April 27, 2022

New York Insurance Regulator Sets Sights on Private Equity Investments

The Goodwin Insurtech team recently published an article highlighting the trend of insurance regulators focusing on private equity-owned insurers and the key regulatory considerations applicable to such investments. As noted, given the stringent disclosure requirements for controlling investors in the insurance space, any potential expansion of these requirements could cause some investors to back away from investment opportunities. Nonetheless, the New York State Department of Financial Services (“NYSDFS”) has now issued guidance which brings renewed pressure to the industry and may significantly alter the future of insurance transactions in New York.

On April 19, 2022, the NYSDFS issued Insurance Circular Letter No. 5 (2022) (the “Circular Letter”), titled “Acquisitions of Control and Disclaimers of Control,” in response to the recent trend by investors to structure investments in New York insurers as an acquisition of less than 10% of the insurers’ voting securities, based on the expectation that an investment below that level would avoid filing and approval requirements imposed under New York’s Insurance Law.

Specifically, under Section 1506 of New York’s Insurance Law, “no person other than an authorized insurer, shall acquire control of any domestic insurer, whether by purchase of its securities or otherwise, unless … it receives the superintendent’s prior approval.” In turn, “control” is defined in Section 1501(a)(2) of New York’s Insurance Law as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract … or otherwise … control shall be presumed to exist if any person directly or indirectly owns, controls or holds with the power to vote ten percent or more of the voting securities of any other person.” 

While many investors have treated the 10% threshold as determinative as to whether a particular transaction requires NYSDFS approval, the Circular Letter cautions that a “determination of ‘control’ under Insurance Law § 1501(a)(2) depends on all the facts and circumstances” and that the presumption of control “does not create a safe harbor for acquisitions below the 10% threshold, which may still result in a control determination.” In addition, the Circular Letter notes that the right to appoint a director of an insurer may, in combination with other factors, lead to a control determination. The Circular Letter even goes so far as stating that “a control relationship can arise from a contract or other factors, in the absence of any ownership of voting securities of an insurer.”

The Circular Letter urges parties contemplating transactions that might raise potential control issues (including, but not limited to, transactions involving the acquisition of an insurer’s voting securities or the grant of a board seat) to engage with the NYSDFS as early as practicable, even if the parties believe that such a transaction does not breach the threshold of “control,” to allow the NYSDFS sufficient time to review. As a result, many more transactions may require notification and approval by the NYSDFS.

In our view, the NYSDFS’ position is likely to generate significant controversy in the insurance industry, as many investors may find the lack of clear rules unworkable, and the potential for delays and increased regulatory scrutiny may cause some investors to back away from investment opportunities. Nonetheless, if one thing is clear, it’s that the Circular Letter brings renewed opacity and pressure to the industry and may significantly alter the structuring of insurance transactions in New York, particularly for alternative investors.


Goodwin’s Insurtech team, part of its globally ranked Fintech practice, advises startups, insurers, reinsurers, investors and others on the legal and regulatory challenges associated with creating, marketing, distributing and investing in innovative insurance products and companies. Goodwin provides clients with a full-stack insurtech offering, bringing together specialists from across the firm to provide forward-thinking counsel on strategic transactions, regulatory compliance and litigation matters.