OGC Op. No. 10-01-06

The Office of General Counsel issued the following opinion on January 19, 2010, representing the position of the New York State Insurance Department.

Re: Reinsurance intermediaries acting outside of New York

Questions Presented:

1) If the non-New York officers or employees of a reinsurance intermediary licensed in multiple states including New York procure and negotiate, wholly outside of New York, reinsurance for unauthorized ceding insurers, then do the officers or employees require New York licenses?

2) If the answer to Question 1 is “no,” then would the answer change if the ceding insurer were authorized to do business in New York?

3) If the answer to either Questions 1 or 2 above is “no,” then would Regulation 98 nevertheless apply to the transaction?

4) Does § 32.1(a), (b)(1) and (2), (c), or (e) of Regulation 98 apply to reinsurance transactions effected in New York by a licensed reinsurance intermediary on behalf of an unauthorized ceding insurer?

Conclusions:

1) No. The non-New York officers or employees of a licensed reinsurance intermediary need not be licensed in New York if they procure and negotiate reinsurance contracts for unauthorized insurers wholly outside of New York.

2) No. The non-New York officers or employees of a licensed reinsurance intermediary need not be licensed in New York if they represent authorized ceding insurers wholly outside of New York. The fact that the ceding insurer is authorized to do business in this State has no bearing on whether the producer must be licensed here.

3) No. Regulation 98 only applies to any person, firm, association or corporation acting as a reinsurance intermediary in this State.

4) No. By its very language, § 32.1(a), (b), (c), and (e) of Regulation 98 does not apply to a licensed reinsurance intermediary’s transactions involving an unauthorized ceding insurer. However, the licensed reinsurance intermediary still must comply with the other sections of Regulation 98 that apply to all licensed reinsurance intermediaries.

Facts:

The inquirer states that it represents Alpha Reinsurance Intermediary (“Alpha”), a reinsurance intermediary that is so licensed in several states, including New York. Alpha regularly procures and negotiates reinsurance treaties on behalf of ceding insurers, but it has no authority to bind coverage or act on behalf of reinsurers. The officers and employees of Alpha’s offices outside of New York (the “non-New York employees”) often procure and negotiate reinsurance for ceding insurers wholly outside of New York.

The inquirer asks the Department’s Office of General Counsel (“OGC”) to clarify: 1) the Insurance Law’s licensing requirements, and the applicability of Regulation 98, as it relates to Alpha’s non-New York employees, and 2) the applicability of Regulation 98 to Alpha when it represents unauthorized insurers within this State.

Analysis:

Background

N.Y. Ins. Law § 2101(f) (McKinney 2006 & Supp. 2009) defines "reinsurance intermediary" to mean:

[A]ny person, firm, association or corporation who acts as broker in soliciting, negotiating or selling any reinsurance contract or binder, or acts as an agent in accepting any reinsurance contract or binder on behalf of an insurer, except that such term does not include:

(1) licensed attorneys at law of this state acting in their professional capacity as such;

(2) regular salaried officers, employees or attorneys in fact of an authorized insurer or of an underwriting office of such insurer while acting in their capacity as such in discharging the duties of their employment or appointment;

(3) licensed insurance agents acting within the scope of their agency authority in the placement or acceptance of reinsurance on risks produced or managed by such agents; or

(4) licensed insurance brokers, in the placement of reinsurance on risks produced by such brokers.

Insurance Law § 2102(c) sets forth the requirement that reinsurance intermediaries be so licensed. That provision states:

Unless licensed as a reinsurance intermediary, no person, firm, association or corporation shall in this state act as a reinsurance intermediary or use any other designation or title which is likely to mislead the public or hold himself or itself out in any manner as a reinsurance intermediary.

Furthermore, Insurance Law § 2106(e) provides that the Superintendent may promulgate regulations establishing methods and procedures for facilitating and verifying compliance with the requirements of Insurance Law §§ 2102, and 2106, as well as Insurance Law § 2120, which governs the fiduciary capacity of reinsurance intermediaries. Accordingly, the Superintendent promulgated Regulation 98.

Section 32.1 of Regulation 98 governs verification of coverage and disclosure, whereas §§ 32.2 and 32.3 of Regulation 98 govern the books and records of reinsurance intermediaries, and their fiduciary responsibilities, respectively.

I. Alpha’s non-New York employees representing unauthorized ceding insurers wholly outside of New York.

The inquirer’s first question asks whether Alpha’s non-New York employees must be licensed in this state if they represent unauthorized insurers, and act wholly outside of this state. Insurance Law § 2102 only requires a license if the reinsurance intermediary engages in activities in this State. ¹ In the scenario presented, Alpha’s non-New York employees would act wholly outside of this state in accepting reinsurance contracts on behalf of unauthorized ceding insurers. Therefore, Alpha’s non-New York Employees need not be licensed are reinsurance intermediaries in New York. However, Insurance Law § 2110, which governs revocation or suspension of an insurance producer, ² insurance consultant, or adjuster, would nonetheless apply to non-New York employees’ conduct outside of New York, Insurance Law § 2110(a) states in relevant part that:

The superintendent may refuse to renew, revoke, or may suspend for a period the superintendent determines the license of any insurance producer, insurance consultant or adjuster, if, after notice and hearing, the superintendent determines that the licensee or any sub-licensee has:

(1) violated any insurance laws, or violated any regulation, subpoena or order of the superintendent of insurance or of another state's insurance commissioner, or has violated any law in the course of his dealings in such capacity;

* * * *

(4) (A) used fraudulent, coercive or dishonest practices;

(B) demonstrated incompetence;

(C) demonstrated untrustworthiness; or

(D) demonstrated financial irresponsibility in the conduct of business in this state or elsewhere[.] [Emphasis supplied].

Thus, the Superintendent may revoke or suspend an insurance producer’s license if the insurance producer has violated another state’s laws, or regulations, subpoena or order of another state’s insurance commissioner. The revocation or suspension also may come as a result of the producer’s financial irresponsibility in the conduct of business in another state. Therefore, even if Alpha’s non-New York employees act outside of New York as reinsurance intermediaries representing unauthorized insurers, Insurance Law § 2110 applies to the non-New York employees’ conduct in other states.

II. Alpha’s non-New York employees representing authorized ceding insurers wholly outside of New York.

The inquirer’s second question asks whether Alpha’s non-New York employees would require licensing if the non-New York employees were acting wholly outside of this state on behalf of authorized ceding insurers. For the reasons set forth in the answer to the first inquiry, Alpha’s non-New York employees need not be licensed in New York if they represent authorized ceding insurers wholly outside of New York. The fact that the ceding insurer is authorized to do business in this State has no bearing on whether the producer must be licensed here. Nonetheless, Insurance Law § 2110 would apply to the non-New York employees’ conduct in other states.

III. Applicability of Regulation 98 to Alpha’s non-New York employees acting wholly outside of New York.

The inquirer’s third question asks whether Regulation 98 applies to Alpha even though Alpha’s non-New York employees act wholly outside of New York in procuring reinsurance for a ceding insurer.

Section 32.4(c) of Regulation 98 notes:

The provisions of this Part apply to any person, firm, association or corporation acting as a reinsurance intermediary in this State.

Accordingly, Regulation 98 applies only if Alpha’s non-New York employees act as a reinsurance intermediary in this State. But here, the inquirer indicates that Alpha’s non-New York employees would be acting wholly outside of New York in procuring reinsurance for a licensed ceding insurer. Therefore, Regulation 98 would not apply to Alpha’s non-New York employees.

IV. Applicability of Regulation 98 to Alpha when it represents an unauthorized ceding insurer in New York.

The inquirer’s last question asks whether § 32.1(a), (b), (c), or (e) of Regulation 98 applies to Alpha’s reinsurance transactions effected in New York on behalf of an unauthorized ceding insurer. All of those subdivisions of § 32.1 of Regulation 98 apply only with respect to authorized ceding insurers: § 32.1(a) of Regulation 98 requires a reinsurance intermediary to have written evidence of authority in procuring or accepting reinsurance for an authorized ceding insurer; § 32.1(b) of Regulation 98 requires a reinsurance intermediary that procures insurance on behalf of an authorized ceding insurer to obtain written evidence of a reinsurer’s agreement to assume the risk; § 32(c) of Regulation 98 requires a reinsurance intermediary that places reinsurance on behalf of an authorized ceding insurer with a reinsurer that is not an accredited reinsurer (or has not placed adequate funds with the ceding insurer) to inquire into the financial condition of the reinsurer; and § 32(e) of Regulation 98 prohibits a reinsurance intermediary from procuring a reinsurance contract with an unauthorized reinsurer unless the unauthorized reinsurer appoints an attorney in this state upon whom all lawful process may be served in any action by or on behalf of an authorized ceding insurer arising out of the contract for reinsurance.

By its very language, § 32.1(a), (b), (c), and (e) of Regulation 98 does not apply to Alpha’s transactions involving an unauthorized ceding insurer. However, Alpha still must comply with the other sections of Regulation 98 that apply to all licensed reinsurance intermediaries, such as § 32.2 of Regulation 98 which addresses the books and records of a reinsurance intermediary, and applies to all reinsurance intermediaries licensed in this State regardless of whether they represented authorized or unauthorized ceding insurers here. The same holds true for § 32.3 of Regulation 98, which addresses the fiduciary responsibilities of reinsurance intermediaries.

For further information, you may contact Senior Attorney Sapna Maloor at the New York City office.

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¹ The reinsurance intermediary also would require a New York license if it engaged in activities in this state from without this state. See OGC Opinion dated April 25, 2005 (explaining that “[a]ny activity within the functions covered by licensing…requires a New York insurance license in order not to violate [Insurance Law §] 2102”)

² The definition of an insurance producer includes a reinsurance intermediary. See Insurance Law § 2101(k).