New York State
Governor Submits Mutual Holding
Designed to Save Jobs, Strengthen Consumer Protections
July 15, 1999
Governor George E. Pataki today re-introduced landmark legislation to allow New York's life insurers to form mutual holding companies, which would protect thousands of jobs in New York's important insurance industry while ensuring the state's insurers can compete in a rapidly-changing marketplace.
Without this law, pending federal legislation that is expected to win approval could open the door to widespread job loss in New York's insurance industry, which employs more than 100,000 people.
"New Yorkers know all to well the consequences of the failed policies of the past that drove hundreds of thousands of jobs out of this state during the prior administration," Governor Pataki said. "We have created nearly a half-million jobs since 1995 by cutting taxes, reforming workers' comp and slashing job-choking red tape to help New York businesses compete with their rivals across the country and the world.
"We must continue to fight to protect every job here in New York as we work every day to create and attract new jobs," the Governor said. "This bill would protect tens of thousands of good jobs in New York's important insurance industry by ensuring New York-based insurers have the ability to compete in the rapidly- changing financial services industry."
By allowing them to form mutual holding companies, the Governor's legislation would give New York life insurance companies much-needed access to capital markets, while at the same time set high standards for protecting the rights of policyholders.
The bill's swift passage is crucial because the financial services modernization legislation now pending in Congress. That legislation would permit a mutual insurer in a state like New York -- that has failed to enact a mutual holding company statute -- to move to a state with such a law in order to reorganize itself into a mutual holding company.
"The failure of the Assembly to enact this legislation in 1998 now puts New York jobs at risk," the Governor said. "If my proposal were already law, New York's life insurance industry could better grow and create jobs across the State. Instead, the Assembly Democrats appear ready to turn back the clock and chase mutual insurance companies out of New York to states where they could exercise an option they should have right here at home."
The Governor's bill also contains important safeguards for New York policyholders that are superior to provisions found in many other mutual holding company acts. At the same time, the rights of policyholders of these insurers are enhanced as insurers strengthen their capital base.
"These reorganized companies would be better able to serve consumers with an ever expanding line of services," the Governor said. "But more importantly, they can do so while remaining under the direct supervision of New York State regulators and the many important consumer protections contained in New York law."
The Governor's legislation would allow 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 capital markets 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 by 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.
New York State Insurance Department Superintendent Neil D. Levin said,"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.
"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."
Highlights of the legislation include:
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 of Insurance while maintaining sufficient solvency protections. This measure will provide greater flexibility to stock life insurers and enable them to better compete in the rapidly changing financial markets.