DEPARTMENT OF BANKING [10 PA. CODE CH. 21] Insurance and Annuities Authority [26 Pa.B. 5991] The Department of Banking (Department) has received several inquiries regarding the authority of Pennsylvania State-chartered banks, bank and trust companies, and savings banks (banking institutions) to act as agents in the sale of all types of insurance products. Interest has been intensified by the recent unanimous decision of the United States Supreme Court in Barnett Bank of Marion County, N. A. v. Bill Nelson, Florida Insurance Commissioner, 116 S.Ct. 1103 (1996). Barnett confirms that National banks have the statutory authority to act as agents in the sale of life, property and casualty, and other types of insurance provided the bank is located in any place the population of which does not exceed 5,000 inhabitants. This authority exists even if state law contains provisions which state that banks cannot sell insurance.
The effect of Barnett in this Commonwealth is that the Pennsylvania anti-affiliation statute, 40 P. S. § 281, which prohibits ''lending institutions'' from acting as insurance agents is no longer applicable to National banks. However, this creates a competitive disadvantage of serious economic proportions to Pennsylvania State-chartered banking institutions. Recognizing this disparity between State and National banking powers, the Department is exercising its rulemaking authority and administrative discretion to ensure that Pennsylvania State-chartered institutions remain competitive with other financial organizations operating in this Commonwealth.
Therefore, Pennsylvania banking institutions may act as agents in the sale of property and casualty, life or other types of insurance provided the bank is located in any place the population of which does not exceed 5,000 inhabitants, under their incidental powers provided in sections 315(i) and 502(h) of the Banking Code of 1965 (act) (7 P. S. §§ 315(i) and 502(h)). This grant of authority to Pennsylvania State-chartered banking institutions is analogous to the authority provided to National banks in Barnett. The Department's position herein is consistent with the authority provided by the General Assembly to the Department in section 103 of the act (7 P. S. § 103).
The Department also has received several inquiries as to the authority of Pennsylvania State-chartered banking institutions to sell annuities issued by insurance companies. These inquiries reflect the intense interest in such activity expressed by the banking industry across the country. That interest has increased sharply because of the United States Supreme Court's decision in Nationsbank of North Carolina N. A. v. Variable Annuity Life Insurance Co., 115 S.Ct. 810 (1995), which upheld a ruling of the Office of the Comptroller of the Currency (OCC) that a National bank and its subsidiary have the authority to sell fixed, variable and hybrid annuities as agents.
The Court based its decision on a finding that annuities are essentially financial instruments, which a National bank has the authority (as an incidental banking power) to broker just as it does with other financial instruments. The Court also ruled that the provision of the national banking laws which gives National banks specific authority to sell insurance was not pertinent to the case because annuities are properly classified as investments and not as insurance.
The Department has reviewed the provisions of the act, including sections 315 and 502 of the act, relating to the incidental powers of banks and savings banks, and has determined that Pennsylvania State-chartered banking institutions and savings banks may engage in the sale of annuities as a power incidental to the banking business, directly or indirectly through a subsidiary.
The incidental powers language found in the act is substantially similar to the incidental power provision contained in the National Bank Act, which was relied upon by the OCC in determining that National banks may sell annuities. In addition, Pennsylvania-chartered institutions, like National banks, are statutorily authorized to sell financial instruments as part of the institutions' banking business.
Furthermore, under section 103 of the act, the Department is authorized to exercise its administrative discretion to assure that Pennsylvania State-chartered banking institutions remain competitive, with each other and other financial organizations, and to assure that these institutions have the opportunity to expand their services to serve effectively the convenience and needs of customers.
Effective Date
This statement of policy is effective upon publication in the Pennsylvania Bulletin.
(Editor's Note: The regulations of the Department of Banking, 10 Pa. Code Chapter 21, are amended by adding a statement of policy at § 21.61 to read as set forth in Annex A.
See 26 Pa. B. 5992 (December 14, 1996) for an Insurance Department document concerning this subject.)
RICHARD C. RISHEL,
SecretaryFiscal Note: 3-35. No fiscal impact; (8) recommends adoption. The Department of Banking will not incur any increased administrative costs from this regulatory action. Any increased costs incurred by the Insurance Department to process new licenses will be offset by the revenue generated by licensing fees.
Annex A TITLE 10. BANKS AND BANKING PART II. BUREAU OF BANKS CHAPTER 21. GENERAL PROVISIONS FOR ALL STATE-CHARTERED BANKING INSTITUTIONS INSURANCE AND ANNUITIES § 21.61. Insurance and annuities--statement of policy.
(a) Pennsylvania State-chartered banks, bank and trust companies and savings banks may act as agents in the sale of property and casualty, life or other types of insurance if the bank is located in any place the population of which does not exceed 5,000 inhabitants, under the incidental powers provided in sections 315(i) and 502(h) of the Banking Code of 1965 (7 P. S. §§ 315(i) and 502(h)). This authority is consistent with section 103 of the Banking Code of 1965 (7 P. S. § 103). This grant of authority to Pennsylvania State-chartered banking institutions is analogous to the authority provided to National banks in Barnett Bank of Marion County, N. A. v. Bill Nelson, Florida Insurance Commissioner, 116 S.Ct. 1103 (1996).
(b) Pennsylvania State-chartered banks, bank and trust companies and savings banks may act as agents in the sale of annuities, under the incidental powers provided in sections 315 and 502 of the Banking Code of 1965. This authority is consistent with section 103 of the Banking Code of 1965. This grant of authority is analogous to the authority provided in Nationsbank of North Carolina N. A. v. Variable Annuity Life Insurance Co., 115 S.Ct. 810 (1995).
(c) The license application requirements and procedures for the sale of insurance and annuities by banks are stated in an Insurance Department Statement of Policy in Chapter 38 (relating to procedures for State and Nationally chartered banking institutions selling annuities of insurance--statement of policy).
[Pa.B. Doc. No. 96-2096. Filed for public inspection December 13, 1996, 9:00 a.m.]
