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 November 24, 2004 representing the position of the New York State Insurance Department.

Re: Reinsurance intermediary's permissible withdrawal of interest from premium and loss account

Question Presented

If a New York State licensed non-resident reinsurance intermediary places reinsurance for three New York State authorized ceding insurers, with respect to claim recoverables deposited in the reinsurance intermediary's premium and loss account, which of the insurers are "principals" under N.Y. Comp. Codes R. & Regs. tit. 11, § 32.3(a)(3) (2002) (Regulation 98) that must consent in writing before the reinsurance intermediary may withdraw interest from its premium and loss account in a savings bank?

Conclusion

Until the point in time that the reinsurance intermediary is authorized by the reinsurance treaty to make payments to the ceding insurer for loss recoverables, the assuming insurer is the principal. If the reinsurance intermediary holds such payments after that point, the ceding insurer becomes the principal.

Facts

A New York State licensed non-resident reinsurance intermediary places reinsurance for three New York State authorized ceding insurers under one reinsurance treaty with one reinsurer. While the reinsurance treaty describes when claim recoverables are due to the ceding insurers, sometimes the assuming insurer pays the reinsurance intermediary such amounts before the time required by the reinsurance treaty. This results in interest being generated in the reinsurance intermediary's premium and loss account that is in a savings bank.

Analysis

N.Y. Ins. Law § 2120(b) (McKinney 2000), which is the statutory enabling authority for N.Y. Comp. Codes R. & Regs. tit. 11, § 32.3(a)(3) (2002) (Regulation 98), provides that a reinsurance intermediary acting as such in this State is a fiduciary for all funds received or collected in such capacity.

N.Y. Comp. Codes R. & Regs. tit. 11, § 32.3(a)(3) (2002) (Regulation 98) provides:

(a) Every person, firm, association, or corporation acting as reinsurance intermediary in this State, is responsible as a fiduciary for funds received by such reinsurance intermediary, in such capacity. All such funds shall be held in accordance with the following rules: . . .

(3) No withdrawals from a premium and loss account shall be permitted except as follows: for payment or return of premiums, commission due others, losses to insurers or other parties entitled thereto, interest, if the principals have consented thereto in writing, the intermediary's commissions, and voluntary deposits, provided that no withdrawal of voluntary deposits may be made if the balance remaining in the premium and loss account thereafter is less than aggregate net premiums, commissions due other and losses received but not remitted. In computing aggregate net premiums, offsets from different principals shall not be permitted.

(Emphasis added)

Under the facts presented sometimes the assuming insurer pays the reinsurance intermediary claim recoverables due to the ceding insurer(s) before the time required by the reinsurance treaty. This results in interest being generated in the reinsurance intermediary's premium and loss account on the claim recoverables payments from the assuming insurer before the time that it must pay the ceding insurer(s). Until the point in time that the reinsurance intermediary is authorized by the reinsurance treaty to make payments to the ceding insurer for loss recoverables, the assuming insurer is the principal. If the reinsurance intermediary holds such payments after that point, the ceding insurer becomes the principal. Accordingly, the reinsurance intermediary would have to obtain the written consent of both the ceding and assuming insurers if the reinsurance intermediary were to withdraw the interest earned on such funds.

For further information one may contact Senior Attorney Robert Freedman at the New York City Office.