OGC Op. No. 03-01-04

The Office of General Counsel issued the following opinion on January 3, 2003, representing the position of the New York State Insurance Department.

N.Y. Ins. Law § 1411(f)


May a subsidiary of a New York licensed insurance company that is a corporation ordinarily engaged in the business of extending consumer credit make first mortgage loans to the elected officers and directors of the parent insurance company?


The proposed loans would not be prohibited by the New York Insurance Law provided that the Lender applies the same underwriting standards, rate, and fee structure as those for loans made to members of the general public.


The inquirer’s inquiry involves an insurance company ("Insurer") domiciled outside of New York that is licensed to do business in New York and a corporation ("Lender") that is licensed (or exempt from licensure) as a mortgage banker in 49 states (including New York). Lender is a subsidiary of Insurer as defined in N.Y. Ins. Law § 107(40) (McKinney 2000). Lender’s business chiefly consists of the making of residential first mortgage loans. Apart from a small ($250) discount on closing costs (currently offered to all employees of Lender and certain others), the underwriting standards and loan terms under which Lender would make loans to officers and directors of Insurer would be the same as those offered the general public.


Under the New York Insurance Law, an insurer is generally prohibited from making loans, directly or indirectly, to its officers or directors. N. Y. Ins. Law § 1411(f) provides as follows:

No insurer doing business in this state shall, except as provided in subsection (h) hereof,1 make any loan to any of its directors or officers, directly or indirectly, or through its subsidiaries; nor shall any such director or officer accept any such loan directly or indirectly.

N. Y. Ins. Law § 1411(f)(1) (McKinney 2000).

This provision is of long standing in the Insurance Law, a similar provision having been first enacted in 1934. The provision was intended to prevent officers and directors from engaging in potentially unsound financial dealings with regulated entities for their own benefit. See Memorandum – Senate Bill Prt. # 1071, Int. # 971; Assembly Bill Prt. # 1301, Int. # 12223 (1934), cited in Office of General Counsel Opinion No. 85-34 (April 12, 1985). The provision first appeared in its present wording in § 41.1(5) of the proposed 1937 Recodification, Insurance Law Revision of the State of New York – Tentative Draft, p. 71 (1937).

The Department has addressed the scope of N. Y. Ins. Law § 1411(f)(1) on several occasions. See, e.g., Circular Letter 75-16 (November 13, 1975); Office of General Counsel Opinion No. 92-81 (June, 1992) and Office of General Counsel Opinion 85-34, supra. In these cases, the focus of the analysis was whether a given loan by an insurer was improperly made indirectly to a family member of an officer or director. In the instant case, the focus is not on the making of a loan by an insurer to a family member of an officer or director; rather, the loan in question is being made directly to the officer or director, but is being made by a subsidiary of the insurer. The issue of the making of loans by an insurer’s subsidiary to management personnel of the insurer parent (specifically, the ability to participate in the credit card program of a bank subsidiary) was considered in Office of General Counsel Opinion No. 99-113 (August 23, 1999). That opinion, however, did not analyze the implication of N. Y. Ins. Law § 1411(f)(1). Rather, it noted that the personnel in question did not possess sufficient control of the insurer to be considered to constitute officers or directors within the ambit of the statute and thus concluded that their participation did not implicate the statute.

In this situation, Lender is in the business of making mortgage loans and the proposed loans to the officers or directors by Insurer’s subsidiary will be made in the ordinary course of its business on the same terms offered to the general public. In Section 402(a) of the Sarbanes-Oxley Act, Congress has excluded from the otherwise applicable ban on company loans to executive officers and directors a loan that is:

[M]ade or provided in the ordinary course of the consumer credit business … of a type that is generally made available by such [company] to the public and is made by such [company] on market terms, or terms that are no more favorable than those offered by the [company] to the general public for such extensions of credit.

15 U.S.C. § 78m(k)(2) (2002).

Accordingly, the proposed loans will not constitute improper investments by an insurer for the benefit of its officers and directors in violation of § 1411(f). In view of the legislative aims of § 1411(f), it is imperative that such loans to officers and directors of the Insurer be made subject to precisely the same underwriting standards, rate, and fee structure as loans to members of the general public. Accordingly, no closing cost discount should be granted to the officer or director borrowers.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.


1 N.Y. Ins. Law § 1411(h) refers to the making of policy loans and the making of certain other specific loans to non-officer directors.