The Office of General Counsel issued the following opinion on February 24, 2006, representing the position of the New York State Insurance Department.
RE: Charitable Gift Annuities
What is the statutory basis that requires a charitable annuity society, which meets the N.Y. Ins. Law § 1110(d) (McKinney Supp. 2006) conditions for special permit exemption, to file an application with the Insurance Department prior to issuing annuities?
While N.Y. Ins. Law § 1110(d) (McKinney Supp. 2006) exempts certain charitable annuity societies from having to obtain a special permit for issuing annuities, it does not provide an exemption from the application and other requirements contained in N.Y. Ins. Law §1110(a) (McKinney Supp. 2006).
An attorney that made reference to OGC Op. 4/27/2004 in his inquire, questioned the Departments authority to require a charitable annuity society, which qualifies for exemption under N.Y. Ins. Law § 1110(d), to make an application with the Insurance Department.
N.Y. Ins. Law § 1110 (McKinney Supp. 2006) provides an exemption from licensing as an insurer for certain charitable non-stock corporations or associations that issue annuity agreements. Such an entity, which is designated as a charitable annuity society under § 1110, may not make an annuity contract before obtaining a special permit from the Superintendent, as provided in N.Y. Ins. Law § 1110(a) (McKinney Supp. 2006), which states:
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. 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.
The special permit requirement is waived where a charitable annuity societys reserve is in compliance with N.Y. Ins. Law § 4217, is no more than $500,000, and the society maintains a surplus equaling at least 25% of such reserve, pursuant to N.Y. Ins. Law § 1110(d) (McKinney Supp. 2006), which states:
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.
However, while N.Y. Ins. Law § 1110(d) exempts certain charitable annuity societies from having to obtain a special permit, it does not provide an exemption from the application and other requirements contained in N.Y. Ins. Law § 1110(a) (McKinney Supp. 2006).
It should be noted that prior to 1923, organizations that paid annuities to donors in exchange for charitable contributions were not subject to regulation. To ensure public protection, the Superintendent at that time proposed prohibiting the practice. A number of religious and philanthropic institutions voiced their objections over the plan and legislation was enacted to permit the exchange but with limitations. See Letter from Superintendent to Hon. Parsons of 4/2/23, Diary Insurance Legislation 1923 (on file with NYS Insurance Department, NYC). In 1939, the statute was amended further to require supervision by the Insurance Department. No amendments to the statute since that time have eroded its regulatory role; thus, the initial protective stratagem of the law survives.
For further information you may contact Associate Attorney Sally Geisel at the New York City Office.