BILL
SUBJECT
DATE
This bill would make permanent the current law allowing
domestic insurers to enter into derivative
and replication transactions in accordance with written derivative use
plans approved by the New
York State Insurance Department, which otherwise shall expire and be
deemed repealed on June
30, 2005.
Section 1 of the bill would amend the Insurance Law to adjust the definition
of “qualified
counterparty” by including subsidiaries or affiliates of otherwise
qualified counterparties, as long
as the obligation is guaranteed by the qualified entity or its parent
company. This section also
expands the definition of “qualified bank” to include foreign
banks, as long as they are organized
and subject to banking supervision under the laws of any foreign jurisdiction
rated AA-/Aa3 or
better.
The market has evolved since the law was first enacted in that broker/dealers
are now transacting
derivatives out of subsidiary entities that do not meet the definition
provided for in the current
law. As long as the transactions performed by these subsidiaries are
guaranteed by an otherwise
qualified entity, it should by permissible for a subsidiary or affiliate
company to enter into these
transactions.
Derivative instruments have been successfully utilized by insurers,
banks, other financial
institutions and business corporations as hedges against risk loss on
underlying securities. They
allow investment risk to be segregated, such that movements in interest
rates, currency exchange
rates, stock prices or commodity prices will not have an inordinate effect
on an insurer's value.
It is vital that Section 1410 be made permanent to allow insurers to
continue to employ the use of
derivative and replication transactions to hedge against domestic and
foreign market and credit
risks.
For the abovementioned reasons, The Business Council strongly supports
this legislation and
urges its enactment.