The Office of General Counsel issued the following informal opinion on May 30, 2000, representing the position of the New York State Insurance Department.

Indemnity Agreements Related to the Securitization of Funding Agreements.

Question Presented:

Is it a violation of the New York Insurance law ("Insurance Law") if, in a securitization transaction, the life insurer which issues the funding agreement agrees to indemnify the entity which underwrites the transaction and/or the entity which issues the securities for any claims, losses, damages or liabilities relating to, arising out of or in connection with the transaction?


Such indemnification agreements are not violative of the Insurance Law.


The inquiry included samples of indemnification agreements which had been used by parties to certain securitization transactions.


N.Y. Ins. Law Section 3222(b)(v)(McKinney 1985) permits an authorized life insurer to issue funding agreements to fund any program of an institution which has assets in excess of twenty-five million dollars. The statute places no limits on the types of programs that can be funded by funding agreements. One of the main purposes of the funding agreement legislation was to legitimize life insurers" status as financial service providers. The legislation was designed to allow insurers to issue financial/investment only products and to compete with banks and other financial intermediaries on more even terms. (See, e.g., Report of the Executive Advisory Commission on Insurance Regulatory Reform, Recommendation IV, 3.2 (May 6, 1982) and Memoranda in Support of the enabling legislation (i.e., L. 1982, c. 172, section 5)).

In the circumstances of the typical funding agreement securitization transaction, the life insurer issues a funding agreement or agreements to "an institution which has assets in excess of twenty-five million dollars". Thus, if the insurer is authorized in this state, the sale of the funding agreement is in compliance with the Insurance Law. Beyond this, there is nothing in the Insurance Law which would prohibit the parties to the transaction from entering into a broad indemnification agreement based on the specific circumstances of transaction.

The above opinion is informal and not binding on any court. For further information you may contact Associate Attorney Rochelle Katz at the New York City Office.