New York State Department of Financial Services: Proposed Regulation Addressing Private Equity Investment in Insurers: The New York State Department of Financial Services Issues Proposed Amendments to Regulation Governing Acquisitions of New York Domestic Insurance Companies

Sullivan & Cromwell LLP - May 20, 2014
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Citing a trend in recent years of private equity firms acquiring insurers, particularly life insurers writing fixed and indexed annuity contracts, the New York State Department of Financial Services on May 14, 2014 released for public comment proposed amendments to its regulations governing the approval process for the direct or indirect acquisition of control of insurance companies domiciled in New York.  The proposed amendments seek to reduce “the possibility that any person seeking to acquire control of a New York domestic insurer has interests that conflict with the interests of policyholders, shareholders or the public” and “minimiz[e] the potential for harm to a domestic insurer” by introducing a set of enhanced requirements as part of the approval process.  While most of these new requirements appear to be focused on private equity firms acquiring life insurers, the scope of the proposed regulation is broader and it includes provisions applicable to all potential buyers of New York domestic insurers.  Among other items, the proposed amendments require applicants seeking to acquire any domestic insurer to submit five-year financial projections for the insurer and a detailed plan of operations, including any plans to declare dividends or change the insurer’s investment portfolio, which plans may not be changed, including post-closing, without the prior approval of the New York Superintendent of Financial Services.  In the case of a proposed acquisition of control of a life insurer, the applicant will also be required to establish a trust account to provide additional protections to policyholders if the Superintendent determines that, absent such action, the acquisition is likely to be hazardous or prejudicial to the insurer’s policyholders or shareholders.