OGC Opinion No. 07-06-04

The Office of General Counsel issued the following opinion on June 7, 2007 representing the position of the New York State Insurance Department.

Proper Allocation of Premium for Purposes of Compliance with Regulation

May an insurer include only premium attributable to New York property on policies with multistate risks when calculating whether the insurer complies with the total net premium limitation set forth in Regulation 86?

Conclusion:

Yes. An insurer should include only the premium attributable to New York property on policies with multistate risks when calculating whether the insurer complies with the total net premium limitation set forth in § 16.2 of Regulation 86.

Facts:

A company writes commercial property insurance pursuant to Article 63 of the New York Insurance Law (Special Risks), which allows certain exceptional risks (so denoted either because of their large size or exotic nature) to be written free of the usual filing requirements for rates and forms. (This exception is commonly known as the “Free Trade Zone”.) It often issues policies in New York that include schedules of property located in several different states. On other occasions, policies covering New York property are issued in states other than New York. The company’s practice is to allocate premium by state based upon the property schedules to the policy. The company seeks confirmation that this allocation is acceptable for purposes of compliance with the premium limitations set forth in Regulation 86, which provide that only net premiums written with respect to New York risks are counted for the purpose of determining whether an insurer is within the prescribed regulatory limitations.

Analysis:

The “Free Trade Zone” filing exemption is allowed under Article 63 of the New York Insurance Law. That statute requires an authorized insurer to obtain a special license before it can take advantage of the exemption. Indeed, N.Y. Ins. Law § 6302 (McKinney 2000) reads in relevant part as follows:

* * * *

* * * *

The amount of business that an authorized insurer may write under the exemption is subject to certain limitations set forth in the statute’s implementing regulation, Regulation 86, which provides in pertinent part as follows:

11 NYCRR § 16.2(a) (1995).

It is asserted that the calculation of the above-prescribed limits should take into account only that portion of net premiums written attributable to New York property. The Department concurs with this view.

The exemption provided by Article 63 relates to the provision of coverage for New York special risks. Under the exemption, an insurer is relieved of the responsibility to make certain rate and policy form filings for policies covering New York property that Article 23 of the Insurance Law would otherwise require. Because Article 63 applies only to New York business, it follows that the quantitative limits placed thereon also should take into account only New York risks.

This conclusion is consistent with the governing regulatory language, which expressly imposes the applicable limits on “net premiums written pursuant to section 6302.” 11 NYCRR § 16.2(a). Coverage provided for non-New York property is not subject to the filing requirements of the New York Insurance Law, and not eligible for the exemptions provided by Article 63. Therefore, premiums properly allocable to non-New York risks should not be taken into account when calculating the quantitative limits imposed by § 16.2(a) of Regulation 86. Since Article 23 filing requirements apply to authorized insurers with respect to New York located property regardless of where the policy is written (see N.Y. Ins. Law § 2302), New York exposures on policies written out of state must be included in the calculation.

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