New York State
GOVERNOR OFFERS INSURANCE BILL THAT PROTECTS CONSUMERS
Legislation Would Strengthen and Expand Insurance Industry
New York, June 19, 1997
Governor George E. Pataki today introduced legislation that establishes the highest standards in the nation for protecting insurance policyholders, while strengthening and expanding the life insurance industry in New York State.
The legislation would give New York life insurance companies access to capital markets by allowing them to form mutual holding companies, while at the same time setting high standards for protecting the rights of policyholders.
"My proposal creates the necessary flexibility mutual life insurers need in today's competitive and changing marketplace," Governor Pataki said. "Just as importantly, this proposal recognizes and protects the needs of policyholders to a greater extent than any current law or proposal in any other state."
"By making it easier for New York's life insurance industry to grow, we are creating jobs and opportunities across the state," the Governor said. "At the same time, the rights of policyholders of these insurers are enhanced as insurers strengthen their capital base. These reorganized companies should be better able to serve consumer needs with an ever expanding line of services."
The legislation allows New York's mutual life insurers to reorganize into a stock life insurer by forming a new mutual holding company. This new holding company would own, directly or through one or more stock holding companies, the mutual life insurer. The mutual holding company would be able to sell stock and have access to the capital raising marketplace as well as pursue affiliations with other insurance and non-insurance-related entities.
In order to protect the interests of policyholders, this bill breaks new ground in insurance regulation in requiring changes in corporate governance designed to ensure the independence of directors and to protect policyholder interests.
At least two-thirds of the board of directors of the mutual holding company must be independent of the company, known as outside directors. The bill also limits management and board member stock options and stock awards. In addition, policyholders would be able to purchase stock at any initial public offering or private placement through a guaranteed subscription right.
"As a major part of the financial services industry, life insurers today face the same competitive pressures and capital needs that are driving mergers and capital raising throughout the financial services arena," said Superintendent of Insurance Neil D. Levin.
"Within the life insurance industry itself, insurers must enhance and strengthen capital, liquidity and profitability in order to compete in the years ahead," the Superintendent said. "This proposal accomplishes these goals while protecting the rights of policyholders and avoiding problems experienced in other states."
The legislation specifically protects the interests of policyholders by requiring:
-- Eligible policyholders to receive subscription rights on initial public offerings;
-- The formation of a mutual holding company be approved by a three-fourths vote of the board of directors, two-thirds of the eligible policyholders and the Superintendent of Insurance. A public hearing must be held as part of this process prior to the vote of the policyholders;
-- Policyholders prior to voting, receive adequate information concerning their rights and the effect of the proposal;
-- At least two-thirds of the directors of the new mutual holding company must be outside directors. All of the members of the compensation committee must be outside directors;
-- Limited management stock options and stock awards to officers and directors until at least six months after an initial public offering or the issuance of voting stock. Officers and directors would also be limited to no more than five percent of the voting stock for two years, and eighteen percent overall;
-- Approval by the Superintendent of Insurance of the valuation of stock offerings prior to initial public offerings, as well as approval of any mutual holding company merger, consolidation or any other reorganization; and
-- Rules that enable companies to access both public and private equity markets.
The bill also provides a provision to allow the stock life insurers to pay a dividend to shareholders without the prior approval of the Superintendent while maintaining sufficient solvency protections. This measure will also provide greater flexibility to stock life insurers and enable them to better compete in the rapidly changing financial markets.