The New York Department of Financial Services (DFS) has proposed new regulations to oversee private equity and investment firms’ acquisitions of insurance companies, especially acquisitions of annuity companies, in the state.
DFS said the proposal to enshrine enhanced policyholder protection standards is modeled on the agreements that DFS reached last year with three investment firms — Guggenheim, Apollo and Harbinger — when those firms purchased annuity companies. The proposal calls for greater disclosure and transparency requirements as well as possible requirements for additional capital or backstop trust accounts from the acquirer if determined necessary by DFS.
While the proposal for stronger disclosure requirements and increased financial accountability is modeled on the agreements DFS reached with investment firms for acquisitions of annuity companies, it would also apply to possible acquisitions of property/casualty insurance companies by private equity and investment firms, a DFS spokesperson said.
DFS said there has been a spike in private equity firms and other investment companies moving into the insurance business — particularly through the purchase of annuity companies.
DFS said this trend has raised concerns since such investment firms typically have a more short-term oriented business model than traditional insurers — while the insurance business is focused on ensuring long-term security for policyholders. Moreover, regulators said, consumer protections are especially important for annuity companies since they help support secure retirements for seniors.
Benjamin Lawsky, New York’s superintendent of financial services, said DFS is seeking to strike “an appropriate balance” that keeps markets open to new entrants, while at the same time putting in place necessary safeguards.
The proposed regulations DFS put forward on May 16 include the following, among others:
• Stronger Disclosure and Transparency Requirements: Requires the acquirer to disclose to DFS necessary information concerning its corporate structure, control persons, and other information regarding its operations.
• Enhanced Regulatory Scrutiny of Operations, Dividends, Investments, Reinsurance: Requires that any material changes to plans of operations within five years of the acquisition, including investments, dividends, or reinsurance transactions, have the prior approval of DFS.
• Increased Financial Accountability: Upon a change in the acquirer’s plan of operations, DFS may obligate the acquirer to provide additional capital if determined necessary.
• Backstop Trust Account: DFS may require the creation of an additional backstop trust account from the acquirer if DFS determines that action to be necessary to protect policyholders. DFS said it required such accounts in the agreements it reached with investment firms regarding their purchase of annuity companies last year.