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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on December 8, 2005, representing the position of the New York State Insurance Department.

Re: Permits for Charitable Annuity Societies.

Question Presented:

May a charitable annuity society merge with a non-profit corporation that does not hold a permit under N.Y. Ins. § 1110 (McKinney Supp. 2005) and transfer its obligations under existing annuity contracts, its assets and reserves to the non-profit corporation, which will be the surviving entity?

Conclusion:

No. A charitable annuity society may not merge with a non-profit corporation that does not hold a permit under N.Y. Ins. § 1110 (McKinney Supp. 2005) and transfer its obligations under existing annuity contracts, its assets and reserves to the nonprofit corporation, unless the non-profit corporation obtains a permit prior to the merger or is deemed exempt from obtaining such permit pursuant to Section 1110(d).

Facts:

The inquirer is currently representing two New York non-profit corporations, ABC and DEF. The corporations are affiliated and are in the process of completing a merger, pursuant to the New York non-profit merger statute. After the merger, ABC will cease to exist and DEF will be the surviving entity. ABC currently has a permit to operate as a charitable annuity society in New York; it maintains assets and reserves and reports to the New York Insurance Department ("The Department"). The inquirer states that, following the merger, DEF will be the company that will maintain the assets and reserves and will report to the Department. DEF is a larger corporation than ABC, but does not hold a permit to operate as a charitable annuity society. DEF has submitted an application for a permit to the Department, which is currently pending.

The inquirer asked, once the merger is consummated, whether DEF may continue to service existing charitable annuity contracts that were previously issued by ABC, if DEF has not yet received its permit. By the term "service", the inquirer is referring to transactions necessary to fulfill ABC's obligations under existing annuity contracts, such as the obligation to pay annuity benefits. DEF will not issue any new charitable annuity contracts until it receives its permit from the Department. The inquirer would like to know whether this would be permissible under the New York Insurance Law. However, the actual question is whether a charitable annuity society may merge with a nonprofit corporation that does not hold a permit under N.Y. Ins. Law § 1110 (McKinney Supp. 2005) and transfer its obligations under existing annuity contracts, its assets and reserves to the non-profit corporation, which will be the surviving entity.

Analysis:

Pursuant to N.Y. Ins. Law 1108(a) (McKinney Supp. 2005), 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. 2005). Section 1110(a) provides a mechanism for the issuance of a special permit to an eligible charitable organization and states, in relevant part, that:

(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 cash and other property 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. . . . 1

Section 1110(e) makes charitable annuity societies subject to, inter alia, N.Y. Ins. Law Article 74. Section 7402 provides, in relevant part, as follows:

The superintendent may apply under this article for an order directing him to rehabilitate a domestic insurer which: . . .

(d) has transferred or attempted to transfer, by contract of reinsurance or otherwise, substantially its entire property or business, or entered into any transaction which merges substantially its entire property or business into the property or business of any other corporation, association, society, order, firm or individual, without having first obtained the approval of the superintendent. . . .

Thus, if ABC were to merge with DEF, transferring all of its obligations under existing annuity contracts, its assets and reserves to an entity that does not hold a permit to operate as a charitable annuity society, Article 74 would be triggered. By virtue of such a merger, DEF would not be subject to the Superintendent's jurisdiction and the merger could be used to evade the requirements of the Insurance Law. Accordingly, DEF must obtain a permit prior to the consummation of the merger.

For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.


1 Although Section 1110(d) contains an exemption from this requirement for small issuers, this exemption would not apply to General Synod since it is not a small issuer.