STATE OF NEW YORK
25 BEAVER STREET
NEW YORK, NEW YORK 10004
|David A. Paterson
OGC Op. No. 09-03-08
The Office of General Counsel issued the following opinion on March 19, 2009 representing the position of the New York State Insurance Department.
Re: Investments under Insurance Law §§ 1402(b)(1) and 1404(a)(1)(A)
1. Do FDIC Notes qualify as Insurance Law § 1402(b)(1) obligations?
2. Do FDIC Notes qualify as Insurance Law§ 1404(a)(1)(A) obligations?
1. No. FDIC Notes do not qualify as an obligation of an agency of the United States under Insurance Law
2. Yes. FDIC Notes do qualify as a permitted reserve investment for non-life insurers under Insurance Law
An insurer is considering investing in FDIC Notes, which are senior unsecured debt issued by banks, thrifts, and certain holding companies. Under 12 C.F.R.
12 C.F.R. § 370 provides details about the FDIC Notes in question. It provides that upon the failure of a participating entity to make timely payment of principal or interest as required under an FDIC-guaranteed debt instrument, the FDIC will pay the unpaid principal and/or interest. The duration of the guarantee is limited and, for debt issued on or before June 30, 2009, the guarantee expires at the earliest of the date of the participating entity’s opt-out, the maturity of the debt, or June 30, 2012. Indeed, 12 C.F.R.
(a) Upon the uncured failure of a participating entity to make a timely payment of principal or interest as required under an FDIC-guaranteed debt instrument, the FDIC will pay the unpaid principal and/or interest, in accordance with
§ 370.12and subject to the other provisions of this part.
(d) Duration of Guarantee. For guaranteed debt issued on or before June 30, 2009, the guarantee expires on the earliest of the date of the entity's opt-out, if any, the maturity of the debt, or June 30, 2012.
The insurer asks whether the FDIC Notes satisfy Insurance Law
(b) Not less than sixty percent of the amount of the required minimum capital or surplus to policyholder investments shall consist of the types specified in paragraphs one and two hereof:
(1) Obligations of the United States or of any agency thereof provided such agency obligations are guaranteed as to principal and interest by the United States.
To qualify as a permissible investment under Insurance Law
However, with respect to non-life insurers such as the insurer herein, Insurance Law
(a) The reserve investments of a domestic insurer authorized to make investments under the authority of this section shall consist of the following:
(1) Government obligations. Obligations which are not in default as to principal or interest, which are valid and legally authorized, and which are issued, assumed, guaranteed or insured by:
(A) the United States or by any agency or instrumentality thereof, …
To qualify as a “government obligation” under Insurance Laws
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.