OGC Opinion No. 07-05-03

The Office of General Counsel issued the following opinion on May 3, 2007 representing the position of the New York State Insurance Department.

RE: Applicability of N.Y. Ins. Law § 1411(e) to Officer Investments in Affiliate-Managed Funds

Question Presented:

Would the making of investments by officers of a New York-authorized insurer in funds managed by an affiliate of the insurer violate Insurance Law § 1411(e) if the investments satisfy specific conditions designed to forestall any conflict of interest?


No. Provided that the investing officers purchase their interests in the funds at fair market value, and in compliance with the precautionary conditions set forth below, the making of the below-described investments by officers of a New York-authorized insurer would not violate Insurance Law § 1411(e).


An entity engaged in investment management ("Investment Manager") is affiliated with a group of related insurance companies authorized in New York ("Insurer"). The Investment Manager's activities include creating or sponsoring investment funds and structured investment vehicles (collectively, "Investment Funds/Vehicles") that may be established as limited partnerships, limited liability companies, or other types of legal entities, with the Investment Manager as the general partner, managing member, and/or investment advisor of the Investment Funds/Vehicles.

The primary purpose of the Investment Funds/Vehicles is to serve third-party investors (i.e., investors not affiliated with the Insurer or Investment Manager). However, officers and other employees of the Investment Manager sometimes invest in the Investment Funds/Vehicles ("Employee Investments"), a practice permitted as a way of demonstrating commitment to an Investment Fund/Vehicle by employees of the entity managing it. Such individuals are often senior officers of the Investment Manager and, in some cases, they may also serve as officers of the Insurer. Employee Investments are made through programs offered by the Investment Manager to officers and other employees of the Investment Manager ("Purchase Programs"). The Purchase Programs are offered regardless of whether the officers/employees also serve as officers of the Insurer (i.e., the Purchase Program does not treat a participant differently based upon whether or not he or she is an officer of the Insurer). An individual officer's Employee Investment in a particular Investment Fund/Vehicle must comprise less than five percent of the outstanding interests/securities of an Investment Fund/Vehicle.

The Insurer often invests in an Investment Fund/Vehicle and, in some cases, provides an Investment Fund/Vehicle with its initial capital. In some instances, the Insurer decides to invest in the Investment Fund/Vehicle before an officer of the Insurer is offered the opportunity to make an investment pursuant to a Purchase Program. In other cases (particularly with the launch of a new Investment Fund/Vehicle), the Insurer's decision to make such an investment occurs contemporaneously with (or after) the officer's Employee Investment.

The opportunity to make Employee Investments is not created specifically for the Insurer's officers, and these opportunities do not provide the officers with investment terms materially different from terms offered to other investors (including the Insurer) investing at the same relative level in the Investment Fund/Vehicle's capital structure. In some cases, however, certain investment management fees and minimum initial capital contribution requirements may be waived with respect to the Employee Investments, but such concessions apply to every participant in the Purchase Program regardless of whether a participant is also an officer of the Insurer. The Purchase Program is offered to persons other than officers of the Insurer; for example, it is offered to officers and employees of the Investment Manager on the same basic terms regardless of whether or not the Insurer invests in the Investment Fund/Vehicle.

The specific question raised is whether an officer of an Insurer would be considered "pecuniarily interested" in an Investment Fund/Vehicle in violation of Insurance Law § 1411(e), solely by virtue of his or her Employee Investment, if the following conditions are imposed on the officer:

(1) The officer purchases the Employee Investment and is not awarded his or her interest in an Investment Fund/Vehicle as a form of compensation;

(2) Interests in the Investment Fund/Vehicle are not created specifically for officers of the Insurer with preferences or other features (except for such nominal conditions as noted above) not offered to other investors (including the Insurer) who are investing at the same relative level in the capital structure of the Investment Fund/Vehicle;

(3) The Purchase Program is offered to other (non-insurance company) officers and employees of the Investment Manager on the same basic terms as those offered to the officer of the Insurer; and

(4) The percentage interest held by the officer of the Insurer is less than five percent of the outstanding interests in the Investment Fund/Vehicle.


Insurance Law § 1411(e) is intended to prevent conflicts between the personal economic interests and the official duties and responsibilities of an insurer's officers or directors. Insurance Law §1411(e) prohibits an officer or director of an insurer from receiving compensation in connection with any purchase or sale of property or loan transaction by the insurer or any of its affiliates or subsidiaries. The statute also prohibits the officer or director from having a pecuniary interest in any such transaction. Section 1411(e) provides, in pertinent part:

No director or officer of an insurer doing business in this state shall receive, in addition to his fixed salary or compensation, any money or valuable thing, directly or indirectly, or through any substantial interest in any other corporation or business unit, for negotiating, procuring, recommending or aiding in any purchase or sale of property, or loan, made by such insurer or any affiliate or subsidiary thereof; nor shall he be pecuniarily interested, as principal, co-principal, agent or beneficiary, directly or indirectly, or through any substantial interest in any other corporation or business unit, in any such purchase, sale or loan.

Insurance Law § 1411(e).

The facts of this inquiry resemble those described in an Insurance Department Office of General Counsel Opinion dated August 6, 1998. That Opinion involved a situation in which a domestic life insurer (the "Company") established an offshore entity through which it planned to offer its clients the opportunity to invest in several private equity funds. The Company wanted to afford its employees an opportunity to make such investments as well, but was apparently precluded from doing so by applicable securities laws. As an alternative, the Company proposed to organize a domestic entity (known as the "employee securities company" or the "ESC") that would mirror the investments of the offshore fund. Employees of the Company were given the opportunity to purchase interests in the ESC.

Noting the statute's goal of preventing conflicts of interest, the Department concluded that Insurance Law § 1411(e) would not be implicated by employee investments in the ESC provided that (1) the investing employees took no part in the management of the ESC1 and (2) the investing employees purchased their interests in the ESC at fair market value.

Similarly, the making of the Employee Investments by an officer of the Insurer with the restrictions described would not violate Insurance Law § 1411(e) provided that the Employee Investment interests are purchased at fair market value, because such investments do not implicate a conflict between the officer's personal interests and his professional responsibilities. Rather, as described, an Employee Investment represents an arm's length transaction in which the officer invests in an entity that happens to be formed by an affiliate of the officer's employer. No special benefit2 is provided to the investing officer by way of the investment, nor does the investing officer's position with the Insurer afford him any unfair advantage with respect to the investment.

Thus, assuming that the facts are as described; that investing officers purchase their interests in the Investment Funds/Vehicles at fair market value; and that each of the four conditions enumerated in the Facts section are satisfied, the making of an Employee Investment by an officer of the Insurer would not violate Insurance Law § 1411(e).

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

1 The imposition of this condition is unnecessary under Insurance Law § 1411(e). That some of the officers making Employee Investments may also participate in the management of an Investment Fund/Vehicle does not violate the statute. In such a case, the officer would not be involved in any purchase, sale, or loan by the insurer while simultaneously being pecuniarily interested in an entity that is doing business with the Insurer. As noted, it is also typical for the managers of a private investment partnership or other vehicle to invest in such an entity.

2 For certain Employee Investments some management fees and/or minimum initial investment requirements may be waived. Notably, however, this treatment is accorded to all participants in the Purchase Program, not just officers of the Insurer.