BILL NUMBER:S4599

TITLE OF BILL:  An act to amend the insurance law, in relation to
authorizing the superintendent of financial services to suspend
crediting of underwriting earnings for a fiscal year for the purposes
of accumulating a subscriber's operating reserve

PURPOSE OR GENERAL IDEA OF BILL: To authorize the Superintendent of
the Department of Financial Services to suspend continued funding of
subscriber operating reserves in appropriate circumstances.

SUMMARY OF SPECIFIC PROVISIONS:

Section 1 would amend section 6109 of the insurance law entitled
"Subscriber's operating reserve". Section 2 of the bill provides for
an immediate effective date.

EXISTING LAW: Under current law, the superintendent may approve
alternative methods for accumulating Subscriber operating reserves
upon application from a reciprocal's Attorney-in-Fact. However, the
existing law does not specifically provide that the Superintendent's
discretion would include suspension of further crediting of
underwriting earnings to a Subscribers operating reserve.

JUSTIFICATION: Municipal Insurance Reciprocals are licensed by the
State to provide a long term stable and secure insurance market for
              

New York States local governments. A priority of municipal reciprocals
is to avoid the volatility in pricing which is an anathema for
municipal budgets.

An existing requirement of the Insurance Law's statutory provisions
for financing and funding of all reciprocals, including municipal
reciprocals since 1986, requires 25% of each year underwriting
earnings to be credited to member operating reserves. A Subscriber
may, however, upon withdrawal from membership, and after giving notice
to the Attorney-in-Fact, withdraw the amount of its operating reserve.
As the amounts in municipal subscriber operating reserves have build
up over time, they can provide an artificial incentive for New York's
local governments to exit a municipal reciprocal insurer, if only to
access those funds which have accumulated in the operating reserve.
This likelihood is even more acute in the current fiscal environment
where municipal budgets are subject to a property tax cap and to
exploding expenditures for pension and health benefits which municipal
leaders and legislatures have virtually no control over.

The New York Municipal Insurance Reciprocal (NYMIR) has raised this
issue with the Department over the past several years and inquired
whether the Superintendent could exercise the existing ("approve other
methods") authority pursuant to section 6109 (a) (3) to address this
problem which will only continue to grow as NYMIR matures further. The
Department has concluded that the existing statute provides
insufficient authority to permit the Superintendent to suspend further
contribution to member operating reserves. This legislation would
specifically authorize the Superintendent, on an annual basis and only
when requested by the Attorney-in-Fact for a municipal reciprocal, to
suspend further crediting of such underwriting earnings to operating
reserves, and to instead redirect those funds directly to municipal


subscribers in the year immediately following the fiscal year for
which said underwriting earnings were generated.

PRIOR LEGISLATIVE HISTORY: New Bill.

FISCAL IMPLICATIONS: None, except that it would have a salutatory
effect on the more than 860 local government members of NYMIR in any
future year in which the reciprocal generates underwriting earnings,
and the Superintendent would agree that the financial position of
NYMIR (currently A Excellent rated by AM Best) would support a direct
return of earnings to members.

EFFECTIVE DATE: Immediately.