Senate Commerce Committee Statement to Senate, No. 2947 — State of New Jersey (November 3, 2022)

Summary

A Senate Commerce Committee statement to the Senate on Senate Bill No. 2947, State of New Jersey, dated November 3, 2022, reporting the bill favorably. The bill provides that a delinquency proceeding against an insurer-member of a federal home loan bank does not stay the bank's exercise of rights over collateral pledged by that insurer-member, and limits a receiver's power to void transfers to the bank. On a receiver's request, the bank must set a process and timeline for releasing collateral, fees, accounts and possible stock repurchase, and must provide options to renew or restructure advances where the "Federal Home Loan Bank Act" (12 U.S.C. s.1421 et seq.) permits. The statement says differences between federal and State law lead the banks to require more stringent collateral terms from New Jersey-domiciled insurers.

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SENATE COMMERCE COMMITTEE

STATEMENT TO

SENATE, No.
2947

STATE
OF NEW JERSEY

DATED: NOVEMBER
3, 2022

The Senate Commerce Committee reports favorably Senate
Bill No. 2947.

This
bill revises the effects of delinquency and insolvency proceedings against
insurer-members of federal home loan banks. Specifically, the bill provides
that the commencement of a delinquency proceeding with respect to an
insurer-member shall not operate as a stay, injunction, or prohibition of
exercise by a federal home loan bank of its rights regarding collateral pledged
by that insurer-member.

The
bill provides that a receiver may not void a transfer of money or other
property arising under or in conjunction with a federal home loan bank security
agreement, except under certain circumstances. The bill also provides that a
receiver for an insurer-member subject to a delinquency may not void a transfer
made to a federal home loan bank, except under certain circumstances.

The
bill provides, following the appointment of a receiver for an insurer-member
and upon request of the receiver, that a federal home loan bank is required to
provide a process and establish a timeline for:

(1) the
release of the collateral that exceeds the lending value required to support
secured obligations remaining after a repayment of advances, as determined in
accordance with the federal home loan bank security agreement;

(2) the
release of any collateral remaining in the federal home loan bank’s possession
following repayment of all outstanding secured obligations in full;

(3) the
payment of fees and the operation of deposits and other accounts with the
federal home loan bank; and

(4) the
possible redemption or repurchase of federal home loan bank stock or excess
stock of any class that an insurer-member is required to own.

Upon
the request of the receiver for an insurer-member, the federal home loan bank
is required to provide any available options for the insurer-member to renew or
restructure an advance to defer associated prepayment fees, to the extent that
market conditions, the terms of the advance outstanding to the insurer-member,
the applicable policies of the federal home loan bank, and compliance with the
“Federal Home Loan Bank Act” (12 U.S.C. s.1421 et seq.) and corresponding
regulations permit.

The
bill provides that it does not affect the receiver’s rights pursuant to federal
regulations regarding advances to an insurer-member in delinquency proceedings.

Due
to differences between federal and State law, federal home loan banks require
more stringent and burdensome collateral terms from New Jersey-domiciled
insurance companies, even if the credit worthiness of a New Jersey-domiciled
insurance company is superior to other members of the bank. By amending New
Jersey law to comport with federal law, federal home loan banks will be able to
offer their New Jersey-domiciled insurance company members collateral on terms
similar to those offered to the other federal home loan bank members, which are
more favorable than the terms that can be presently offered. Further, this
bill requires federal home loan banks to communicate and work with receivers to
provide available options for the federal home loan banks, where permissible,
to provide liquidity to help stabilize troubled insurance companies.

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