STATE OF NEW YORK
________________________________________________________________________
7306--B
Cal. No. 998
IN SENATE
May 2, 2012
___________
Introduced by Sen. SEWARD -- read twice and ordered printed, and when
printed to be committed to the Committee on Insurance -- committee
discharged, bill amended, ordered reprinted as amended and recommitted
to said committee -- reported favorably from said committee, ordered
to first and second report, ordered to a third reading, amended and
ordered reprinted, retaining its place in the order of third reading
AN ACT to amend the insurance law, in relation to derivative trans-
actions and derivative instruments
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. Subsection (f) of section 1410 of the insurance law, as
2 added by chapter 650 of the laws of 1998, is amended to read as follows:
3 (f)(1) The counterparty exposure under [a] an over the counter deriva-
4 tive instrument entered into by an insurer authorized to engage in tran-
5 sactions pursuant to this section shall be deemed to be an obligation of
6 the institution to which the insurer is exposed to credit risk and shall
7 be included in determining compliance with any single or aggregate quan-
8 titative limitation on investments made by an insurer under this chap-
9 ter.
10 (2) Notwithstanding any single or aggregate quantitative limitation on
11 investments made by an insurer under this chapter, an insurer may only
12 transact an over the counter derivative instrument with:
13 (A) a qualified counterparty; or
14 (B) a counterparty other than a "qualified counterparty" if, after
15 giving effect to that transaction, the aggregate counterparty exposure
16 of the insurer under one or more over the counter derivative [trans-
17 actions] instruments to:
18 [(A) any single counterparty, other than a "qualified counterparty",
19 shall be limited to one] (i) that non-qualified counterparty does not
20 exceed one percent of [an] the insurer's admitted assets; and
21 [(B)] (ii) all counterparties, other than qualified counterparties,
22 [are limited to] does not exceed three percent of [an] the insurer's
23 admitted assets.
24 (3) For purposes of this section:
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD15578-04-2
S. 7306--B 2
1 (A) a "qualified counterparty" is a ["qualified broker or dealer" or a
2 "qualified bank" or other counterparty rated AA-/Aa3 or higher by a
3 nationally recognized statistical rating organization if it is also
4 approved by the superintendent;
5 (B) a "qualified broker or dealer" means a broker or dealer that is
6 organized under the laws of a state and is registered under the Securi-
7 ties Exchange Act of 1934, 15 U.S.C. §§ 78a-78kk, and has net capital in
8 excess of two hundred fifty million dollars;
9 (C) a "qualified bank" means a bank or trust company that:
10 (i) is organized and existing, or in the case of a branch or agency of
11 a foreign banking organization is licensed, under the laws of the United
12 States or any state thereof;
13 (ii) is regulated, supervised and examined by United States federal or
14 state authorities having regulatory authority over banks and trust
15 companies;
16 (iii) has assets in excess of five billion dollars;
17 (iv) has senior obligations outstanding, or has a parent corporation
18 that has senior obligations outstanding, rated AA or better (or the
19 equivalent thereto) by two independent nationally recognized statistical
20 rating organizations; and
21 (v) has a ratio of primary capital to total assets of at least five
22 and one-half percent and a ratio of total capital to total assets of at
23 least six percent; and
24 (D)] counterparty which has an investment grade rating from at least
25 one nationally recognized statistical rating organization or a desig-
26 nation of one from the Securities Valuation Office of the National Asso-
27 ciation of Insurance Commissioners, or any successor office established
28 by the National Association of Insurance Commissioners, and with which
29 the insurer has entered into a master agreement, together with a credit
30 support annex or other documentation providing for the collateralization
31 of the counterparty's obligations to the insurer under the master agree-
32 ment, if that collateral documentation provides for (i) daily margin and
33 collateral settlement, in cash or investment grade securities, between
34 the parties, (ii) a minimum transfer amount of no more than one million
35 dollars, and (iii) a requirement that collateral be provided by the
36 counterparty from the first dollar of exposure, subject to the minimum
37 transfer amount;
38 (B) "aggregate counterparty exposure" means the sum of: (i) the aggre-
39 gate statement value of options, swaptions, caps, floors, and warrants
40 purchased; and (ii) the aggregate potential exposure of collars, swaps,
41 forwards and futures entered into[.];
42 (C) "over the counter derivative instrument" means a derivative
43 instrument which is authorized under this chapter other than a deriva-
44 tive instrument (i) cleared through a United States or foreign deriva-
45 tives clearinghouse, or (ii) traded on or through a United States or
46 foreign exchange providing derivatives clearing services;
47 (D) "derivatives clearinghouse" means a derivatives clearing organiza-
48 tion registered with the Commodity Futures Trading Commission or the
49 Securities and Exchange Commission or, if not so registered, is a
50 foreign clearinghouse regulated, supervised and examined by a regulatory
51 authority in a foreign jurisdiction approved by the superintendent;
52 (E) "master agreement" means a written master agreement relating to
53 derivatives transactions that provides for netting of payments owed by
54 the respective parties, and the domiciliary jurisdiction of the counter-
55 party is either within the United States or if not within the United
S. 7306--B 3
1 States, within a jurisdiction approved by the superintendent as eligible
2 for netting; and
3 (F) "minimum transfer amount" means an amount below which a daily
4 margin and collateral settlement is not required.
5 § 2. This act shall take effect immediately; provided, however that
6 the documentation requirements set forth in items (i), (ii) and (iii) of
7 subparagraph (A) of paragraph (3) of subsection (f) of section 1410 of
8 the insurance law as added by section one of this act shall take effect
9 on January 1, 2013.
