New York Codes, Rules and Regulations › Title 11 - INSURANCE › Chapter VI - AUTHORIZED INVESTMENTS › Part 176 - Investments In "medium Grade" And "lower Grade" Obligations By Domestic Life Insurers › Section 176.2 - Preamble

Current through Register Vol. 46, No. 28, July 10, 2024
(a) The Department
				is concerned that changes in economic conditions and other market variables
				could adversely affect domestic life insurers having a high concentration of
				medium grade and lower grade obligations. Accordingly, the department has
				concluded that a limitation on the percentage of total admitted assets that a
				domestic life insurer may prudently invest in such obligations, without the
				prior approval of the superintendent, is reasonable, necessary and required in
				order to carry out the department's responsibilities under relevant
				law.
(b) This Part is consistent
				with the "prudent individual" rule as set forth in section 1405 (c)  of the Insurance
				Law. The department is providing a standard which is a reasonable
				interpretation of the statute and which is necessary for the public's
				protection. The standard is supported by the actual investment practices within
				the life insurance industry and by the clear inability to predict the behavior
				of these investments in all types of economic circumstances. The actual
				investment practices of nearly 99 percent of New York's licensed life insurers
				demonstrate that this Part is a reasonable construction of the quoted statutory
				language pursuant to section 301(c)-- empowering the superintendent to
				prescribe regulations interpreting provisions of the Insurance Law, and is, in
				all respects, appropriate.
(c) The
				relevant language of section 1405 (c)  of the Insurance
				Law provides:
"In addition to other requirements of law (statutory or
				  otherwise) that affect the standard of care of directors and officers of
				  corporations, in making investments under this section, directors and officers
				  shall perform their duties in good faith and with that degree of care that an
				  ordinarily prudent individual in a like position would use under similar
				  circumstances."
(d) With
				the enactment of chapter 567 of the Laws of 1983, the Legislature took specific
				action to insert a "prudent individual" rule in the Insurance Law, rather than
				rely merely on other requirements of law, statutory or otherwise. By such
				action, the Legislature made such provision subject to the superintendent's
				interpretative authority under section 301 (c)  of the Insurance
				Law. The legislative history of chapter 567 demonstrates that the "prudent
				individual" provision was added to the Insurance Law at the insistence of the
				Insurance Department, and that the Legislature expected that the investment
				operations of life insurers would be monitored closely by the Insurance
				Department in order to ensure that the boards of directors are appropriately
				discharging their responsibilities.
(e) The department understands that medium
				grade and lower grade obligations can have a place in a well-diversified
				portfolio. However, it is also understood that the special risks associated
				with these investments require a high degree of management even when they are
				held within an aggregate limit. While this Part will leave all domestic life
				insurers with authority to invest a substantial portion of their assets in
				medium grade and lower grade obligations, the prudent management of the
				attendant risks will remain an essential element of such investment.