Department of Financial Services

Industry Guidance

The Office of General Counsel issued the following opinion on July 15, 2004, representing the position of the New York State Insurance Department.

Re: Regulation 60 & Replacement of an IRA

When an Insurance Department licensee replaces an Individual Retirement Account (IRA), whose assets were not invested in any insurance product, with an annuity contract, does Regulation 601 require a completed "Definition of Replacement" form?2

Yes. Under the facts presented, Regulation 60 requires a completed "Definition of Replacement" form to accompany the application for a new annuity contract irrespective of where or when the assets for such new annuity contract were previously invested.

A New York broker/dealer transferred assets from an IRA held with a clearing firm, to a new variable annuity issued by a New York authorized life insurer. The IRA's assets were not invested in any insurance product. The life insurer is currently seeking a completed "Definition of Replacement" form from the broker/dealer.

We have assumed that the New York broker/dealer is licensed by the New York State Insurance Department as an insurance agent or insurance broker to sell annuities.

Regulation 60 governs "the acts and practices of insurers, agents, brokers and other licensees of the Insurance Department with respect to the internal and external replacement of life insurance policies and annuity contracts."3   Under Regulation 60, when an agent or broker receives an application for a new life insurance policy or annuity contract, the agent or broker must, inter alia :

(a) obtain with or as part of each application a completed "Definition of Replacement" in a form prescribed by the Superintendent of Insurance and signed by the applicant and the agent or broker and leave a copy of such form with the applicant for his or her records;

(b) submit to the insurer along with each application a signed and completed "Definition of Replacement."4

And when an insurer receives an application for a new life insurance policy or annuity contract, N.Y. Comp. Codes R. & Regs. tit. 11, § 51.6(a)(2)-(4) (2003) provides, in pertinent part, that the insurer must:

(2) require with or as part of each application, a completed "Definition of Replacement" signed by the applicant and agent or broker;

(3) maintain signed and completed copies of the "Definition of Replacement" for six calendar years or until after the filing of the report on examination in which the transaction was subject to review by the appropriate insurance official of its state of domicile, whichever is later; and

(4) require with or as part of each application a statement signed by the agent or broker as to whether, to the best of his or her knowledge, replacement of a life insurance policy or annuity contract is involved in the transaction.

There are several exemptions5 to Regulation 60, but none apply under the presented facts.

Accordingly, under the presented facts, Regulation 60 requires both the broker/dealer and the life insurer to obtain a completed "Definition of Replacement" form irrespective of where or when the assets for such new annuity contract were previously invested.

For further information you may contact Senior Attorney Kristian E. Lynch at the New York City Office.

1  N.Y. Comp. Codes R. & Regs. tit. 11, Pt. 51 (2003).

2  N.Y. Comp. Codes R. & Regs. tit. 11, App. 11 (2003).

3 N.Y. Comp. Codes R. & Regs. tit. 11, § 51.1(a) (2003).

4 N.Y. Comp. Codes R. & Regs. tit. 11, § 51.5(a)-(b) (2003).

5 N.Y. Comp. Codes R. & Regs. tit. 11, § 51.3 (2003).

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