United States: New York Department Of Financial Services Proposes Stricter Standards In Reviewing Life Insurance Acquisitions

New standards

The New York Department of Financial Services ("DFS") is proposing to extend stricter standards to acquisition deals across the life insurance industry. These standards, which would apply to all purchasers of life insurance and annuity businesses, would include additional disclosure requirements about corporate structure, ownership and some aspects of operations, as well as heightened capital requirements to be applied on a case-by-case basis. The standards are similar to the ones used last year by DFS in scrutinizing acquisitions of fixed annuity businesses by private equity and investment firms.

Additionally, the DFS is also proposing enhanced regulatory scrutiny of material changes in certain aspects of operations occurring within five years of the acquisition as well as heightened capital standards that would be applied on a case-by-case basis.

Superintendent Benjamin Lawsky stated that DFS wanted to "even the playing field" and "strike an appropriate balance that keep markets open to new entrants, while at the same time putting in place necessary safeguards."

Last year's scrutiny of private equity acquisitions

Last year, DFS implemented stricter standards in reviewing several acquisitions of fixed annuity businesses by companies with ties to private equity and investment firms . Superintendent Lawksy has voiced his concerns that life insurers with financial ties to private equity firms may be motivated to make higher risk investments with the assets backing the annuities and may not be committed to the industry for the long-term. The deals were ultimately approved but only after the purchasers agreed to special rules aimed at safeguarding consumers. While the private equity firms did not publicly object to the rules, executives did say that the rules should be applied industry wide. The DFS now proposes to do just that by applying stricter standards to all New York life insurance company acquisitions.

Going forward

Under the proposed standards, DFS would require additional information in order to obtain approval for life insurance company acquisitions, which could mean a lengthier review process. The DFS will seek comments to the proposed standards and will evaluate and assess the rules before they are implemented. The proposed rule is located at New York Department of Financial Services Proposed Fifth Amendment to 11 NYCRR 80-1. It remains unclear whether any other state insurance regulators or the National Association of Insurance Commissioners will follow New York's lead.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.