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4000 - Advisory Opinions

Insurance Coverage of Deposits Held in Connection With Annuity Contracts


April 21, 1986

Douglas H. Jones, Deputy General Counsel

Chairman Seidman has asked that I respond to your letter of March 19, 1986 concerning the insurance coverage of deposits held in connection with certain annuity contracts.

As correctly noted in your letter, the Legal Division's opinion is that such deposits are entitled to a maximum of $100,000 insurance per annuitant's interest therein. We first reached that conclusion in May 1980 and issued numerous opinion letters between then and October 1980, when the Internal Revenue Service issued a ruling revoking the tax-deferred status of the interest earned on the deposits held in connection with the annuity contracts. We have written only a few such letters since October 1980; the last was in March 1985. Although we have no statistics on this practice, we believe that numerous annuity contracts involving substantial sums of money were issued to individuals in reliance upon these interpretations, and are presently outstanding.

A copy of a sample opinion letter is enclosed. As you will note, we reached the multiple-insurance determination because the applicable state law required that the insurance companies maintain the deposits so that they could not be charged with liabilities arising out of any other business of the insurance company and could not be invaded by other creditors of the insurance company should the company become insolvent and its assets liquidated. These characteristics warranted a finding that the deposits were held in a "separate right and capacity" and thus eligible under the Federal Deposit Insurance Act for separate insurance coverage per annuitant.

In January 1980 the Federal Home Loan Bank Board also issued an opinion concluding that deposits held under certain annuity contract plans were eligible for insurance coverage per annuitant. Although the legal rationale formulated by the Bank Board differed from the FDIC's, the agencies' insurance coverage determinations were the same. According to your letter and information recently obtained from the Bank Board, however, in May 1983 the Bank Board reversed its position on annuity contract deposits, asserting that its former legal analysis was incorrect and concluding, therefore, that no separate insurance coverage per annuitant was warranted.

The Legal Division is now aware of the disparate treatment of such deposits by the FDIC and the Federal Savings and Loan Insurance Corporation arising from the Bank Board's reversal of its original position, and is in the process of discussing this matter with the staff of the Federal Home Loan Bank Board. The FDIC recognizes the possible competitive imbalance between FDIC- and FSLIC-insured institutions which might arise because of differing deposit insurance findings, and is generally in favor of uniform determinations in this regard.

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