The Office of General Counsel issued the following informal opinion on October 23, 2000, representing the position of the New York State Insurance Department.
RE: Reinsurance Intermediary Fiduciary Account
Question Presented:
May a reinsurance intermediary deposit funds that were received or collected in its capacity as a reinsurance intermediary in a savings bank?
Conclusion:
Yes. A reinsurance intermediary may deposit funds that were received or collected in its capacity as a reinsurance intermediary in a savings bank, provided that the savings bank is authorized to do business in New York, is located in New York, is protected under federal insurance limits, and would accept and maintain this type of account.
Facts:
A reinsurance intermediary would like to deposit funds received or collected in its capacity as a reinsurance intermediary in a savings bank that does not come within the N.Y. Banking Law § 2 (McKinney 1990) definition of the term "bank".
Analysis:
The term "bank" when used in the N.Y. Banking Law (McKinney 1990) is defined in § 2 of that statute as:
unless a different meaning appears from the context, means any corporation, other than a trust company, organized under or subject to the provisions of article three of this chapter.
N.Y. Ins. Law § 2120 (b) (McKinney 1985) provides that:
Every reinsurance intermediary acting as such in this state shall be responsible, in a fiduciary capacity, for all funds received or collected in such capacity, and shall not, without the express consent of his or its principal or principals, mingle any such funds with his or its own or with funds held by him or it in any other capacity.
N.Y. Comp. Codes R. & Regs. tit. 11 § 32.3 (a) (1) (filed 1982) (Regulation 98) provides:
A reinsurance intermediary shall deposit funds received in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified (any such account is hereinafter referred to as a "premium and loss account"). A licensed nonresident reinsurance intermediary may use a bank not authorized to do business in this State, provided such bank is a member of the Federal Reserve System.
The Department has previously opined on where agents and brokers may keep their premium accounts in accordance with the restrictions imposed by N.Y. Comp. Codes R. & Regs. tit. 11 § 20.3 (b) (1) (amd. 1991) (Regulation 29) which provides:
An agent or broker who does not make immediate remittance to insurers and assureds of such funds shall deposit them in one or more appropriately identified accounts in a bank or banks duly authorized to do business in this State, from which no withdrawals shall be made except as hereinafter specified (any such account is hereinafter referred to as "a premium account").
In that context, the Department concluded that the reference to "identified accounts in a bank or banks duly authorized to do business in this State" should be construed to include any financial institution that functions under the jurisdiction of governmental departments and agencies and is authorized to do business in this State. These institutions include state and national banks, savings banks and state and federal savings and loan associations. It was noted that it would be incumbent upon the licensee to ascertain from the selected depository or other appropriate source whether or not it would accept and maintain the type of account in question. The Department also opined that the financial institution must be located in this State and that all premium monies must be protected under federal insurance limits. The Department subsequently applied these requirements to credit unions and concluded that there would be no objection to an insurance agency maintaining a premium account in a credit union provided that: (1) the credit union is located in New York State (2) the account is protected under federal insurance limits and (3) the regulator of the credit union would permit the account.
The pertinent language in N.Y. Comp. Codes R. & Regs. tit. 11 § 20.3 (b) (1) (amd. 1991) (Regulation 29) is identical to the language in N.Y. Comp. Codes R. & Regs. tit. 11 § 32.3 (a) (1) (filed 1982) (Regulation 98). Consequently, the interpretation of the language as it pertains to agents and brokers should also pertain to licensed reinsurance intermediaries. The rationale for imposing restrictions on where agents and brokers can keep their premium accounts pertains equally to reinsurance intermediaries. Thus, a reinsurance intermediary may keep its premium and loss account in a savings bank provided that: (1) the savings bank is authorized to do business in New York, (2) the savings bank is located in New York, (3) the account is protected under federal insurance limits, and (4) the savings bank would permit the account.
For further information you may contact Associate Attorney Joan Siegel at the New York City Office.