OGC Op. No. 06-12-10
The Office of General Counsel issued the following opinion on December 18, 2006, representing the position of the New York State Insurance Department.
Re: Sale of Annuities in New York
1. May a New York licensed non-resident insurance agent sell variable annuity contracts in New York?
2. Pursuant to the New York Insurance Law, does the making of an equity-indexed annuity contract,1 constitute doing an insurance business in New York?
1. Yes. A New York licensed non-resident insurance agent may sell variable annuity contracts in New York, provided that the agent is licensed to sell life insurance, and such license specifies that the agent is licensed to sell variable annuities. To obtain this specification, the agent must submit to the Department proof of qualification as a securities salesman.
2. Yes, the making of an equity-indexed annuity contract constitutes doing an insurance business in New York.
Mr. A states that in 1999 he became licensed as a resident insurance agent in New York and obtained his Series 6 and 63 securities licenses. In 2003, he moved to Pittsboro, North Carolina and became affiliated with ABC Co. in Raleigh, North Carolina as a securities representative and insurance agent. Most of his New York clients stayed with him. He is now registered in North Carolina for securities and licensed as an insurance agent and also has non-resident securities and insurance licenses for New York, Ohio and Wisconsin.
Mr. A believes that since ABC Co. no longer has a physical office in New York State, he can only sell fixed annuities, life insurance and long-term care insurance, but not variable annuities or variable life insurance. He stated that the source of the restriction is an OGC Opinion Letter dated May 20, 2003,2 which was written in response to his request for an opinion in 2003.
In his 2003 request, he stated that he had recently resigned from his job with a New York broker-dealer and joined a North Carolina broker-dealer that no longer has a New York office. He asked whether it was permissible for an insurer to pay him a commission after he became employed with a North Carolina broker-dealer that did not currently have a New York office. He also asked whether he could place new business and receive a commission for New York insurance business following his relocation to North Carolina.
In response to his first question, we stated that since he earned his commission when the service was rendered, the change in his employment would not affect his right to receive a commission and the renewals thereof. In response to his second question, we stated that inasmuch as he remained licensed as an insurance agent in New York, he could continue to use his New York license to place new business with New York insurers, by which we meant selling insurance in New York, following his relocation to North Carolina. We noted that he could do business only in his individual name and not under the name of the North Carolina broker-dealer unless it was also licensed in New York as an insurance agent. This opinion did not restrict him from selling variable annuities under his New York license upon moving to North Carolina, nor did it address that question.
Question No. 1
To sell fixed annuities in New York a person, firm or corporation must be licensed as an insurance agent or broker for the line of authority of life insurance pursuant to N.Y. Ins. Law §§ 2103(a) or 2104(b)(1)(A) (McKinney 2006).
To sell variable annuities in New York a person, firm or corporation must be licensed to sell life insurance as an agent or broker pursuant to Sections 2103(a) or 2104(b)(1)(A) and such license must specify that the person, firm or corporation is licensed for the line of authority of variable annuities. In order to obtain this specification from the Department, the person, firm or corporation must first become licensed as a life insurance agent or broker and submit proof of qualification as a securities salesman to the Department. The insurer that issues the annuities must also be authorized to sell variable annuities in New York State.3
In the present case, Mr. A stated that he is a non-resident life insurance agent and wants to sell variable annuities in New York. To sell variable annuities, he must be qualified to sell securities and his life insurance agent license must specify that he is licensed for the line of authority of variable annuities. Since the North Carolina broker-dealer is not licensed as an insurance agent in New York and qualified to sell securities, he may not sell variable annuities in the name of the broker-dealer. However, he may do so in his individual name. The insurer that issues the variable annuities must be authorized to sell variable annuities in New York State and Mr. A must be an appointed agent of such insurer.4
Question No. 2
N.Y. Ins. Law § 1102(a) (McKinney 2006) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in this state, unless licensed as an insurer or exempted from licensing pursuant to the Insurance Law.
N.Y. Ins. Law § 1101(b)(1) (McKinney 2006) defines the term "doing an insurance business", in pertinent part, as:
(b)(1)(A) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of this state or to any firm, association or corporation authorized to do business herein, or solicitation of applications for any such policies or contracts. . .
(D) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this chapter. . .
N.Y. Ins. Law § 1101(a)(1) (McKinney 2006) defines "insurance contract" as follows:
(a)(1) [A]ny agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party. . . .
N.Y. Ins. Law §1113(a)(2) (McKinney 2006) specifies the kind of insurance that may be written in New York and defines the term "annuity" as:
(a)(2) [A]ll agreements to make periodical payments for a period certain or where the making or continuance of all or some of a series of such payments, or the amount of any such payment, depends upon the continuance of human life. . .
An annuity contract is not an insurance contract, as that term is defined in N.Y. Ins. Law § 1101(a)(1) (McKinney 2006), since there is no fortuitous event in which an insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of that event. To the contrary, an annuity generally provides for periodic payments to be made for life, with the benefits ending at death. An annuity may, however, provide for a death or survivorship benefit.
The making of an annuity contract, however, does constitute the doing of an insurance business because, under Section 1101(b)(1)(D), such term includes any kind of business specifically recognized as constituting the doing of an insurance business. Since annuities are a recognized kind of insurance under Section 1113(a)(2), the making of an equity-indexed annuity contract constitutes doing an insurance business in New York.
However, N.Y. Ins. Law § 3201(b)(1) (McKinney 2006), which applies to annuity contracts, states that "[n]o policy form shall be delivered or issued for delivery in New York State unless it has been filed with and approved by the Superintendent of Insurance as conforming to the requirements of this chapter and not inconsistent with law." Thus, any annuities that Mr. A intends to sell in New York, including equity-indexed annuities, must be sold on contract forms that are approved by the New York State Insurance Department.
Please note that this opinion is limited to an interpretation of the New York Insurance Law. No opinion is rendered on any other laws. The inquirer was directed to contact the Securities and Exchange Commission and/or the National Association of Securities Dealers as to whether an equity-indexed annuity is also considered to be a security.
For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.
1 The United States Securities and Exchange Commission states that:
An equity-indexed annuity is a special type of annuity. During the accumulation period- when [the owner of the annuity contract] makes either a lump sum payment or a series of payments - the insurance company credits [the contract owner] with a return that is based on changes in an equity index, such as the S & P [Standard and Poor's] 500 Composite Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to [the contract owner] under the terms of [the] contract, unless [the contract owner] chooses to receive [the] contract value in a lump sum. See http://www.sec.gov/answers/annuity.htm.
2 See OGC Opinion No. 03-05-16, a copy of which is available on the Department's web site located at http://www.ins.state.ny.us.
3 See N.Y. Ins. Law §§ 1101(b)(1) and 1102(a) (McKinney 2006).
4 See N.Y. Ins. Law § 2114(a)(1) (McKinney 2006).