4000 - Advisory Opinions
Insurance Coverage of Bank Deposits to Be Used to Fund Individual Annuity Policies
May 22, 1984
Joseph A. DiNuzzo, Senior Attorney
This is in reply to your letter of April 4, 1984, regarding the deposit insurance coverage of bank deposits to be used to fund individual annuity policies sponsored by * * * in conjunction with its affiliate, * * *.
According to your letter, the annuity program will operate as follows: (1) * * * will issue individual annuity policies in which various banks' customers will be the individual annuity policyholders; (2) pursuant to a reinsurance contract, * * * will transfer to * * * * * * all its liability under such annuity policies and all premiums collected thereunder; (3) * * * will establish a "separate account" for each bank as set forth in the Texas Insurance Code; (4) each individual annuity policyholder will receive quarterly accounting state- ments; (5) * * * will establish a separate account for each bank's policyholders and each account will be earmarked so that the premiums from such individual annuity policies of those customers of that bank may be invested in deposits of that respective bank; (6) such deposits which fund the individual annuity policies will be investments of the separate account for each bank; and (7) the records of * * * and * * * will establish each annuitant's undivided interest in the assets in the same proportion that the accumulated value of his or her interest under an annuity policy bears to the entire separate account established for that bank.
Your letter also notes that the separate accounts will be protected from being subjected to any other liability of either insurance company and will be entirely separate from the other assets and liabilities of the insurance companies.
As you may know, FDIC deposit insurance coverage limitations are a function of the rights and capacities in which deposit accounts are held. Where deposits are held in different and distinct rights and capacities, separate insurance coverage may be warranted with respect to each individual in whose interest the deposits are held. 12 U.S.C. § 1813(m) and 12 C.F.R. Part 330.
In this situation, according to your interpretation of the applicable Texas statutory law, the assets of the separate accounts may not be charged with liabilities arising out of any other business of either * * * or * * *; also, the separate accounts will not be reachable by other creditors of either insurance company in the event of either company's insolvency or liquidation. Based on these and the other characteristics explained in your letter, the deposits held in the separate accounts would be deemed to be held in a separate capacity; hence, the interest of each annuitant would be insured to $100,000. The coverage afforded in connection with these deposits would be separate from the insurance coverage afforded to other deposit accounts held by either the insurance companies or the annuitants in different capacities. [Note, however, that the account records of the banks in question must indicate the nature of the deposits in order for separate insurance coverage to be provided. Your letter does not address this issue, but I assume such recordkeeping is anticipated.]
Also, please note that this correspondence does not represent the FDIC's opinion as to the propriety of the applicable banking institutions' involvement in the annuity contract plans. The appropriate federal or state law should be consulted regarding the permissible scope of banking activities.