provisions in N. Y. Ins. Law § 1110 (McKinney 2004) are as follows. N. Y. Ins. Law § 1110(c) (McKinney Supp. 2004) provides:
No such corporation or association organized under the laws of another state shall be permitted to make such annuity agreements in this state unless it complies with all requirements of this section imposed upon like domestic corporations or associations.
N. Y. Ins. Law § 1110(e) (McKinney Supp. 2004) provides:
Except as provided in this section every such corporation or association shall be exempt from the provisions of this chapter, other than articles one, two, three, twenty-five and seventy-four of this chapter.
For further information you may contact Supervisory Attorney Joan Siegel at the New York City Office.