New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on November 30, 2006, representing the position of the New York State Insurance Department.

Re: Request for Opinions Regarding Ability of New York Cooperative Insurance Companies to Engage in Business in New York and Other States.

Questions Presented:

1. May an assessment corporation organized and licensed under Article 66 of the New York Insurance Law be licensed outside the state of New York?

2. May an assessment or advanced premium corporation licensed under Article 66 of the New York Insurance Law engage in the business of reinsurance of risks located outside the state of New York?

3. May a New York advance premium corporation merge with a mutual insurance company?

4. If an advance premium, assessment corporation or mutual insurance company merges with a like-type foreign insurance company, would the foreign insurance company need to be authorized to do business as an insurer in New York before the merger?

5. May the policyholders of a domestic advance premium corporation approve the conversion of such insurance company into a domestic mutual insurance company and then approve the merger of the resultant domestic mutual insurance company with a foreign mutual insurance company at the same policyholders’ meeting?

6. Pursuant to an Assumption and Reinsurance Agreement may a domestic advance premium corporation or mutual insurance company assume and reinsure all liabilities arising from all policies written by a foreign mutual insurance company?

Conclusions:

1. An assessment corporation may not be licensed outside the state of New York due to the geographic limitations imposed by N.Y. Ins. Law § 6603(a)(5)(B), § 6608(b), and § 6605(c).

2. Pursuant to N.Y. Ins. Law § 6606(a)(1) and (a)(3), an advance premium corporation may assume reinsurance for the kind or kinds of insurance it is licensed to do directly on property located outside New York.

However, pursuant to N.Y. Ins. Law § 6606(a)(2) and (a)(3), an assessment corporation may not assume reinsurance for risks located outside of New York. An assessment corporation may assume reinsurance only from other authorized assessment corporations on property located in the state of New York with the exception of the counties of New York, Kings, Queens, Bronx and Richmond.

3. No, N.Y. Ins. Law § 6625 governs the merger of cooperative insurance companies and does not authorize an advance premium cooperative insurer to merge with a mutual insurance company.

4. N.Y. Ins. Law §7102(a)(2) requires a foreign insurer to be authorized in New York as an insurer prior to merging with or into a domestic insurer regardless of whether the domestic or foreign insurer survives. Because of the geographical limitations, an assessment corporation may not merge with a foreign insurer.

5. Yes. Under N.Y. Ins. Law §§ 7104 and 7306 the policyholders of a domestic advance premium corporation are not prohibited from approving the conversion of the insurance company into a domestic mutual insurance company and then approving the merger of the resultant domestic mutual insurance company with a foreign mutual insurance company at the same policyholders’ meeting.

6. The execution of an Assumption and Reinsurance Agreement by a domestic advance premium cooperative and a foreign mutual insurance company is permitted under N.Y. Ins. Law § 6606(a)(1) and (a)(3) which provides that an advance premium corporation may assume reinsurance for the kind or kinds of insurance it is licensed to do directly for property located outside New York.

Analysis:

1. May an assessment corporation organized and licensed under Article 66 of the New York Insurance Law be licensed outside the state of New York?

N.Y. Ins. Law § 6608(b) (West. WESTLAW through L.1986, c. 137 legislation) provides:

The superintendent, upon application by any assessment corporation, may issue a license pursuant to section one thousand one hundred two of this chapter to such corporation to do business in adjoining counties additional to those in which it is then authorized or in the entire state with the exception of the counties of New York, Kings, Queens, Bronx and Richmond, if such corporation is in possession of a surplus to policyholders of one hundred thousand dollars or more, and is maintaining full unearned premium reserves in accordance with section one thousand three hundred five of this chapter.

N.Y. Ins. Law § 6603(a)(5)(B) (West. WESTLAW through L.1986, c. 137 legislation) provides that the declaration of the assessment corporation shall contain "The territory in this state wherein the corporation desires to do business."

N.Y. Ins. Law § 6605(c)(West, WESTLAW through L.2002, c. 229 legislation) states in pertinent part:

An assessment corporation may also be organized and licensed in the manner prescribed in section six thousand six hundred three of this article to do within all the counties of the state (except the counties of New York, Kings, Queens, Bronx and Richmond) as an assuming insurer, reinsurance business of a kind or kinds referred to in this section, and, as specified in its charter. . .

The New York State Insurance Department previously opined in General Counsel Opinions No. 01-05-25 and No. 99-62 that the New York Insurance Law does not prohibit an assessment corporation from becoming licensed in another state as long as its charter is amended to provide for the corporation conducting business in another state and the amended charter is approved by Superintendent.

Upon reconsideration, it is the now the position of the New York State Insurance Department that an assessment corporation may not be licensed outside the State of New York, due to the geographic limitations imposed by N.Y. Ins. Law §    6603(a)(5)(B), § 6608(b), and § 6605(c). Accordingly, the two previous opinions are specifically overruled.

2. May an assessment or advance premium corporation licensed under Article 66 of the New York Insurance Law engage in the business of reinsurance of risks located outside the state of New York?

There are two types of cooperative property/casualty insurers, advance premium corporations (as defined in N.Y. Ins. Law § 6601(b)(1)) and assessment corporations (as defined in N.Y. Ins. Law § 6601(5)(2)). N.Y. Ins. Law § 6606 (West, WESTLAW through L.1988, c. 114 legislation) governs reinsurance pertaining to both types of cooperative insurers and states in pertinent part:

(a)(1) Subject to the provisions of section six thousand six hundred ten of this article, any co-operative property/casualty insurance company shall have the power, whether or not expressed in its charter, to accept reinsurance of the kind or kinds of insurance it is licensed to do directly, and to cede reinsurance subject to applicable provisions of section one thousand three hundred eight of this chapter.

(2) Unless otherwise permitted by the superintendent, an assessment corporation may assume reinsurance only from other authorized assessment corporations but may cede reinsurance to any other licensed insurer if such insurer is authorized to reinsure such kind or kinds of insurance in this state or to an accredited reinsurer, as defined in subsection (a) of section one hundred seven of this chapter.


(3) Any co-operative property/casualty insurance company may assume reinsurance on property located wholly or partially without the territory in which it is licensed to do a direct writing business provided, however, that an assessment corporation may only assume reinsurance on property located in the state of New York with the exception of the counties of New York, Kings, Queens, Bronx and Richmond.

Under N.Y. Ins. Law § 6606(a)(1) and (a)(3) an advance premium corporation may assume reinsurance for the kinds of insurance it is licensed to do directly for risks located outside New York.

Under N.Y. Ins. Law § 6606(a)(2) and (a)(3), however, an assessment corporation may not assume reinsurance for risks located outside of New York. An assessment corporation may assume reinsurance only from other authorized assessment corporations on property located in the state of New York with the exception of the counties of New York, Kings, Queens, Bronx and Richmond.

As you state in your letter of inquiry, in addition to the limitations imposed by N.Y. Ins. Law § 6606, other provisions of the New York State Insurance Law may further limit the ability of a cooperative insurer to engage in the business of reinsurance.

3. May a New York advance premium corporation merge with a mutual insurance company in accordance with New York law?

N.Y. Ins. Law § 6625 (West, WESTLAW through L.1986, c. 137 legislation) governs the merger of cooperative insurance companies and states:

(a) Two or more advance premium corporations may, in accordance with applicable provisions of article seventy-one of this chapter, merge or consolidate.

(b) Two or more assessment corporations licensed to do business either wholly or substantially in a common territory may, in accordance with applicable provisions of article seventy-one of this chapter, merge or consolidate.

N.Y. Ins. Law § 6625(a) and (b) limits the mergers of cooperative insurers by allowing two or more advance premium corporations to merge and allowing two or more assessment corporations to merge. N.Y. Ins. Law § 6625 does not authorize an advance premium corporation to merge with a mutual insurance company, foreign or domestic.

Therefore, a New York advance premium corporation may not merge with a mutual insurance company.

4. If an advance premium, assessment corporation or mutual insurance company merges with a like-type foreign insurance company, would the foreign insurance company need to be authorized to do business as an insurer in New York before the merger?

N.Y. Ins. Law § 7102(a)(2) (West, WESTLAW through L.1989, c. 697 legislation) states:

(a) Upon complying with this article and subject to section seven thousand one hundred nine of this article, any domestic company is hereby authorized and empowered to:

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(2) consolidate or merge with any foreign company which is authorized to do an insurance business in this state or acquire the assets of any foreign company if such merger, consolidation or acquisition of assets is authorized by the laws of the state in which such foreign company is organized.

N.Y. Ins. Law 7102(a)(2) requires a foreign insurer to be authorized in New York prior to merging with or into a domestic insurer regardless of whether the domestic or foreign insurer survives. Note, however, because of the geographical limitations, an assessment corporation may not merge with a like-type foreign insurer.

5. May the policyholders of a domestic advance premium corporation approve the conversion of the insurance company into a domestic mutual insurance company and then approve the merger of the resultant domestic mutual insurance company with a foreign mutual insurance company at the same policyholders’ meeting?

The process of converting a domestic advance premium corporation into a domestic mutual insurance company is governed by N.Y. Ins. Law § 7306 (West, WESTLAW through L.2006, chapters 1, 4 to 35, 38 to 48, 50 to 98, 104 to 106,108, 112, 115 to 150, 152 to 157) and states:

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The successive steps shall be as follows:

(a) A majority of the board of directors of the corporation shall adopt a resolution approving the proposed conversion and appointing a committee of not less than three directors to prepare a draft of a proposed declaration, charter and by-laws.

(b) The proposed declaration, charter and by-laws shall be submitted with an appropriate resolution to the board for its approval.

(c) A majority of the board at any regular or special meeting thereof shall approve by resolution the proposed declaration, charter and by-laws, which shall conform to the requirements of this chapter relative to the contents of charters and by-laws of domestic mutual property/casualty insurance companies hereafter organized, with such additions as the superintendent shall approve to accommodate insurance contracts then in force. Such resolution shall also direct that notice that the proposed conversion will be submitted for approval at the next annual meeting of members or at a special meeting to be called for that purpose be mailed, with postage prepaid, to all members at their last known post office addresses respectively, at least thirty days prior to the date of the meeting, together with copies of the resolutions provided for in subsections (a) and (b) hereof and this subsection and of the proposed declaration, charter and by-laws.

(d) At least two-thirds of the votes of members voting at such meeting either in person or by proxy, if the corporation's by-laws provide for a vote by proxy, shall be cast in favor of the proposed conversion and of the adoption of the proposed declaration and charter and proposed by-laws. A resolution shall similarly be adopted instructing the president and secretary to execute or certify and file all necessary papers and instruments incident to the proposed conversion.

(e) The proposed declaration and charter executed by the president and secretary together with proof of mailing of notice of members' meeting and copies of all other necessary papers and instruments incident to the proposed conversion, together with a certificate of their adoption as provided for herein, subscribed and affirmed by such officers as true under the penalties of perjury, shall be submitted to the superintendent.

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Company approval of a merger or consolidation agreement is governed by N.Y. Ins. Law § 7104 (West, WESTLAW through L.2006, chapters 1, 4 to 35, 38 to 48, 50 to 98, 104 to 106, 108, 112, 115 to 150, 152 to 157) and states in pertinent part:

(a) When any domestic company shall propose to enter into an agreement of merger or consolidation, the board of directors, trustees or other governing body shall, except as provided by section seven thousand one hundred seven of this article, submit the question of such agreement to the shareholders or members as the case may be at a meeting thereof, by causing a copy of such proposed agreement or a summary thereof approved by the superintendent, together with notice, stating the time, place and purpose of such meeting, to be delivered personally, or deposited in the post office, postage prepaid at least thirty days, unless a shorter time not less than ten days, be approved by the superintendent, prior to the time fixed for such meeting, addressed to each shareholder or member, as the case may be, at his address of record. However, a domestic mutual company may give notice by publication in a newspaper of general circulation in the county in which the company has its principal office and in either of the two largest cities in each state in which the company shall be licensed to do business, provided, however, that a full, true and correct copy of such proposed agreement, or a summary thereof approved by the superintendent, shall be included in such notice.

(b) At any such meeting, the shareholders or members may vote in person or by proxy, each shareholder to be entitled to one vote for each share held by him and each member shall be entitled to such number of votes as may be provided for in the by-laws of the company; and votes representing two-thirds of all the shares in the case of purely stock companies, or votes representing two-thirds of all the shares, if any, and votes representing two-thirds of all the votes cast by members represented at the meeting in person or by proxy in the case of other companies, shall be necessary for the adoption of such proposed agreement.

A review of N.Y. Ins. Law §§ 7104 and 7306 indicates that there is no legal prohibition in the insurance law to the policyholders of a domestic advance premium corporation approving the conversion of the insurance company into a domestic mutual insurance company and then approving the merger of the resultant domestic mutual insurance company with a foreign mutual insurance company at the same policyholders’ meeting.

The New York State Insurance Department has previously allowed policyholders to approve the conversion from a domestic advance premium corporation to a mutual insurance company and the merger of the resultant domestic mutual insurance company with a foreign mutual insurance company at the same policyholders meeting. In that particular matter, the plan of conversion was contingent upon the simultaneous merger of the two companies involved.

6. Pursuant to an Assumption and Reinsurance Agreement may a domestic advance premium corporation or mutual insurance company assume and reinsure all liabilities arising from all policies written by a foreign mutual insurance company?

The inquirer states that pursuant to the Assumption and Reinsurance Agreement, a domestic advance premium or mutual insurance company would agree to assume and reinsure all liabilities arising from all policies written by a foreign mutual insurance company, while receiving in exchange all of the foreign mutual insurance companies rights, assets, and obligations under such policies. The agreement would be drafted so as to effectively move responsibility for these policies from the foreign mutual insurance company to the domestic advance premium corporation or mutual insurance company without diminishing or adversely impacting the rights of either the policyholders of the domestic cooperative or mutual insurance company or the foreign mutual insurance company.

The execution of an Assumption and Reinsurance Agreement by a domestic advance premium cooperative and a foreign mutual insurance company is permitted under N.Y. Ins. Law § 6606(a)(1) and (a)(3) which provides that an advance premium corporation may assume reinsurance for the kind of insurance it is licensed to do directly for risks located outside New York.

A domestic mutual insurance company is not prohibited by the Insurance Law from executing an Assumption and Reinsurance Agreement with a foreign mutual insurance company. However, it is important to note that all reinsurance agreements are subject to the overall requirements and limitations imposed by N.Y. Ins. Law § 1308 (West, WESTLAW through L.1999, c. 134 legislation) and any other applicable requirements.

For further information you may contact Special Counsel Athan Shinas at the Albany Office.