OGC Op. No. 08-11-03
The Office of General Counsel issued the following opinion on November 18, 2008 representing the position of the New York State Insurance Department.
RE: Life Insurance Company Guaranty Corporation of New York
Would the Guaranty Corporation provide protection if a New York domiciled life insurance company, which issued the inquirer an annuity while he was a resident of another state, were to become insolvent while the inquirer is a resident of New York?
Yes. Under the Guaranty Corporation’s enabling statute, New York Insurance Law Article 77, protection is afforded for those individuals who were residents of New York either at the time of issuance of the insurance policy or annuity contract, or when the insurer becomes insolvent. However, the Guaranty Corporation would protect only those benefits that are contractually guaranteed.
The inquirer reports that, at a time when he lived outside New York, he purchased an annuity from Insurer that he describes as follows:
It is not exactly a fixed annuity, though; it has a dollar value ‘guaranteed benefit,’ but the actual amount paid is larger and is based on an ‘assumed interest rate’ calculation and the performance of the [Insurer] Traditional account.
He further reports that he is contemplating relocation to New York, and inquired of Insurer about protection for the annuity should Insurer become insolvent. An insurance agent responded on behalf of Insurer as follows:
The lifetime payouts are not insured by any state guaranty associations. [Insurer] is a subsidiary of [Parent]. [Parent] is the parent company. You are correct that the [Insurer] Traditional Annuity is backed solely by the claim paying ability of [Insurer]. That's why the ratings are so important. What is interesting isn't the fact we have the financial strength and claim paying ability to get the AAA ratings, what is impressive is we have the ability to reach that threshold level plus three times over what it takes to get the AAA ratings. So when you say we are backed "only by [Insurer’s] own financial strength and by nothing else", you are downplaying our size and strength enormously.
The inquirer asks whether his possible move to New York would affect Guaranty Corporation protection, and whether the agent’s statement is consistent with what he understands to be the protection afforded by the Guaranty Corporation.
All life insurance companies licensed in New York, including Insurer, are required to be members of the Guaranty Corporation. See N.Y. Ins. Law § 7705(h) (McKinney 2000). The purpose of the Guaranty Corporation is set forth in Insurance Law § 7703(a), which reads as follows:
This article shall apply to direct life insurance policies, health insurance policies, annuity contracts, funding agreements and contracts supplemental to life and health insurance policies, annuity contracts or funding agreements issued to a resident by a life insurance company licensed to transact life or health insurance or annuities in this state at the time the policy, contract or agreement was issued or at the time it became an impaired or insolvent insurer, as the case may be. (Emphasis added.)
The protection afforded by the Guaranty Corporation is set forth in Insurance Law § 7708(a):
If a domestic insurer is an impaired or insolvent insurer, the corporation shall with the approval of the superintendent: (1) guarantee, assume or reinsure, or cause to be guaranteed, assumed or reinsured, the covered policies of residents, or arrange for replacement by policies found by the superintendent to be substantially similar to such covered policies; (2) assure payment of the contractual obligations of the impaired or insolvent insurer to residents; and (3) provide such moneys, pledges, notes, guarantees or other means as are reasonably necessary to discharge such duties.
The aggregate liability of the corporation under this subsection shall not exceed five hundred thousand dollars for all benefits, including cash values, with respect to any one life . . . .
Accordingly, the protection provided by the Guaranty Corporation, which would be available if the insurer were to become insolvent while the inquirer is a resident of New York, are limited to $500,000 with respect to contractually guaranteed benefits. Any “excess benefits” would not be protected.
As for the agent’s statement concerning state guaranty associations, the inquirer may wish to seek an explanation directly from Insurer. The inquirer may also contact the National Organization of Life & Health Insurance Guaranty Associations at 13873 Park Center Road, Herndon, VA 20171.
For further information, you may contact Principal Attorney Alan Rachlin at the New York City office.