The Office of General Counsel issued the following informal opinion on December 31, 2002, representing the position of the New York State Insurance Department.

Re: Classification of International Development Banks

Question Presented:

Under the New York Insurance Law, are bonds issued by certain "supranational" entities (such as the World Bank, the Inter-American Development Bank and the Asian Development Bank) classified as domestic or foreign?


Under the New York Insurance law, obligations issued by entities of the types listed in your inquiry are not expressly classified as either "domestic" or "foreign", but are treated differently in accordance with the type of insurance company that is making the investment.


A bond analyst at an asset management firm that makes investments on behalf of both private and public sector pension plans inquired about the proper classification, in the context of insurance companies, of bonds issued by certain supranational entities, specifically, the development banks named above.


As an initial matter, the New York Insurance Law does not expressly classify the obligations of the types of organizations inquired about as being either foreign or domestic. One statute, of application to non-life insurers, does, however, set forth guidelines as to permissible aggregate limits for amounts that may be invested by such insurers in the obligations of supranational entities. N.Y. Ins. Law § 1404(a)(7) (McKinney 2000) provides as follows:

(a) In addition to the investments specified in subsection (b) hereof, but excluding any investment prohibited by the provisions of paragraph one, three, four, six, eight, nine or ten of subsection (a) of section one thousand four hundred seven of this article, the reserve investments of a domestic insurer authorized to make investments under the authority of this section shall consist of the following:

* * *

(7) Development bank obligations. Obligations issued or guaranteed by the international bank for reconstruction and development, the inter-American development bank, the Asian development bank, the African development bank or the international finance corporation; provided that (i) obligations of such banks and the international finance corporation are rated AA or higher (or the equivalent thereto) by a securities rating agency recognized by the superintendent, or if not so rated are similar in structure and in all material respects to other obligations of the same institution which are so rated, and (ii) the aggregate investment made pursuant to the provisions of this paragraph in each such bank and the international finance corporation at any time, shall not exceed five percent of the insurer`s admitted assets as shown by its last statement on file with the superintendent, and (iii) the aggregate investment made pursuant to the provisions of this paragraph in all such banks and the international finance corporation shall not exceed fifteen percent of the insurer`s admitted assets as shown by its last statement on file with the superintendent.

Note that the aggregate limits set forth above are significantly higher than those for the obligations of foreign investments.

In the case of investments by life insurers, the applicable statute is N.Y. Ins. Law § 1405 (McKinney Supp. 2003). Unlike § 1404, § 1405, which was enacted in its present form more recently than § 1404, does not contain specific listings of eligible investments. Rather, it contains general standards. Under those standards, however, investments of the type set forth in the inquiry are regarded by the Department as constituting obligations of American institutions. See Office of General Counsel Opinion No. 84-13 (October 11, 1984) (discussing the history of N.Y. Ins. Law §§ 1404 and 1405 in general, and the treatment of investments in the African Development Bank in particular).

For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.