OGC Opinion No. 10-09-07

The Office of General Counsel issued the following opinion September 17, 2010, representing the position of the New York State Insurance Department.

Re: Investments in Federally Insured Certificates of Deposit by a Co-operative Property/Casualty Insurance Company


Does Insurance Law § 1404(a)(1), which authorizes a domestic insurer to invest in obligations insured by United States government agencies or instrumentalities, authorize co-operative property/casualty insurance companies to invest in CDs that are obtained through a third-party service and are fully insured by the Federal Deposit Insurance Corporation (“FDIC”)?


Yes. If the co-operative property/casualty insurance company retains title on each CD purchased through the service and the FDIC insures the full amount of the investments made through the service, the investments would comport with the Insurance Law.


A co-operative property/casualty insurance company, governed by Insurance Law Article 66, is interested in purchasing CDs through the Certificate of Deposit Account Registry Service (“CDARS”). CDARS is a service through which any person or company can invest money with a member financial institution of the CDARS network and that CDARS then invests the money into a number of CDs issued by other CDARS network members. CDARS ensures that the amount of each individual CD is below the standard FDIC insurance maximum so that both principal and interest are eligible for full FDIC insurance. Finally, it is represented that the insurance company would have title to the CDs opened under the CDARS service and that the insurance company’s name would appear on the CD accounts.


Insurance Law § 6623 prescribes the rules for investments by co-operative property/casualty insurance companies, requiring that such companies’ investments be limited to those allowed by Insurance Law § 1403(c). Additionally, Insurance Law § 6623 requires co-operative property/casualty insurance companies to abide by Insurance Law § 1409(a), which prohibits an insurance company from investing more than ten percent of its assets in any single institution.

Insurance Law § 1403(c) provides that if an insurer complies with the minimum capital investment requirements of Insurance Law § 1402, it may invest in the types of investments set forth in Insurance Law §§ 1402, 1403, and 1404(a)(1)-(7) and (9). Insurance Law § 1404(a) states, in pertinent part, as follows:

* * * *

[T]he reserve investments of a domestic insurer authorized to make investments under the authority of this section shall consist of the following:

(1) Government obligations. Obligations which are not in default as to principal or interest, which are valid and legally authorized, and which are issued, assumed, guaranteed or insured by:

(A) the United States or by any agency or instrumentality thereof . . . .

* * * *

Thus, Insurance Law § 1404(a)(1) allows insurance companies to invest in “obligations” guaranteed by the United States government and its agencies. The Insurance Department has previously concluded that a CD constitutes an “obligation” under the Insurance Law. See Office of General Counsel Opinion No. 09-01-11 (January 16, 2009) (noting that a CD is a creditor/debtor relationship that qualifies as an “obligation” under the Insurance Law). Therefore, an insurance company may invest in a CD guaranteed by an agency or instrumentality of the United States.

In the circumstances presented, the co-operative property/casualty insurance company would invest in CDs through the CDARS program once it meets the statutory minimum requirements of Insurance Law § 1402. Under the CDARS investment program, the FDIC would guarantee the entire amount of each CD purchased by the insurer. The insurer would own each CD, and each CD would be titled in the insurer’s name.

As described, CDs purchased through the CDARS program qualify as “government obligations” because the FDIC, a federal agency, guarantees the full face value of each CD. Therefore CDs purchased under the CDARS program are eligible for investment by insurers under Insurance Law § 1404(a)(1).

For further information contact Michael Campanelli at the New York City Office.