(f)(1) In the case of an alien insurer, except as provided for in subdivisions (g), (h) and (i) of this section, the amount of funds in trust shall be, [the lesser of US $60,000,000, or US $5,400,000 plus,] for liabilities arising from business written on or after January 1, 1998, 30 percent of the first US$200,000,000 plus 25 percent of the next US$300,000,000 plus 20 percent of the next US$500,000,000 plus 15 percent of the amount in excess of US$1,000,000,000 of estimated gross liabilities, as of the end of each calendar year, attributable to excess line business written in the United States (exclusive of marine insurance as set forth in section 2117(b)(3) of the Insurance Law). In no event shall the trust fund minimum amount be less than US$5,400,000.

(2) Notwithstanding paragraph (1) of this subdivision, an insurer that has written United States excess line business between January 1, 1998 and January 1, 2007 shall not be required to maintain more than US$100,000,000 in the trust fund until December 31, 2011.

(3) [Such] The liabilities of the insurer are to be determined no less than annually and reported to the trustee and the Superintendent of Insurance of the State of New York no later than seven months after the insurer's accounting year-end. Such liabilities shall also be certified by an actuary who is a member of a recognized professional actuarial society.

Section 27.14(i) is hereby amended to read as follows:

(i)(1) In the case of a group whose members consist of individual incorporated alien insurers who are not engaged in any business other than underwriting as a member of the group and individual unincorporated insurers, provided all the members are subject to the same level of solvency regulation and control by the group's domiciliary regulator:

(i) each syndicate in the group shall maintain a trust fund in the form of a trusteed account representing the syndicate's gross liabilities attributable to excess line business written in the United States (exclusive of [any] marine insurance [business, excluded from excess line business pursuant to] as set forth in section 2117(b)(3) of the Insurance Law); and

(ii) the group shall maintain in the form of a trusteed account a surplus in the amount of US$100,000,000 which shall be held jointly for the benefit of United States excess line policyholders of any member of the group.

(2) The superintendent may determine that a syndicate need not maintain in trust the full amount required by subparagraph (1)(i) of this subdivision, based on such factors as the amount and nature of the business written by the syndicate, the quality and completeness of financial information provided to the superintendent, information provided to the superintendent by the group's domiciliary regulator, and the amount of jointly held funds which the group maintains in excess of the amount required by subparagraph (1)(ii) of this subdivision. In no event, however, shall the superintendent determine that a syndicate may maintain an amount less than 30 percent of the first US$200,000,000 plus 25 percent of the next US$300,000,000 plus 20 percent of the next $500,000,000 plus 15 percent of an amount in excess of US$1,000,000,000 of its gross United States excess line liabilities.

1. Statutory authority: Sections 201, 301, 2105, 2118 and Article 21 of the Insurance Law.

These sections establish the Superintendent's authority to promulgate regulations governing the placement of insurance with eligible foreign and eligible alien excess line insurers through licensed excess lines brokers.

Sections 201 and 301 of the Insurance Law authorize the Superintendent to effectuate any power accorded to him by the Insurance Law, and prescribe regulations interpreting the Insurance Law.

Article 21 sets forth the duties and obligations of insurance brokers and excess line brokers. Section 2105 sets forth licensing requirements for excess line brokers.

Section 2118 sets forth the duties of excess line brokers with regard to placement of insurance with eligible foreign and eligible alien excess line insurers.

2. Legislative objectives: Article 21 of the Insurance Law establishes minimum standards for the placement of New York risks with eligible excess line insurers.

3. Needs and benefits: Regulation 41 governs the placement of excess lines insurance. The purpose of the excess line insurance market is to enable consumers who are unable to obtain insurance from licensed insurers to instead obtain coverage from eligible excess line insurers. The New York State Insurance Department monitors the financial standards imposed upon such insurers. Some eligible excess line insurers are located outside of the United States. These insurers are referred to as “alien excess line insurers”. Regulation 41 requires alien excess line insurers to maintain trust funds in the United States to support their United States excess lines business. These trust requirements have not been updated for several years. The National Association of Insurance Commissioners (NAIC) International Insurers Department (IID), which reviews alien insurer applications for inclusion on the NAIC Quarterly Listing of Alien Insurers, updated its trust funding standards for alien excess line insurers and an association of insurance underwriters (Association). Currently, Underwriters at Lloyd's, London (Lloyd's) is the only Association in existence at this time. These new standards will change the amount of funds required to be held in trust by alien excess line insurers and an Association, and will address and resolve the existing inequity in the trust fund obligations imposed upon alien excess line insurers, as opposed to the obligations imposed upon an Association. The amount of funds to be held in trust by alien excess line insurers will increase, and the amount of funds to be held in trust by an Association will decrease. For competitive reasons, it is no longer necessary for Lloyd's to maintain the higher amounts, due to the fact that over the last few years, the source of the funding for Lloyd's has changed from individuals to corporate capital. Therefore, the Department feels the financial standards set forth by this rule are adequate.

As noted above, the purpose of this rule is to update the United States trust requirements imposed upon alien excess lines insurers and an Association to be consistent with the changes that were implemented by the IID. In addition, the trust agreement requires the report required by Section 27.14(f) to be certified by an actuary, because the report addresses the subject of liabilities.

4. Costs: The rule imposes no compliance costs on state or local governments. There will be no additional costs incurred by the Insurance Department. The alien excess line insurer may have additional costs related to the one-time submission of new trust agreements, which will incorporate the new funding requirements to the Department. However, by having the Department's requirements consistent with the IID, there will be one standard for the amounts to be held in trust instead of two.

5. Local government mandates: None.

6. Paperwork: The alien excess line insurer may have additional paperwork related to the one time submission of new trust agreements to the Department.

The regulation requires that the liabilities of an alien excess line insurer are to be reported to the trustee and to the Superintendent. The rule requires the liabilities to be reported no later than seven months after the insurer's accounting year end. The rule also requires the liabilities to be certified by an actuary who is a member of a recognized professional actuarial society. These provisions in the rule only apply to alien excess line insurers, codify existing practice regarding alien excess line insurers, and are consistent with NAIC rules.

7. Duplication: None.

8. Alternatives: The alternative was to not change the regulation. However, the IID has implemented the new alien trust funding standards and without this rule, these entities will have to comply with two separate funding requirements, which will increase the costs for these entities. Therefore, the Department is amending the regulation to conform to the new standards.

The rule provides that an alien excess line insurer that has written United States excess line business between January 1, 1998 and January 1, 2007 shall not be required to maintain more than US$100,000,000 in the trust fund until December 31, 2011. It is the Department's intent to eventually eliminate this “cap”, which only applies to alien excess line insurers.

9. Federal standards: None.

10. Compliance schedule: Since the NAIC adopted the trust fund standards effective January 1, 2007, it is expected that all parties will be able to comply with this rule as soon as it is promulgated.

The Insurance Department finds that this rule would not impose reporting, recordkeeping or other requirements on small businesses. The basis for this finding is that this rule is directed at alien excess line insurers and an association of insurance underwriters subject to this rule, none of which come within the definition of “small business” contained in section 102(8) of the State Administrative Procedure Act. The Insurance Department has monitored Annual Statements of alien excess line insurers and an association of insurance underwriters subject to this rule, and believes that none of them fall within the definition of “small business”, because there are none that are both independently owned and have under one hundred employees.

The Insurance Department finds that this rule will not impose reporting, recordkeeping or other compliance requirements on local governments. The basis for this finding is that this rule is directed at alien excess line insurers and an association of insurance underwriters, none of which are local governments.

The amendment will not impose any adverse impact on rural areas or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas. The rule applies to alien excess line insurers and an association of insurance underwriters, which do business in every county of the state, including rural areas as defined under State Administrative Procedure Act Section 102(13). Since the rule applies to the excess line market throughout New York, not only to rural areas, the same regulation will apply to regulated entities across the state. Therefore, there is no adverse impact on rural areas as a result of this rule.

The Insurance Department finds that this rule will have little or no impact on jobs and employment opportunities. This regulation sets standards for the amount of funds required to be held in trust by alien excess line insurers and an association of insurance underwriters. The regulation is unlikely to impact jobs and employment opportunities.