New York has enacted a law shielding insurer-member deals with federal home loan banks from disruption during receivership, ensuring business continuity for the insurance sector.
The legislation, Assembly Bill 5600-A, was sponsored by Assemblymembers Pamela Hunter, Steve Stern, Rebecca Seawright, William Magnarelli, Jo Simon, Khaleel Anderson, Christopher Burdick, Alfred Taylor, Chantel Jackson, David Weprin, and Sarah Clark. The law amends state insurance statutes to address how transfers and agreements between insurer-members and federal home loan banks are handled when an insurer faces receivership or financial distress.
The law’s main focus is to ensure that everyday business between an insurer-member and a federal home loan bank – such as transferring money or property under a security agreement – cannot be undone by a court-appointed receiver unless there is clear evidence of intent to defraud or hinder creditors. The same rule applies to the redemption or repurchase of stock by the federal home loan bank, provided there’s no fraud or the receiver had approved the transaction.
Once a receiver is appointed, the law requires the federal home loan bank to act quickly. The bank must release any collateral that’s no longer needed, settle outstanding obligations, and manage accounts and stock as required by law. If the insurer needs to restructure its loans to avoid prepayment fees, the bank is expected to cooperate, so long as it aligns with federal rules and the bank’s own policies.
The statute also makes it clear that the federal home loan bank cannot be blocked from enforcing its rights to collateral or agreements with the troubled insurer. Receivers are not allowed to walk away from these agreements, providing much-needed certainty for both the bank and the insurer.
While the law doesn’t address specific insurance policy clauses, it is all about protecting the financial relationships that help insurers manage liquidity and obligations – especially during challenging times.
For insurance professionals, this new law delivers important clarity and reassurance. It helps keep critical financial arrangements intact if an insurer hits a rough patch and ensures that regulatory intervention doesn’t disrupt essential business operations. The law took effect immediately upon being signed by the governor, marking a notable update for anyone involved in the business side of insurance in New York.
