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Senate File 420 - IntroducedA Bill ForAn Act 1relating to investments of funds by life insurers, and
2including applicability provisions.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 508.13, subsection 1, Code 2023, is
2amended to read as follows:
31. On receipt of an application for a certificate of
4authority or renewal of a certificate of authority, the
5appropriate fees, the deposit provided in section 511.8,
6subsection 16, and the statement, and the statement and
7evidence of investment of foreign companies, the commissioner
8of insurance shall issue a certificate or a renewal of a
9certificate setting forth the corporate name of the company,
10its home office, that it has fully complied with the laws of
11the state and is authorized to transact the business of life
12insurance for the ensuing year, which certificate shall expire
13on the first day of June of the ensuing year, or sooner upon
14thirty days’ notice given by the commissioner, of the next
15annual valuation of its policies.
16 Sec. 2. Section 508.14, subsections 1 and 3, Code 2023, are
17amended to read as follows:
181. Upon a failure of a company organized under the laws
19of this state to make the deposit provided in section 511.8,
20subsection 16, or file the statement in the time stated in
21section 508.11, or to file in a timely manner any financial
22statement required by rule of the commissioner of insurance,
23the commissioner of insurance shall notify the attorney general
24of the default, who and the attorney general shall at once
25 apply to the district court of the county where the home
26office of the company is located for an order requiring the
27company to show cause, upon reasonable notice to be fixed as
28determined by the court, why its the company’s business shall
29not be discontinued. If, upon the hearing, sufficient cause is
30not shown, the court shall decree its the dissolution of the
31company.
323. The commissioner may give notice to a company, which
33 that has failed to file evidence of deposit and all of the
34company’s delinquent statements within the required time
35fixed, that the company is in violation of this section. If
-1-1the company fails to file evidence of deposit and all of the
2company’s delinquent statements within ten days of the date of
3the notice, the company is shall be subject to an additional
4administrative penalty of one hundred dollars for each day the
5failure continues.
6 Sec. 3. Section 508.29, Code 2023, is amended to read as
7follows:
8508.29 Authority to write other insurance.
91. Any life insurance company organized on the stock or
10mutual plan, and that is authorized by its the company’s
11 charter or articles of incorporation so to do, may in addition
12to such life insurance, insure, either individually or on
13the group plan, the health of persons and against personal
14injuries, disablement or death, resulting from traveling or
15general accidents by land or water, and insure employers
16against loss in consequence of accidents or casualties of any
17kind to employees or other persons, or to property resulting
18from any act of the employee or any accident or casualty to
19persons or property, or both, occurring in or connected with
20the transaction of their transacting the employer’s business,
21or from the operation of any machinery connected therewith with
22transacting the employer’s business, but nothing contained
23in this section shall be construed to authorize any life
24insurance company to insure against loss or injury to person,
25or property, or both, growing out of explosion or rupture
26of steam boilers. An insurer may contract with health care
27service providers and offer different levels of benefits to
28policyholders based upon the provider contracts.
292. A company insuring risks authorized by this section shall
30invest or hold in cash, funds equal to seventy-five percent of
31the aggregate reserves and policy and contract claims for such
32risks. Investments required by this subsection shall only be
33made in securities enumerated in section 511.8, and are subject
34to the same limitations as provided for the investment of legal
35reserve, and are subject to section 511.8, subsections 16, 17,
-2-1and 21.
2 Sec. 4. Section 508C.8, subsection 9, paragraph c, Code
32023, is amended to read as follows:
4c. Borrow money to effect the purposes of this chapter. Any
5notes or other evidence of indebtedness of the association held
6by domestic insurers and not in default qualify as investments
7eligible for deposit under section 511.8, subsection 16.
8 Sec. 5. Section 511.8, Code 2023, is amended by striking the
9section and inserting in lieu thereof the following:
10511.8 Investment of funds.
111. Definitions. As used in this section unless the context
12otherwise requires:
13a. “Accounting practices and procedures manual” means the
14most recent edition of the national association of insurance
15commissioner’s accounting practices and procedures manual.
16b. “Admitted assets” means the assets permitted to be
17reported as admitted assets on an insurer’s most recent
18statutory financial statement required to be filed with the
19commissioner. “Admitted assets” shall include reinsurance funds
20withheld. “Admitted assets” shall not include assets held in
21nonguaranteed separate accounts.
22c. “Affiliate of” means the same as defined in section
23521A.1.
24d. “Business entity” means a sole proprietorship,
25corporation, limited liability company, association,
26partnership, joint stock company, joint venture, mutual
27fund, trust, joint tenancy or other similar form of business
28organization, whether organized for-profit or not-for-profit.
29e. “Capital and surplus” means the sum of capital and
30surplus of an insurer that is required to be shown on an
31insurer’s most recent statutory financial statement required to
32be filed with the commissioner.
33f. “Collateral loan” means an unconditional obligation
34for the payment of money that is secured by the pledge of
35any assets or investments permitted under this section. A
-3-1collateral loan cannot be a mortgage loan, rated credit
2instrument, or other debt security as defined in this
3subsection.
4g. “Commissioner” means the commissioner of insurance.
5h. “Equity interest” means any of the following:
6(1) A common stock.
7(2) A trust certificate.
8(3) An equity investment in an investment company other than
9an SVO-listed fixed income or preferred stock fund.
10(4) An investment in a common trust fund with a bank that is
11regulated by a federal or state agency as trustee.
12(5) An ownership interest in minerals, oil, or gas, the
13rights to which have been separated from the underlying fee
14interest in the real estate where the minerals, oil, or gas are
15located.
16(6) An instrument that is mandatorily, or at the option of
17the issuer, convertible to equity.
18(7) A limited partnership interest or a general partnership
19interest as authorized under subsection 4.
20(8) An ownership interest in a limited liability company.
21(9) A warrant or other right to acquire an ownership
22interest that is created by the person that either owns or will
23issue the ownership interest to be acquired.
24(10) An investment categorized as an equity interest under
25subsection 5.
26i. “Foreign investment” means an investment in a foreign
27jurisdiction, or an investment in an entity, real estate, or
28asset domiciled in a foreign jurisdiction. “Foreign investment”
29shall not include any of the following:
30(1) An asset for which the issuing person or guarantor is
31the United States or Canada, or is domiciled in the United
32States or Canada.
33(2) An asset for which the issuing person is domiciled in a
34foreign jurisdiction that has a sovereign debt rating of SVO 1,
35and the issuing person is a fund or other investment vehicle
-4-1that invests, directly or indirectly, substantially all of
2its assets in investments which are not foreign investments.
3If an insurer invests in an asset under this subparagraph,
4the commissioner may require the insurer to disclose to
5the commissioner the investments held by the fund or other
6investment vehicle.
7j. “Hedging transaction” means a derivative transaction
8entered into and maintained by an insurer to reduce any of the
9following:
10(1) The risk of a change in the value, yield, price,
11cash flow, or quantity of assets or liabilities which the
12insurer has acquired or incurred, or anticipates acquiring or
13incurring.
14(2) Currency exchange rate risk or the degree of exposure
15as to assets or liabilities that the insurer has acquired or
16incurred, or anticipates acquiring or incurring.
17k. “Income generation transaction” means a derivative
18transaction that involves writing a covered call option,
19covered put option, covered cap, or covered floor, and that is
20intended to generate income or enhance return.
21l. “Insurer” means a company organized as a life insurance
22company under chapter 508.
23m. “Investment company” means an investment company as
24defined in section 3(a) of the federal Investment Company Act
25of 1940, as amended, and as codified at 15 U.S.C. §§80a-3 et
26seq., and a person described in section 3(c) of the federal
27Investment Company Act.
28n. “Investment subsidiary” means a subsidiary of an insurer
29that is engaged or organized to engage exclusively in the
30ownership and management of assets authorized as investments
31for the insurer.
32o. “Lower grade investment” means a rated credit instrument
33that is designated 4, 5, or 6 by the SVO.
34p. “Medium grade investment” means a rated credit instrument
35that is designated 3 by the SVO.
-5- 1q. “Mortgage loan” means an obligation secured by a
2mortgage, deed of trust, trust deed, or other consensual lien
3on real estate. “Mortgage loan” includes a leasehold estate
4in real property if fifty years or more of the term, including
5renewals, is unexpired.
6r. “NAIC” means the national association of insurance
7commissioners.
8s. “Nonguaranteed separate account” means a separate account
9for which the insurer’s general account bears no risk related
10to performance of the separate account assets.
11t. “Other debt security” means an investment in the form
12of a debt security that does not qualify as a bond, however,
13the investment does qualify as an admissible asset under the
14accounting practices and procedures manual.
15u. “Person” means an individual, a business entity,
16a multilateral development bank, or a governmental or
17quasi-governmental body such as a political subdivision or a
18government-sponsored enterprise.
19v. “Rated credit instrument” means an investment that
20is qualified as a bond under the accounting practices and
21procedures manual, such as evidence of indebtedness of a
22governmental unit or the instrumentality of the governmental
23unit, or of a private business entity. “Rated credit
24instrument” includes asset-backed securities, bank loans, and
25SVO-listed funds that have a SVO designation, and that qualify
26as a bond under the manual.
27w. “Real estate” means any of the following:
28(1) Real property.
29(2) Interests in real property such as leaseholds, and
30minerals, oil, and gas that have not been separated from the
31underlying fee interest.
32(3) Improvements and fixtures located on or in the real
33property.
34(4) The buyer’s equity in a contract providing for a sale
35of real estate.
-6- 1(5) An investment categorized as real estate under
2subsection 5.
3x. “Replication transaction” means a derivative transaction
4entered into in conjunction with other investments in order
5to reproduce the investment characteristics of otherwise
6permissible investments. “Replication transaction” does not
7include a derivative transaction that is entered into as a
8hedging transaction.
9y. “Securities valuation office” or “SVO” means the
10securities valuation office of the NAIC, or a successor entity.
11z. “Short-term investment” means a highly liquid investment
12or security that has a remaining term of maturity between
13ninety days and three hundred sixty-five days, and that is
14qualified as a short-term investment under the accounting
15practices and procedures manual.
162. Prudence evaluation criteria.
17a. For all investments under this section, an insurer
18shall perform the insurer’s duties in good faith and with the
19degree of care that persons of reasonable prudence in a similar
20position exercise in a similar circumstance. The following
21factors shall be evaluated by the insurer and considered along
22with the insurer’s business to determine if an investment
23portfolio or an investment policy is prudent:
24(1) General economic conditions.
25(2) The expected tax consequences of an investment decision
26or strategy.
27(3) The fairness and reasonableness of the terms of an
28investment in relation to the investment’s risk and reward
29characteristics.
30(4) The effect of an investment on the characteristics of
31the insurer’s investment portfolio as a whole.
32(5) The extent of the diversification of the insurer’s
33investments among all of the following:
34(a) Individual investments.
35(b) Classes of investments.
-7- 1(c) Industry concentrations.
2(d) Issuers.
3(e) Geographic areas.
4(6) The economic substance of investments in affiliates.
5(7) The investment exposure to each of the following risks,
6consistent with the insurer’s acceptable risk level identified
7under subsection 3:
8(a) Liquidity.
9(b) Credit and default.
10(c) Market.
11(d) Interest rate, including duration and convexity.
12(e) Currency.
13(8) The amount of the insurer’s assets, premium writings
14and insurance in force, level of capitalization, and other
15appropriate characteristics.
16(9) The amount and adequacy of the insurer’s reported
17liabilities.
18(10) The relationship, and the risk of adverse changes,
19of the expected cash flows of the insurer’s assets and
20liabilities.
21(11) The relationship, and the risk of adverse changes, of
22the valuation of the insurer’s assets and liabilities.
23(12) The insurer’s level of expertise with various types of
24investments.
25(13) The ability of the insurer to model the underlying
26risks of an investment, with the modeling commensurate with the
27complexity of the investment.
28(14) The overall maturity of the insurer’s enterprise risk
29management and investment risk management frameworks.
30(15) The adequacy of the insurer’s capital and surplus to
31secure the liabilities of the insurer in consideration of the
32risk and potential magnitude of adverse experience or economic
33conditions.
34(16) The professional standards required by the insurer for
35the individuals who make day-to-day investment decisions on
-8-1behalf of the insurer.
2(17) Any other factors relevant to whether an investment is
3prudent.
4b. The commissioner shall consider each of the factors in
5paragraph “a”, subparagraphs (1) through (17), prior to making
6a determination that an insurer’s investment portfolio or
7investment policy is not prudent.
83. Insurer investment policies. In acquiring, investing,
9exchanging, holding, selling, and managing investments,
10an insurer shall establish and follow one or more written
11investment policies that shall be annually reviewed and
12approved by the insurer’s board of directors or the board of
13directors’ designee. The content and format of an insurer’s
14investment policies are at the insurer’s discretion; however,
15the investment policies must include written guidelines and
16controls appropriate to the insurer’s business. An insurer
17shall consider all of the following:
18a. Permissible asset types, including maximum or minimum
19internal limits regarding the composition of classes of
20investments.
21b. Periodic evaluation of the investment portfolio as to the
22portfolio’s risk and reward characteristics.
23c. The relationship of investments to the insurer’s
24insurance products and liabilities.
25d. The manner in which the insurer intends to implement
26subsection 2.
27e. The appropriate level of risk, based on quantitative
28measures, given the level of capitalization and expertise
29available to the insurer.
304. Prohibited investments. An insurer shall not, directly
31or indirectly, do any of the following:
32a. Except as provided in subsection 5, invest in an
33obligation or security, or make a guarantee for the benefit of
34or in favor of an officer or director of the insurer.
35b. Except as provided in chapter 521A or subsection 5,
-9-1invest in an obligation or security of, make a guarantee for
2the benefit of or in favor of, or make other investments in,
3a business entity in which ten percent or more of the voting
4securities or equity interests are owned directly or indirectly
5by or for the benefit of one or more officers or directors of
6the insurer.
7c. Engage on the insurer’s own behalf, or through one or
8more affiliates, in a transaction or series of transactions
9intended to evade the prohibited investments under this
10subsection.
11d. Act or invest as a general partner, with the following
12exceptions:
13(1) If all other partners in the partnership are
14subsidiaries of the insurer.
15(2) For the purpose of any of the following:
16(a) Meeting cash calls committed to by the partnership prior
17to July 1, 2023.
18(b) Completing specific projects or activities of the
19partnership in which the insurer was a general partner before
20July 1, 2023, and that had been undertaken before July 1, 2023.
21(c) Making capital improvements to property owned by the
22partnership before July 1, 2023, if the insurer was a general
23partner before July 1, 2023.
24e. Notwithstanding paragraphs “c” and “d”, a subsidiary or
25an affiliate of an insurer shall not be prohibited from acting
26or investing as a general partner.
27f. (1) Invest in or lend the insurer’s funds upon the
28security of shares of the insurer’s own stock, except that an
29insurer may acquire shares of its own stock for any of the
30following purposes:
31(a) Conversion of a stock insurer into a mutual or
32reciprocal insurer, or a mutual or reciprocal insurer into a
33stock insurer.
34(b) Issuance to the insurer’s officers, employees, or
35agents in connection with a plan for converting a publicly
-10-1held insurer into a privately held insurer, as approved by the
2commissioner under section 508B.7, or in connection with other
3stock option and employee benefit plans.
4(c) In accordance with any other plan approved by the
5commissioner.
6(2) Stocks acquired by an insurer under subparagraph (1)
7shall not be admitted assets of the insurer.
85. Valuation and categorization of investments.
9a. Unless otherwise specified in this section, the
10valuation and categorization of, or the amount of, an insurer’s
11investment acquired or held under subsections 6 through 20,
12shall be the classification and value at which the assets of an
13insurer are required to be reported for statutory accounting
14purposes, as determined in accordance with the accounting and
15valuation standards of the NAIC including all of the following:
16(1) The most recently published purposes and procedures
17manual of the NAIC investment analysis office, or any successor
18purposes and procedures adopted by the NAIC investment analysis
19office.
20(2) The most recently published valuation of securities
21manual, or any successor valuation of securities procedures
22adopted by the NAIC.
23(3) The most recently published accounting practices and
24procedures manual, or any successor accounting practices and
25procedures adopted by the NAIC.
26(4) The most recently published annual statement
27instructions, or any successor annual statement instructions
28adopted by the NAIC.
29(5) Any successor valuation procedures adopted by the NAIC.
30b. Upon approval of the commissioner, an insurer’s
31investment in the equity interests of a business entity whose
32primary purpose is to directly or indirectly invest in and
33maintain assets and investments on behalf of the insurer and
34the insurer’s affiliates, or on behalf of the insurer or the
35insurer’s affiliates, may be deemed to be the insurer itself
-11-1investing in such assets and investments of the business entity
2based on the insurer’s pro-rata equity interest in the business
3entity.
46. General five-percent diversification.
5a. Except as otherwise specified in this section, an insurer
6shall not directly or indirectly acquire an investment under
7this section if, as a result of and after giving effect to the
8investment, the insurer will hold more than five percent of the
9insurer’s admitted assets in investments of all kinds issued,
10assumed, accepted, insured, or guaranteed by a single person.
11b. Notwithstanding paragraph “a”, an insurer shall not
12acquire an asset-backed security if, as a result of and after
13giving effect to the investment, the aggregate amount of
14asset-backed securities secured by or evidencing an interest
15in a single asset or single pool of assets held by a trust or
16other business entity then held by the insurer will exceed five
17percent of the insurer’s admitted assets.
18c. Notwithstanding paragraph “a”, an insurer shall not
19acquire a mortgage loan under subsection 12 if, as a result of
20and after giving effect to the investment, the aggregate amount
21of mortgage loans covering any one secured location will exceed
22five percent of the insurer’s admitted assets.
237. Medium and lower grade investments.
24a. An insurer shall not acquire an investment under this
25section, including counterparty exposure net of collateral
26held, if, as a result of and after giving effect to the
27investment any of the following apply:
28(1) The aggregate amount of medium and lower grade
29investments then held by the insurer will exceed twenty percent
30of the insurer’s admitted assets.
31(2) The aggregate amount of lower grade investments then
32held by the insurer will exceed ten percent of the insurer’s
33admitted assets.
34(3) The aggregate amount of investments designated 5 or 6 by
35the SVO then held by the insurer will exceed three percent of
-12-1the insurer’s admitted assets.
2(4) The aggregate amount of investments designated 6 by the
3SVO then held by the insurer will exceed one percent of the
4insurer’s admitted assets.
5b. An insurer shall not acquire an investment under this
6section, including counterparty exposure net of collateral
7held, if, as a result of and after giving effect to the
8investment all of the following apply:
9(1) The aggregate amount of medium and lower grade
10investments issued, assumed, guaranteed, accepted, or insured
11by any one person or, as to asset-backed securities secured
12by or evidencing an interest in a single asset or pool of
13assets, then held by the insurer will exceed one percent of the
14insurer’s admitted assets.
15(2) The aggregate amount of lower grade investments issued,
16assumed, guaranteed, accepted, or insured by any one person
17or, as to asset-backed securities secured by or evidencing an
18interest in a single asset or pool of assets, then held by the
19insurer will exceed one-half of one percent of the insurer’s
20admitted assets.
21c. If an insurer attains or exceeds the limit of any
22one designation category under this subsection, the insurer
23shall not be precluded from acquiring investments in
24other designation categories, subject to the specific and
25multi-category limits applicable to each of those investments.
268. Cash or cash equivalents. An insurer may acquire,
27without limitation, cash and cash equivalents as such terms are
28defined in the accounting practices and procedures manual.
299. Rated credit instruments and short-term investments. An
30insurer may acquire the following rated credit instruments and
31short-term investments subject to all of the following:
32a. The following credit instruments acquired under this
33subsection shall be subject to subsection 6, paragraphs “b” and
34“c”, and to subsection 7:
35(1) Credit instruments issued, assumed, guaranteed, or
-13-1insured by the United States or Canada.
2(2) Credit instruments issued, assumed, guaranteed, or
3insured by a government-sponsored enterprise of the United
4States or Canada, if the credit instruments are assumed,
5guaranteed, or insured by the United States or Canada, or are
6otherwise backed or supported by the full faith and credit of
7the United States or Canada.
8(3) Credit instruments, excluding asset-backed securities
9that are any of the following:
10(a) Issued, assumed, guaranteed, or insured by a
11government-sponsored enterprise of a government other than the
12United States or Canada.
13(b) Issued, assumed, guaranteed, or insured by a state, if
14the instruments are general obligations of the state.
15b. Short-term investments acquired under this subsection
16shall be subject to subsection 6.
17c. All other rated credit instruments acquired under this
18subsection shall be subject to subsections 6 and 7.
19d. Foreign investments acquired under this subsection shall
20be subject to subsection 15.
2110. Equity interests. An insurer may acquire equity
22interests subject to all of the following:
23a. An insurer shall not acquire an investment under this
24subsection, if, as a result of and after giving effect to the
25investment the aggregate amount of investments then held by
26the insurer will exceed ten percent of the insurer’s admitted
27assets.
28b. Foreign investments acquired under this subsection shall
29be subject to subsection 15.
30c. Equity interests in subsidiary corporations, as
31authorized by section 508.33, shall be eligible investments
32if the total investment does not exceed five percent of the
33insurer’s admitted assets. Upon application to and approval
34of the commissioner, an insurer may acquire additional equity
35interests in direct or indirect subsidiary insurance companies
-14-1that are domiciled in the United States, not to exceed an
2additional two percent of the insurer’s admitted assets.
3d. In addition to the investments authorized in paragraphs
4“a”, “b”, and “c”, an insurer may acquire equity interests in
5subsidiary entities as permitted by, and as subject to the
6limitations of, section 521A.2.
711. Tangible personal property.
8a. An insurer may acquire obligations secured by tangible
9personal property that is under contract of sale or lease for
10which contractual payments may reasonably be expected to return
11the principal of, and provide earnings on, the investment
12within the anticipated useful life of the tangible personal
13property.
14b. An insurer shall not acquire an obligation under
15paragraph “a”, if, as a result of and after giving effect to
16the investment, the aggregate amount of investments then held
17by the insurer under this subsection will exceed either of the
18following:
19(1) Two percent of the insurer’s admitted assets.
20(2) One-half of one percent of the insurer’s admitted assets
21as to any single item of tangible personal property.
2212. Mortgage loans.
23a. An insurer may acquire obligations secured by a mortgage
24or deed of trust that is a first or second lien upon otherwise
25unencumbered real estate, or upon leasehold estates in real
26property if fifty years or more of the term including renewals
27is unexpired, or other similar instruments, including mezzanine
28loans provided all of the following apply:
29(1) The amount loaned by the insurer, together with any
30amount secured by an equal or prior security interest, whether
31of the insurer or another party, does not exceed ninety percent
32of the appraised value of the real estate and improvements at
33the time the insurer makes the investment, as evidenced by a
34current qualified external appraisal or an internal appraisal
35conducted using standards comparable to an external appraisal.
-15- 1(2) The amount of an obligation required to be included in
2the calculation of the loan-to-value ratio may be reduced to
3the extent the obligation is insured or guaranteed by an agency
4of the United States government.
5(3) A mezzanine loan acquired under this subsection shall
6not exceed four percent of an insurer’s admitted assets.
7b. This subsection shall not be construed to prevent any
8amount invested under this subsection that exceeds ninety
9percent of the appraised value of the real estate from being
10an authorized asset under subsection 10, paragraph “a”, or
11subsection 20, subject to the limitations of subsection 10,
12paragraph “a”, and subsection 20.
1313. Real estate. An insurer may acquire real estate either
14directly or through certificates evidencing participation with
15other investors.
16a. An insurer may acquire real estate required for the
17insurer’s home offices, or to be otherwise occupied by the
18insurer or the insurer’s employees in transacting the insurer’s
19business, and the insurer may lease any unused space to
20other occupants. The value of an insurer’s investments under
21this paragraph shall not exceed ten percent of the insurer’s
22admitted assets.
23b. Excluding investments under paragraph “a”, an insurer’s
24investments under this subsection shall not exceed fifteen
25percent of the insurer’s admitted assets.
26c. An insurer’s aggregate investments under this subsection
27and subsection 12 shall not exceed forty-five percent of the
28insurer’s admitted assets.
2914. Securities lending, repurchase, reverse repurchase,
30and dollar roll transactions. An insurer may enter into
31securities lending, repurchase, reverse repurchase, and dollar
32roll transactions with business entities, provided that the
33insurer’s board of directors, or the board of directors’
34designee, adopts a written plan that is consistent with the
35insurer’s investment policies under subsection 3, and that
-16-1specifies guidelines and objectives including all of the
2following:
3a. A description of how any cash received will either be
4invested or used for the insurer’s general corporate purposes.
5b. Operational procedures to manage interest rate risk,
6counterparty default risk, the conditions under which proceeds
7from repurchase transactions may be used in the ordinary course
8of business, and the use of acceptable collateral in a manner
9that reflects the liquidity needs of the transaction.
10c. The extent to which the insurer may engage in
11transactions under this subsection.
1215. Foreign investments. An insurer may acquire foreign
13investments, or engage in investment practices with persons
14or business entities of or in foreign jurisdictions of
15substantially the same types as those investments that an
16insurer is permitted to acquire under this subsection, if, as a
17result and after giving effect to the investment the following
18apply:
19a. The aggregate amount of foreign investments then held
20by the insurer under this subsection does not exceed twenty
21percent of the insurer’s admitted assets.
22b. The aggregate amount of foreign investments under
23this subsection then held by the insurer in a single foreign
24jurisdiction that has a sovereign debt rating of SVO 1 does not
25exceed ten percent of the insurer’s admitted assets, or does
26not exceed three percent of the insurer’s admitted assets as to
27any other foreign jurisdiction.
28c. Investments acquired under this subsection shall be
29aggregated with investments of the same type made in a similar
30manner under any other subsection of this section for purposes
31of determining compliance with any limitations contained in any
32other subsection of this section.
33d. This subsection shall not authorize investments issued,
34assumed, or guaranteed by a foreign government which has
35engaged in a consistent pattern of gross violations of human
-17-1rights.
216. Derivative transactions. An insurer may engage in
3derivative transactions if the insurer complies with all of the
4following conditions:
5a. The insurer shall include all counterparty exposure
6amounts, net of collateral held, in determining compliance with
7the limitations of subsections 6 and 7.
8b. The insurer shall have sufficient experience with
9derivatives such that the insurer’s performance and procedures
10reflect all of the following:
11(1) That the insurer has a successful history of adequately
12identifying, measuring, monitoring, and limiting exposures
13associated with derivative transactions.
14(2) That the insurer has adequate corporate controls over
15the activities in subparagraph (1).
16(3) That the insurer has sufficient staff who are
17knowledgeable, competent, and skilled in the use of the
18sophisticated financial instruments necessary to execute
19subparagraph (1).
20c. Prior to engaging in a derivative transaction under
21this subsection, the insurer shall develop guidelines and
22internal control procedures pursuant to rules promulgated by
23the commissioner.
24d. An insurer may use derivative instruments to engage in
25any of the following:
26(1) Hedging transactions, provided that the insurer shall
27be able to demonstrate the intended hedging characteristics
28and the ongoing effectiveness of the derivative transaction or
29combination of transactions through cash flow testing or other
30appropriate analysis.
31(2) Income generation transactions, provided that the
32transaction is one of the following:
33(a) A sale of a call option on assets, if during the entire
34period the option is outstanding, the insurer holds, or has a
35currently exercisable right to acquire, the underlying assets.
-18- 1(b) A sale of a put option on assets, if during the entire
2period the option is outstanding, the insurer holds sufficient
3short-term liquidity to purchase the underlying assets on
4exercise of the option, the insurer has the ability to hold the
5underlying assets in the insurer’s portfolio, and the total
6market value of the put options sold by the insurer does not
7exceed two percent of the insurer’s admitted assets.
8(c) A sale of a covered cap or floor, if the insurer holds
9in the insurer’s portfolio the investments generating the
10cash flow necessary to make the required payments under the
11cap or floor during the complete term that cap or floor is
12outstanding.
13(3) Replication transactions, provided that all of the
14following apply:
15(a) The insurer is otherwise authorized to invest in the
16asset being replicated.
17(b) The asset being replicated is subject to this section
18as if the transaction constitutes a direct investment by the
19insurer in the replicated asset.
20(c) The transaction is filed timely with the SVO as a
21replicated synthetic asset transaction.
2217. Policy loans. An insurer may make a loan on any of the
23insurer’s policies in an amount not to exceed the reserve that
24the insurer is required to maintain on the policy on which a
25loan is made.
2618. Preferred stock. An insurer may acquire preferred
27stock, if, as a result of and after giving effect to the
28investment, the aggregate amount of preferred stock held by the
29insurer does not exceed twenty-five percent of the insurer’s
30admitted assets, and the aggregate amount of preferred stocks
31held by the insurer that are not designated P1 or P2 by the SVO
32does not exceed ten percent of the insurer’s admitted assets.
3319. Collateral loans and other debt securities secured by
34collateral. An insurer may acquire collateral loans or other
35debt securities secured by collateral consisting of any assets
-19-1or investments permitted under this section, provided that
2the amount of the loan is not in excess of ninety percent of
3the value of the collateral. For the purpose of determining
4compliance with the quantitative limits in this subsection, the
5collateral pledged to the insurer shall be aggregated with the
6insurer’s direct investments.
720. Additional authorized investments. An insurer may
8acquire investments not otherwise authorized under this
9section, or that exceed the limitation of this section in
10an amount in the aggregate not exceeding ten percent of the
11insurer’s admitted assets.
12a. Investments authorized under this subsection shall not
13include investments prohibited under subsection 4.
14b. An insurer shall not make investments under this
15subsection if the insurer fails to maintain at least company
16action level risk-based capital as defined by the NAIC.
17c. This subsection shall not be construed to permit any
18asset not allowed as an admitted asset under the requirements
19of the accounting practices and procedures manual to be
20considered an admitted asset under this section.
2121. Application of limitations. An investment qualified,
22in whole or in part, for acquisition or holding as an admitted
23asset may be qualified or requalified, in whole or in part, by
24the insurer at either the time of acquisition or a later date
25under any subsection of this section if the relevant conditions
26contained in the applicable subsection are satisfied at the
27time of the insurer’s qualification or requalification.
2822. Rules. The commissioner may adopt rules pursuant to
29chapter 17A to administer this section.
3023. Enforcement. Investments not conforming to this section
31shall not be admitted assets. The commissioner may take any
32enforcement action under the commissioner’s authority to
33enforce compliance with this section.
34 Sec. 6. Section 511.8A, Code 2023, is amended to read as
35follows:
-20- 1511.8A Agricultural land.
2Agricultural land, as defined in section 9H.1, acquired as
3provided in section 511.8, subsection 10, paragraph “b”, a
4result of foreclosure or in settlement or in satisfaction of
5any indebtedness by a life insurance company or association
6incorporated by or organized under the laws of this or any
7other state, shall be sold or otherwise disposed of by the
8company or association within five years after title is vested
9in the company or association. A life insurance company or
10association is a corporation for purposes of chapter 9H.
11 Sec. 7. Section 512B.21, Code 2023, is amended to read as
12follows:
13512B.21 Investments.
14A society shall invest its the society’s funds only as
15authorized by the laws of this state for the investment of
16assets of life insurers and subject to the same limitations. A
17foreign or alien society permitted or seeking to do business in
18this state which invests its funds in accordance with the laws
19of the state or nation in which it the foreign or alien society
20 is incorporated, shall be held to meet the requirements of this
21section for the investment of funds. A society organized under
22the laws of this state shall deposit securities as required of
23life insurance companies pursuant to section 511.8, subsection
2416.
25 Sec. 8. Section 514B.15, Code 2023, is amended to read as
26follows:
27514B.15 Investments.
28With the exception of investments made in accordance with
29section 514B.6, the investable funds of a health maintenance
30organization shall be invested only in securities or other
31investments permitted by section 511.8 for the investment
32of assets constituting the legal reserves of life insurance
33companies or such other securities or investments as the
34commissioner may permit. For purposes of this section,
35investable funds of a health maintenance organization are
-21-1all moneys held in trust for the purpose of fulfilling the
2obligations incurred by a health maintenance organization in
3providing health care services to enrollees.
4 Sec. 9. Section 521A.2, subsection 1, paragraph c, Code
52023, is amended to read as follows:
6c. Investing, reinvesting, or trading in securities and
7financial instruments as defined in derivative transactions
8pursuant to section 511.8, subsection 22 16, for its the
9domestic insurer’s own account, that of its parent, any
10subsidiary of its parent, or any affiliate or subsidiary.
11 Sec. 10. Section 521A.2, subsection 3, paragraph d, Code
122023, is amended to read as follows:
13d. Invest, reinvest, and trade in financial instruments as
14defined in derivative transactions pursuant to section 511.8,
15subsection 22 16, for its the domestic insurer’s own account,
16that of its parent, any subsidiary of its parent, or any
17affiliate or subsidiary.
18EXPLANATION
19The inclusion of this explanation does not constitute agreement with
20the explanation’s substance by the members of the general assembly.
21This bill relates to investments of funds by life insurers.
22The bill strikes and replaces Code section 511.8, and makes
23changes to the investments that life insurance companies
24organized under Code chapter 508 are allowed to acquire.
25The commissioner of insurance may adopt rules to administer
26the bill and may take any enforcement action under the
27commissioner’s authority to enforce compliance with the bill.
28The bill makes conforming changes to Code sections
29508.13(1), 508.14(1), 508.14(3), 508.29, 508C.8(9)(c), 511.8A,
30512B.21, 514B.15, 521A.2(1)(c), and 521A.2(3)(d).
-22-ko/rn
2including applicability provisions.
3BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 508.13, subsection 1, Code 2023, is
2amended to read as follows:
31. On receipt of an application for a certificate of
4authority or renewal of a certificate of authority, the
5appropriate fees, the deposit provided in section 511.8,
6subsection 16, and the statement, and the statement and
7evidence of investment of foreign companies, the commissioner
8of insurance shall issue a certificate or a renewal of a
9certificate setting forth the corporate name of the company,
10its home office, that it has fully complied with the laws of
11the state and is authorized to transact the business of life
12insurance for the ensuing year, which certificate shall expire
13on the first day of June of the ensuing year, or sooner upon
14thirty days’ notice given by the commissioner, of the next
15annual valuation of its policies.
16 Sec. 2. Section 508.14, subsections 1 and 3, Code 2023, are
17amended to read as follows:
181. Upon a failure of a company organized under the laws
19of this state to make the deposit provided in section 511.8,
20subsection 16, or file the statement in the time stated in
21section 508.11, or to file in a timely manner any financial
22statement required by rule of the commissioner of insurance,
23the commissioner of insurance shall notify the attorney general
24of the default, who and the attorney general shall at once
25 apply to the district court of the county where the home
26office of the company is located for an order requiring the
27company to show cause, upon reasonable notice to be fixed as
28determined by the court, why its the company’s business shall
29not be discontinued. If, upon the hearing, sufficient cause is
30not shown, the court shall decree its the dissolution of the
31company.
323. The commissioner may give notice to a company, which
33 that has failed to file evidence of deposit and all of the
34company’s delinquent statements within the required time
35fixed, that the company is in violation of this section. If
-1-1the company fails to file evidence of deposit and all of the
2company’s delinquent statements within ten days of the date of
3the notice, the company is shall be subject to an additional
4administrative penalty of one hundred dollars for each day the
5failure continues.
6 Sec. 3. Section 508.29, Code 2023, is amended to read as
7follows:
8508.29 Authority to write other insurance.
91. Any life insurance company organized on the stock or
10mutual plan, and that is authorized by its the company’s
11 charter or articles of incorporation so to do, may in addition
12to such life insurance, insure, either individually or on
13the group plan, the health of persons and against personal
14injuries, disablement or death, resulting from traveling or
15general accidents by land or water, and insure employers
16against loss in consequence of accidents or casualties of any
17kind to employees or other persons, or to property resulting
18from any act of the employee or any accident or casualty to
19persons or property, or both, occurring in or connected with
20the transaction of their transacting the employer’s business,
21or from the operation of any machinery connected therewith with
22transacting the employer’s business, but nothing contained
23in this section shall be construed to authorize any life
24insurance company to insure against loss or injury to person,
25or property, or both, growing out of explosion or rupture
26of steam boilers. An insurer may contract with health care
27service providers and offer different levels of benefits to
28policyholders based upon the provider contracts.
292. A company insuring risks authorized by this section shall
30invest or hold in cash, funds equal to seventy-five percent of
31the aggregate reserves and policy and contract claims for such
32risks. Investments required by this subsection shall only be
33made in securities enumerated in section 511.8, and are subject
34to the same limitations as provided for the investment of legal
35reserve, and are subject to section 511.8, subsections 16, 17,
-2-1and 21.
2 Sec. 4. Section 508C.8, subsection 9, paragraph c, Code
32023, is amended to read as follows:
4c. Borrow money to effect the purposes of this chapter. Any
5notes or other evidence of indebtedness of the association held
6by domestic insurers and not in default qualify as investments
7eligible for deposit under section 511.8, subsection 16.
8 Sec. 5. Section 511.8, Code 2023, is amended by striking the
9section and inserting in lieu thereof the following:
10511.8 Investment of funds.
111. Definitions. As used in this section unless the context
12otherwise requires:
13a. “Accounting practices and procedures manual” means the
14most recent edition of the national association of insurance
15commissioner’s accounting practices and procedures manual.
16b. “Admitted assets” means the assets permitted to be
17reported as admitted assets on an insurer’s most recent
18statutory financial statement required to be filed with the
19commissioner. “Admitted assets” shall include reinsurance funds
20withheld. “Admitted assets” shall not include assets held in
21nonguaranteed separate accounts.
22c. “Affiliate of” means the same as defined in section
23521A.1.
24d. “Business entity” means a sole proprietorship,
25corporation, limited liability company, association,
26partnership, joint stock company, joint venture, mutual
27fund, trust, joint tenancy or other similar form of business
28organization, whether organized for-profit or not-for-profit.
29e. “Capital and surplus” means the sum of capital and
30surplus of an insurer that is required to be shown on an
31insurer’s most recent statutory financial statement required to
32be filed with the commissioner.
33f. “Collateral loan” means an unconditional obligation
34for the payment of money that is secured by the pledge of
35any assets or investments permitted under this section. A
-3-1collateral loan cannot be a mortgage loan, rated credit
2instrument, or other debt security as defined in this
3subsection.
4g. “Commissioner” means the commissioner of insurance.
5h. “Equity interest” means any of the following:
6(1) A common stock.
7(2) A trust certificate.
8(3) An equity investment in an investment company other than
9an SVO-listed fixed income or preferred stock fund.
10(4) An investment in a common trust fund with a bank that is
11regulated by a federal or state agency as trustee.
12(5) An ownership interest in minerals, oil, or gas, the
13rights to which have been separated from the underlying fee
14interest in the real estate where the minerals, oil, or gas are
15located.
16(6) An instrument that is mandatorily, or at the option of
17the issuer, convertible to equity.
18(7) A limited partnership interest or a general partnership
19interest as authorized under subsection 4.
20(8) An ownership interest in a limited liability company.
21(9) A warrant or other right to acquire an ownership
22interest that is created by the person that either owns or will
23issue the ownership interest to be acquired.
24(10) An investment categorized as an equity interest under
25subsection 5.
26i. “Foreign investment” means an investment in a foreign
27jurisdiction, or an investment in an entity, real estate, or
28asset domiciled in a foreign jurisdiction. “Foreign investment”
29shall not include any of the following:
30(1) An asset for which the issuing person or guarantor is
31the United States or Canada, or is domiciled in the United
32States or Canada.
33(2) An asset for which the issuing person is domiciled in a
34foreign jurisdiction that has a sovereign debt rating of SVO 1,
35and the issuing person is a fund or other investment vehicle
-4-1that invests, directly or indirectly, substantially all of
2its assets in investments which are not foreign investments.
3If an insurer invests in an asset under this subparagraph,
4the commissioner may require the insurer to disclose to
5the commissioner the investments held by the fund or other
6investment vehicle.
7j. “Hedging transaction” means a derivative transaction
8entered into and maintained by an insurer to reduce any of the
9following:
10(1) The risk of a change in the value, yield, price,
11cash flow, or quantity of assets or liabilities which the
12insurer has acquired or incurred, or anticipates acquiring or
13incurring.
14(2) Currency exchange rate risk or the degree of exposure
15as to assets or liabilities that the insurer has acquired or
16incurred, or anticipates acquiring or incurring.
17k. “Income generation transaction” means a derivative
18transaction that involves writing a covered call option,
19covered put option, covered cap, or covered floor, and that is
20intended to generate income or enhance return.
21l. “Insurer” means a company organized as a life insurance
22company under chapter 508.
23m. “Investment company” means an investment company as
24defined in section 3(a) of the federal Investment Company Act
25of 1940, as amended, and as codified at 15 U.S.C. §§80a-3 et
26seq., and a person described in section 3(c) of the federal
27Investment Company Act.
28n. “Investment subsidiary” means a subsidiary of an insurer
29that is engaged or organized to engage exclusively in the
30ownership and management of assets authorized as investments
31for the insurer.
32o. “Lower grade investment” means a rated credit instrument
33that is designated 4, 5, or 6 by the SVO.
34p. “Medium grade investment” means a rated credit instrument
35that is designated 3 by the SVO.
-5- 1q. “Mortgage loan” means an obligation secured by a
2mortgage, deed of trust, trust deed, or other consensual lien
3on real estate. “Mortgage loan” includes a leasehold estate
4in real property if fifty years or more of the term, including
5renewals, is unexpired.
6r. “NAIC” means the national association of insurance
7commissioners.
8s. “Nonguaranteed separate account” means a separate account
9for which the insurer’s general account bears no risk related
10to performance of the separate account assets.
11t. “Other debt security” means an investment in the form
12of a debt security that does not qualify as a bond, however,
13the investment does qualify as an admissible asset under the
14accounting practices and procedures manual.
15u. “Person” means an individual, a business entity,
16a multilateral development bank, or a governmental or
17quasi-governmental body such as a political subdivision or a
18government-sponsored enterprise.
19v. “Rated credit instrument” means an investment that
20is qualified as a bond under the accounting practices and
21procedures manual, such as evidence of indebtedness of a
22governmental unit or the instrumentality of the governmental
23unit, or of a private business entity. “Rated credit
24instrument” includes asset-backed securities, bank loans, and
25SVO-listed funds that have a SVO designation, and that qualify
26as a bond under the manual.
27w. “Real estate” means any of the following:
28(1) Real property.
29(2) Interests in real property such as leaseholds, and
30minerals, oil, and gas that have not been separated from the
31underlying fee interest.
32(3) Improvements and fixtures located on or in the real
33property.
34(4) The buyer’s equity in a contract providing for a sale
35of real estate.
-6- 1(5) An investment categorized as real estate under
2subsection 5.
3x. “Replication transaction” means a derivative transaction
4entered into in conjunction with other investments in order
5to reproduce the investment characteristics of otherwise
6permissible investments. “Replication transaction” does not
7include a derivative transaction that is entered into as a
8hedging transaction.
9y. “Securities valuation office” or “SVO” means the
10securities valuation office of the NAIC, or a successor entity.
11z. “Short-term investment” means a highly liquid investment
12or security that has a remaining term of maturity between
13ninety days and three hundred sixty-five days, and that is
14qualified as a short-term investment under the accounting
15practices and procedures manual.
162. Prudence evaluation criteria.
17a. For all investments under this section, an insurer
18shall perform the insurer’s duties in good faith and with the
19degree of care that persons of reasonable prudence in a similar
20position exercise in a similar circumstance. The following
21factors shall be evaluated by the insurer and considered along
22with the insurer’s business to determine if an investment
23portfolio or an investment policy is prudent:
24(1) General economic conditions.
25(2) The expected tax consequences of an investment decision
26or strategy.
27(3) The fairness and reasonableness of the terms of an
28investment in relation to the investment’s risk and reward
29characteristics.
30(4) The effect of an investment on the characteristics of
31the insurer’s investment portfolio as a whole.
32(5) The extent of the diversification of the insurer’s
33investments among all of the following:
34(a) Individual investments.
35(b) Classes of investments.
-7- 1(c) Industry concentrations.
2(d) Issuers.
3(e) Geographic areas.
4(6) The economic substance of investments in affiliates.
5(7) The investment exposure to each of the following risks,
6consistent with the insurer’s acceptable risk level identified
7under subsection 3:
8(a) Liquidity.
9(b) Credit and default.
10(c) Market.
11(d) Interest rate, including duration and convexity.
12(e) Currency.
13(8) The amount of the insurer’s assets, premium writings
14and insurance in force, level of capitalization, and other
15appropriate characteristics.
16(9) The amount and adequacy of the insurer’s reported
17liabilities.
18(10) The relationship, and the risk of adverse changes,
19of the expected cash flows of the insurer’s assets and
20liabilities.
21(11) The relationship, and the risk of adverse changes, of
22the valuation of the insurer’s assets and liabilities.
23(12) The insurer’s level of expertise with various types of
24investments.
25(13) The ability of the insurer to model the underlying
26risks of an investment, with the modeling commensurate with the
27complexity of the investment.
28(14) The overall maturity of the insurer’s enterprise risk
29management and investment risk management frameworks.
30(15) The adequacy of the insurer’s capital and surplus to
31secure the liabilities of the insurer in consideration of the
32risk and potential magnitude of adverse experience or economic
33conditions.
34(16) The professional standards required by the insurer for
35the individuals who make day-to-day investment decisions on
-8-1behalf of the insurer.
2(17) Any other factors relevant to whether an investment is
3prudent.
4b. The commissioner shall consider each of the factors in
5paragraph “a”, subparagraphs (1) through (17), prior to making
6a determination that an insurer’s investment portfolio or
7investment policy is not prudent.
83. Insurer investment policies. In acquiring, investing,
9exchanging, holding, selling, and managing investments,
10an insurer shall establish and follow one or more written
11investment policies that shall be annually reviewed and
12approved by the insurer’s board of directors or the board of
13directors’ designee. The content and format of an insurer’s
14investment policies are at the insurer’s discretion; however,
15the investment policies must include written guidelines and
16controls appropriate to the insurer’s business. An insurer
17shall consider all of the following:
18a. Permissible asset types, including maximum or minimum
19internal limits regarding the composition of classes of
20investments.
21b. Periodic evaluation of the investment portfolio as to the
22portfolio’s risk and reward characteristics.
23c. The relationship of investments to the insurer’s
24insurance products and liabilities.
25d. The manner in which the insurer intends to implement
26subsection 2.
27e. The appropriate level of risk, based on quantitative
28measures, given the level of capitalization and expertise
29available to the insurer.
304. Prohibited investments. An insurer shall not, directly
31or indirectly, do any of the following:
32a. Except as provided in subsection 5, invest in an
33obligation or security, or make a guarantee for the benefit of
34or in favor of an officer or director of the insurer.
35b. Except as provided in chapter 521A or subsection 5,
-9-1invest in an obligation or security of, make a guarantee for
2the benefit of or in favor of, or make other investments in,
3a business entity in which ten percent or more of the voting
4securities or equity interests are owned directly or indirectly
5by or for the benefit of one or more officers or directors of
6the insurer.
7c. Engage on the insurer’s own behalf, or through one or
8more affiliates, in a transaction or series of transactions
9intended to evade the prohibited investments under this
10subsection.
11d. Act or invest as a general partner, with the following
12exceptions:
13(1) If all other partners in the partnership are
14subsidiaries of the insurer.
15(2) For the purpose of any of the following:
16(a) Meeting cash calls committed to by the partnership prior
17to July 1, 2023.
18(b) Completing specific projects or activities of the
19partnership in which the insurer was a general partner before
20July 1, 2023, and that had been undertaken before July 1, 2023.
21(c) Making capital improvements to property owned by the
22partnership before July 1, 2023, if the insurer was a general
23partner before July 1, 2023.
24e. Notwithstanding paragraphs “c” and “d”, a subsidiary or
25an affiliate of an insurer shall not be prohibited from acting
26or investing as a general partner.
27f. (1) Invest in or lend the insurer’s funds upon the
28security of shares of the insurer’s own stock, except that an
29insurer may acquire shares of its own stock for any of the
30following purposes:
31(a) Conversion of a stock insurer into a mutual or
32reciprocal insurer, or a mutual or reciprocal insurer into a
33stock insurer.
34(b) Issuance to the insurer’s officers, employees, or
35agents in connection with a plan for converting a publicly
-10-1held insurer into a privately held insurer, as approved by the
2commissioner under section 508B.7, or in connection with other
3stock option and employee benefit plans.
4(c) In accordance with any other plan approved by the
5commissioner.
6(2) Stocks acquired by an insurer under subparagraph (1)
7shall not be admitted assets of the insurer.
85. Valuation and categorization of investments.
9a. Unless otherwise specified in this section, the
10valuation and categorization of, or the amount of, an insurer’s
11investment acquired or held under subsections 6 through 20,
12shall be the classification and value at which the assets of an
13insurer are required to be reported for statutory accounting
14purposes, as determined in accordance with the accounting and
15valuation standards of the NAIC including all of the following:
16(1) The most recently published purposes and procedures
17manual of the NAIC investment analysis office, or any successor
18purposes and procedures adopted by the NAIC investment analysis
19office.
20(2) The most recently published valuation of securities
21manual, or any successor valuation of securities procedures
22adopted by the NAIC.
23(3) The most recently published accounting practices and
24procedures manual, or any successor accounting practices and
25procedures adopted by the NAIC.
26(4) The most recently published annual statement
27instructions, or any successor annual statement instructions
28adopted by the NAIC.
29(5) Any successor valuation procedures adopted by the NAIC.
30b. Upon approval of the commissioner, an insurer’s
31investment in the equity interests of a business entity whose
32primary purpose is to directly or indirectly invest in and
33maintain assets and investments on behalf of the insurer and
34the insurer’s affiliates, or on behalf of the insurer or the
35insurer’s affiliates, may be deemed to be the insurer itself
-11-1investing in such assets and investments of the business entity
2based on the insurer’s pro-rata equity interest in the business
3entity.
46. General five-percent diversification.
5a. Except as otherwise specified in this section, an insurer
6shall not directly or indirectly acquire an investment under
7this section if, as a result of and after giving effect to the
8investment, the insurer will hold more than five percent of the
9insurer’s admitted assets in investments of all kinds issued,
10assumed, accepted, insured, or guaranteed by a single person.
11b. Notwithstanding paragraph “a”, an insurer shall not
12acquire an asset-backed security if, as a result of and after
13giving effect to the investment, the aggregate amount of
14asset-backed securities secured by or evidencing an interest
15in a single asset or single pool of assets held by a trust or
16other business entity then held by the insurer will exceed five
17percent of the insurer’s admitted assets.
18c. Notwithstanding paragraph “a”, an insurer shall not
19acquire a mortgage loan under subsection 12 if, as a result of
20and after giving effect to the investment, the aggregate amount
21of mortgage loans covering any one secured location will exceed
22five percent of the insurer’s admitted assets.
237. Medium and lower grade investments.
24a. An insurer shall not acquire an investment under this
25section, including counterparty exposure net of collateral
26held, if, as a result of and after giving effect to the
27investment any of the following apply:
28(1) The aggregate amount of medium and lower grade
29investments then held by the insurer will exceed twenty percent
30of the insurer’s admitted assets.
31(2) The aggregate amount of lower grade investments then
32held by the insurer will exceed ten percent of the insurer’s
33admitted assets.
34(3) The aggregate amount of investments designated 5 or 6 by
35the SVO then held by the insurer will exceed three percent of
-12-1the insurer’s admitted assets.
2(4) The aggregate amount of investments designated 6 by the
3SVO then held by the insurer will exceed one percent of the
4insurer’s admitted assets.
5b. An insurer shall not acquire an investment under this
6section, including counterparty exposure net of collateral
7held, if, as a result of and after giving effect to the
8investment all of the following apply:
9(1) The aggregate amount of medium and lower grade
10investments issued, assumed, guaranteed, accepted, or insured
11by any one person or, as to asset-backed securities secured
12by or evidencing an interest in a single asset or pool of
13assets, then held by the insurer will exceed one percent of the
14insurer’s admitted assets.
15(2) The aggregate amount of lower grade investments issued,
16assumed, guaranteed, accepted, or insured by any one person
17or, as to asset-backed securities secured by or evidencing an
18interest in a single asset or pool of assets, then held by the
19insurer will exceed one-half of one percent of the insurer’s
20admitted assets.
21c. If an insurer attains or exceeds the limit of any
22one designation category under this subsection, the insurer
23shall not be precluded from acquiring investments in
24other designation categories, subject to the specific and
25multi-category limits applicable to each of those investments.
268. Cash or cash equivalents. An insurer may acquire,
27without limitation, cash and cash equivalents as such terms are
28defined in the accounting practices and procedures manual.
299. Rated credit instruments and short-term investments. An
30insurer may acquire the following rated credit instruments and
31short-term investments subject to all of the following:
32a. The following credit instruments acquired under this
33subsection shall be subject to subsection 6, paragraphs “b” and
34“c”, and to subsection 7:
35(1) Credit instruments issued, assumed, guaranteed, or
-13-1insured by the United States or Canada.
2(2) Credit instruments issued, assumed, guaranteed, or
3insured by a government-sponsored enterprise of the United
4States or Canada, if the credit instruments are assumed,
5guaranteed, or insured by the United States or Canada, or are
6otherwise backed or supported by the full faith and credit of
7the United States or Canada.
8(3) Credit instruments, excluding asset-backed securities
9that are any of the following:
10(a) Issued, assumed, guaranteed, or insured by a
11government-sponsored enterprise of a government other than the
12United States or Canada.
13(b) Issued, assumed, guaranteed, or insured by a state, if
14the instruments are general obligations of the state.
15b. Short-term investments acquired under this subsection
16shall be subject to subsection 6.
17c. All other rated credit instruments acquired under this
18subsection shall be subject to subsections 6 and 7.
19d. Foreign investments acquired under this subsection shall
20be subject to subsection 15.
2110. Equity interests. An insurer may acquire equity
22interests subject to all of the following:
23a. An insurer shall not acquire an investment under this
24subsection, if, as a result of and after giving effect to the
25investment the aggregate amount of investments then held by
26the insurer will exceed ten percent of the insurer’s admitted
27assets.
28b. Foreign investments acquired under this subsection shall
29be subject to subsection 15.
30c. Equity interests in subsidiary corporations, as
31authorized by section 508.33, shall be eligible investments
32if the total investment does not exceed five percent of the
33insurer’s admitted assets. Upon application to and approval
34of the commissioner, an insurer may acquire additional equity
35interests in direct or indirect subsidiary insurance companies
-14-1that are domiciled in the United States, not to exceed an
2additional two percent of the insurer’s admitted assets.
3d. In addition to the investments authorized in paragraphs
4“a”, “b”, and “c”, an insurer may acquire equity interests in
5subsidiary entities as permitted by, and as subject to the
6limitations of, section 521A.2.
711. Tangible personal property.
8a. An insurer may acquire obligations secured by tangible
9personal property that is under contract of sale or lease for
10which contractual payments may reasonably be expected to return
11the principal of, and provide earnings on, the investment
12within the anticipated useful life of the tangible personal
13property.
14b. An insurer shall not acquire an obligation under
15paragraph “a”, if, as a result of and after giving effect to
16the investment, the aggregate amount of investments then held
17by the insurer under this subsection will exceed either of the
18following:
19(1) Two percent of the insurer’s admitted assets.
20(2) One-half of one percent of the insurer’s admitted assets
21as to any single item of tangible personal property.
2212. Mortgage loans.
23a. An insurer may acquire obligations secured by a mortgage
24or deed of trust that is a first or second lien upon otherwise
25unencumbered real estate, or upon leasehold estates in real
26property if fifty years or more of the term including renewals
27is unexpired, or other similar instruments, including mezzanine
28loans provided all of the following apply:
29(1) The amount loaned by the insurer, together with any
30amount secured by an equal or prior security interest, whether
31of the insurer or another party, does not exceed ninety percent
32of the appraised value of the real estate and improvements at
33the time the insurer makes the investment, as evidenced by a
34current qualified external appraisal or an internal appraisal
35conducted using standards comparable to an external appraisal.
-15- 1(2) The amount of an obligation required to be included in
2the calculation of the loan-to-value ratio may be reduced to
3the extent the obligation is insured or guaranteed by an agency
4of the United States government.
5(3) A mezzanine loan acquired under this subsection shall
6not exceed four percent of an insurer’s admitted assets.
7b. This subsection shall not be construed to prevent any
8amount invested under this subsection that exceeds ninety
9percent of the appraised value of the real estate from being
10an authorized asset under subsection 10, paragraph “a”, or
11subsection 20, subject to the limitations of subsection 10,
12paragraph “a”, and subsection 20.
1313. Real estate. An insurer may acquire real estate either
14directly or through certificates evidencing participation with
15other investors.
16a. An insurer may acquire real estate required for the
17insurer’s home offices, or to be otherwise occupied by the
18insurer or the insurer’s employees in transacting the insurer’s
19business, and the insurer may lease any unused space to
20other occupants. The value of an insurer’s investments under
21this paragraph shall not exceed ten percent of the insurer’s
22admitted assets.
23b. Excluding investments under paragraph “a”, an insurer’s
24investments under this subsection shall not exceed fifteen
25percent of the insurer’s admitted assets.
26c. An insurer’s aggregate investments under this subsection
27and subsection 12 shall not exceed forty-five percent of the
28insurer’s admitted assets.
2914. Securities lending, repurchase, reverse repurchase,
30and dollar roll transactions. An insurer may enter into
31securities lending, repurchase, reverse repurchase, and dollar
32roll transactions with business entities, provided that the
33insurer’s board of directors, or the board of directors’
34designee, adopts a written plan that is consistent with the
35insurer’s investment policies under subsection 3, and that
-16-1specifies guidelines and objectives including all of the
2following:
3a. A description of how any cash received will either be
4invested or used for the insurer’s general corporate purposes.
5b. Operational procedures to manage interest rate risk,
6counterparty default risk, the conditions under which proceeds
7from repurchase transactions may be used in the ordinary course
8of business, and the use of acceptable collateral in a manner
9that reflects the liquidity needs of the transaction.
10c. The extent to which the insurer may engage in
11transactions under this subsection.
1215. Foreign investments. An insurer may acquire foreign
13investments, or engage in investment practices with persons
14or business entities of or in foreign jurisdictions of
15substantially the same types as those investments that an
16insurer is permitted to acquire under this subsection, if, as a
17result and after giving effect to the investment the following
18apply:
19a. The aggregate amount of foreign investments then held
20by the insurer under this subsection does not exceed twenty
21percent of the insurer’s admitted assets.
22b. The aggregate amount of foreign investments under
23this subsection then held by the insurer in a single foreign
24jurisdiction that has a sovereign debt rating of SVO 1 does not
25exceed ten percent of the insurer’s admitted assets, or does
26not exceed three percent of the insurer’s admitted assets as to
27any other foreign jurisdiction.
28c. Investments acquired under this subsection shall be
29aggregated with investments of the same type made in a similar
30manner under any other subsection of this section for purposes
31of determining compliance with any limitations contained in any
32other subsection of this section.
33d. This subsection shall not authorize investments issued,
34assumed, or guaranteed by a foreign government which has
35engaged in a consistent pattern of gross violations of human
-17-1rights.
216. Derivative transactions. An insurer may engage in
3derivative transactions if the insurer complies with all of the
4following conditions:
5a. The insurer shall include all counterparty exposure
6amounts, net of collateral held, in determining compliance with
7the limitations of subsections 6 and 7.
8b. The insurer shall have sufficient experience with
9derivatives such that the insurer’s performance and procedures
10reflect all of the following:
11(1) That the insurer has a successful history of adequately
12identifying, measuring, monitoring, and limiting exposures
13associated with derivative transactions.
14(2) That the insurer has adequate corporate controls over
15the activities in subparagraph (1).
16(3) That the insurer has sufficient staff who are
17knowledgeable, competent, and skilled in the use of the
18sophisticated financial instruments necessary to execute
19subparagraph (1).
20c. Prior to engaging in a derivative transaction under
21this subsection, the insurer shall develop guidelines and
22internal control procedures pursuant to rules promulgated by
23the commissioner.
24d. An insurer may use derivative instruments to engage in
25any of the following:
26(1) Hedging transactions, provided that the insurer shall
27be able to demonstrate the intended hedging characteristics
28and the ongoing effectiveness of the derivative transaction or
29combination of transactions through cash flow testing or other
30appropriate analysis.
31(2) Income generation transactions, provided that the
32transaction is one of the following:
33(a) A sale of a call option on assets, if during the entire
34period the option is outstanding, the insurer holds, or has a
35currently exercisable right to acquire, the underlying assets.
-18- 1(b) A sale of a put option on assets, if during the entire
2period the option is outstanding, the insurer holds sufficient
3short-term liquidity to purchase the underlying assets on
4exercise of the option, the insurer has the ability to hold the
5underlying assets in the insurer’s portfolio, and the total
6market value of the put options sold by the insurer does not
7exceed two percent of the insurer’s admitted assets.
8(c) A sale of a covered cap or floor, if the insurer holds
9in the insurer’s portfolio the investments generating the
10cash flow necessary to make the required payments under the
11cap or floor during the complete term that cap or floor is
12outstanding.
13(3) Replication transactions, provided that all of the
14following apply:
15(a) The insurer is otherwise authorized to invest in the
16asset being replicated.
17(b) The asset being replicated is subject to this section
18as if the transaction constitutes a direct investment by the
19insurer in the replicated asset.
20(c) The transaction is filed timely with the SVO as a
21replicated synthetic asset transaction.
2217. Policy loans. An insurer may make a loan on any of the
23insurer’s policies in an amount not to exceed the reserve that
24the insurer is required to maintain on the policy on which a
25loan is made.
2618. Preferred stock. An insurer may acquire preferred
27stock, if, as a result of and after giving effect to the
28investment, the aggregate amount of preferred stock held by the
29insurer does not exceed twenty-five percent of the insurer’s
30admitted assets, and the aggregate amount of preferred stocks
31held by the insurer that are not designated P1 or P2 by the SVO
32does not exceed ten percent of the insurer’s admitted assets.
3319. Collateral loans and other debt securities secured by
34collateral. An insurer may acquire collateral loans or other
35debt securities secured by collateral consisting of any assets
-19-1or investments permitted under this section, provided that
2the amount of the loan is not in excess of ninety percent of
3the value of the collateral. For the purpose of determining
4compliance with the quantitative limits in this subsection, the
5collateral pledged to the insurer shall be aggregated with the
6insurer’s direct investments.
720. Additional authorized investments. An insurer may
8acquire investments not otherwise authorized under this
9section, or that exceed the limitation of this section in
10an amount in the aggregate not exceeding ten percent of the
11insurer’s admitted assets.
12a. Investments authorized under this subsection shall not
13include investments prohibited under subsection 4.
14b. An insurer shall not make investments under this
15subsection if the insurer fails to maintain at least company
16action level risk-based capital as defined by the NAIC.
17c. This subsection shall not be construed to permit any
18asset not allowed as an admitted asset under the requirements
19of the accounting practices and procedures manual to be
20considered an admitted asset under this section.
2121. Application of limitations. An investment qualified,
22in whole or in part, for acquisition or holding as an admitted
23asset may be qualified or requalified, in whole or in part, by
24the insurer at either the time of acquisition or a later date
25under any subsection of this section if the relevant conditions
26contained in the applicable subsection are satisfied at the
27time of the insurer’s qualification or requalification.
2822. Rules. The commissioner may adopt rules pursuant to
29chapter 17A to administer this section.
3023. Enforcement. Investments not conforming to this section
31shall not be admitted assets. The commissioner may take any
32enforcement action under the commissioner’s authority to
33enforce compliance with this section.
34 Sec. 6. Section 511.8A, Code 2023, is amended to read as
35follows:
-20- 1511.8A Agricultural land.
2Agricultural land, as defined in section 9H.1, acquired as
3provided in section 511.8, subsection 10, paragraph “b”, a
4result of foreclosure or in settlement or in satisfaction of
5any indebtedness by a life insurance company or association
6incorporated by or organized under the laws of this or any
7other state, shall be sold or otherwise disposed of by the
8company or association within five years after title is vested
9in the company or association. A life insurance company or
10association is a corporation for purposes of chapter 9H.
11 Sec. 7. Section 512B.21, Code 2023, is amended to read as
12follows:
13512B.21 Investments.
14A society shall invest its the society’s funds only as
15authorized by the laws of this state for the investment of
16assets of life insurers and subject to the same limitations. A
17foreign or alien society permitted or seeking to do business in
18this state which invests its funds in accordance with the laws
19of the state or nation in which it the foreign or alien society
20 is incorporated, shall be held to meet the requirements of this
21section for the investment of funds. A society organized under
22the laws of this state shall deposit securities as required of
23life insurance companies pursuant to section 511.8, subsection
2416.
25 Sec. 8. Section 514B.15, Code 2023, is amended to read as
26follows:
27514B.15 Investments.
28With the exception of investments made in accordance with
29section 514B.6, the investable funds of a health maintenance
30organization shall be invested only in securities or other
31investments permitted by section 511.8 for the investment
32of assets constituting the legal reserves of life insurance
33companies or such other securities or investments as the
34commissioner may permit. For purposes of this section,
35investable funds of a health maintenance organization are
-21-1all moneys held in trust for the purpose of fulfilling the
2obligations incurred by a health maintenance organization in
3providing health care services to enrollees.
4 Sec. 9. Section 521A.2, subsection 1, paragraph c, Code
52023, is amended to read as follows:
6c. Investing, reinvesting, or trading in securities and
7financial instruments as defined in derivative transactions
8pursuant to section 511.8, subsection 22 16, for its the
9domestic insurer’s own account, that of its parent, any
10subsidiary of its parent, or any affiliate or subsidiary.
11 Sec. 10. Section 521A.2, subsection 3, paragraph d, Code
122023, is amended to read as follows:
13d. Invest, reinvest, and trade in financial instruments as
14defined in derivative transactions pursuant to section 511.8,
15subsection 22 16, for its the domestic insurer’s own account,
16that of its parent, any subsidiary of its parent, or any
17affiliate or subsidiary.
18EXPLANATION
19The inclusion of this explanation does not constitute agreement with
20the explanation’s substance by the members of the general assembly.
21This bill relates to investments of funds by life insurers.
22The bill strikes and replaces Code section 511.8, and makes
23changes to the investments that life insurance companies
24organized under Code chapter 508 are allowed to acquire.
25The commissioner of insurance may adopt rules to administer
26the bill and may take any enforcement action under the
27commissioner’s authority to enforce compliance with the bill.
28The bill makes conforming changes to Code sections
29508.13(1), 508.14(1), 508.14(3), 508.29, 508C.8(9)(c), 511.8A,
30512B.21, 514B.15, 521A.2(1)(c), and 521A.2(3)(d).
-22-ko/rn