S.F. _____ H.F. _____ Section 1. Section 511.8, subsection 22, paragraph b, 1 subparagraph (2), subparagraph division (b), Code 2017, is 2 amended to read as follows: 3 (b) Financial instruments used in hedging transactions 4 between an insurer and a conduit which are collateralized by 5 obligations eligible under subsection 5 or by cash equivalents 6 eligible under subsection 24 , other than a class one rule 7 2a-7 money market fund, are eligible only to the extent that 8 such securities deposited as collateral are not in excess 9 of ten percent of the legal reserve, less any obligations 10 eligible under subsection 5 or cash equivalents eligible under 11 subsection 24 , other than a class one rule 2a-7 money market 12 fund, owned by the insurer or which are the subject of hedging 13 transactions by the insurer, that are included in the insurer’s 14 legal reserve. 15 Sec. 2. Section 511.8, subsection 23, paragraph c, Code 16 2017, is amended to read as follows: 17 c. If the loan is collateralized by cash or cash 18 equivalents, the cash or cash equivalent collateral may be 19 reinvested by the life insurance company or association in 20 class one rule 2a-7 money market funds as defined in subsection 21 24 , individual securities which are eligible for inclusion in 22 the legal reserve of the life insurance company or association, 23 or in repurchase agreements fully collateralized by such 24 securities if the life insurance company or association takes 25 delivery of the collateral either directly or through an 26 authorized custodian or pooled fund comprised of individual 27 securities which are eligible for inclusion in the legal 28 reserve of the life insurance company or association. If such 29 reinvestment is made in individual securities or in repurchase 30 agreements, the individual securities or the securities which 31 collateralize the repurchase agreements shall mature in less 32 than two hundred seventy days. If such reinvestment is made 33 in a pooled fund, the average maturity of the securities 34 comprising such pooled fund must be one hundred eighty days or 35 -1- LSB 1230XD (3) 87 av/rn/nh 1/ 6

S.F. _____ H.F. _____ less and the individual maturities of the securities comprising 1 such pooled fund must be three hundred ninety-seven days or 2 less. Individual securities and securities comprising the 3 pooled fund shall be investment grade. As used in this 4 paragraph, “maturity” means the earlier of the fixed date on 5 which the holder of the security is unconditionally entitled to 6 receive principal and interest in full or the date on which the 7 holder of the security is unconditionally entitled upon demand 8 to receive principal and interest in full. 9 Sec. 3. Section 511.8, subsection 24, paragraph a, 10 subparagraph (2), Code 2017, is amended to read as follows: 11 (2) “Class one “Rule 2a-7 money market fund” means 12 investments in an open-end management investment company 13 registered with the federal securities and exchange commission 14 under the federal Investment Company Act of 1940, 15 U.S.C. 15 §80a-1 et seq., and operated in accordance with 17 C.F.R. 16 §270.2a-7 , that qualifies for investment using the bond class 17 one reserve factor under the purposes and procedures of the 18 national association of insurance commissioners’ securities 19 valuation office . 20 Sec. 4. Section 511.8, subsection 24, paragraphs b and c, 21 Code 2017, are amended to read as follows: 22 b. Cash equivalents include a class one rule 2a-7 money 23 market fund. 24 c. Cash equivalents, other than a class one rule 2a-7 money 25 market fund, are not eligible in excess of two percent of the 26 legal reserve in the obligations of any one corporation, and 27 are not eligible in excess of ten percent of the legal reserve. 28 Sec. 5. Section 521B.102, unnumbered paragraph 1, Code 29 2017, is amended to read as follows: 30 Credit for reinsurance shall be allowed a domestic ceding 31 insurer as either an asset or a reduction from liability on 32 account of reinsurance ceded only when the reinsurer meets 33 the requirements of subsection 1 , 2 , 3 , 4 , 5 , or 6 . The 34 commissioner may adopt rules pursuant to section 521B.105 35 -2- LSB 1230XD (3) 87 av/rn/nh 2/ 6

S.F. _____ H.F. _____ specifying additional requirements related to the valuation of 1 assets or reserve credits, the amount and forms of security 2 supporting reinsurance arrangements described in section 3 521B.105, and the circumstances pursuant to which credit shall 4 be reduced or eliminated. Credit shall be allowed under 5 subsection 1 , 2 , or 3 only respecting cessions of those kinds 6 or classes of business which the assuming insurer is licensed 7 or otherwise permitted to write or assume in the insurer’s 8 state of domicile or, in the case of a United States branch 9 of an alien assuming insurer, in the state through which the 10 insurer is entered and licensed to transact insurance or 11 reinsurance. Credit shall be allowed under subsection 3 or 4 12 only if the applicable requirements of subsection 7 have been 13 satisfied. 14 Sec. 6. Section 521B.103, subsection 1, Code 2017, is 15 amended to read as follows: 16 1. An asset or a reduction from liability for reinsurance 17 ceded by a domestic insurer to an assuming insurer not meeting 18 the requirements of section 521B.102 , shall be allowed in an 19 amount not exceeding the liabilities carried by the ceding 20 insurer. The commissioner may adopt rules pursuant to section 21 521B.105 specifying requirements related to the valuation of 22 assets or reserve credits, the amount and forms of security 23 supporting reinsurance arrangements described in section 24 521B.105, and the circumstances pursuant to which credit shall 25 be reduced or eliminated. The reduction shall be in the amount 26 of funds held by or on behalf of the ceding insurer, including 27 funds held in trust for the ceding insurer, under a reinsurance 28 contract with the assuming insurer as security for the payment 29 of obligations under the contract, if the security is held 30 in the United States subject to withdrawal solely by, and 31 under the exclusive control of, the ceding insurer, or in the 32 case of a trust, held in a qualified United States financial 33 institution as defined in section 521B.104, subsection 2 . 34 Sec. 7. Section 521B.105, Code 2017, is amended to read as 35 -3- LSB 1230XD (3) 87 av/rn/nh 3/ 6

S.F. _____ H.F. _____ follows: 1 521B.105 Rules. 2 1. The commissioner may adopt rules, pursuant to chapter 3 17A , as necessary or convenient to administer this chapter . 4 2. The commissioner is further authorized to adopt rules 5 pursuant to chapter 17A that are applicable to reinsurance 6 arrangements as follows: 7 a. A rule adopted pursuant to this subsection is applicable 8 only to reinsurance arrangements relating to the following: 9 (1) Life insurance policies with guaranteed nonlevel gross 10 premiums or guaranteed nonlevel benefits. 11 (2) Universal life insurance policies with provisions 12 allowing a policyholder to keep a policy in force over a 13 secondary guarantee period. 14 (3) Variable annuities with guaranteed death or living 15 benefits. 16 (4) Long-term care insurance policies. 17 (5) Other life and health insurance and annuity products as 18 to which the national association of insurance commissioners 19 adopts model regulatory requirements with respect to credit for 20 reinsurance. 21 b. A rule adopted pursuant to paragraph “a” , and applicable 22 to policies described in paragraph “a” , subparagraph (1) or (2), 23 is applicable to any reinsurance contract containing either of 24 the following: 25 (1) Policies issued on or after January 1, 2015. 26 (2) Policies issued prior to January 1, 2015, if risk 27 pertaining to such policies is ceded in connection with the 28 reinsurance contract, in whole or in part, on or after January 29 1, 2015. 30 c. A rule adopted pursuant to this subsection may require 31 the ceding insurer, in calculating the amounts or forms of 32 security required to be held under rules adopted under this 33 subsection, to use the valuation manual as defined in section 34 508.36, including all amendments adopted by the national 35 -4- LSB 1230XD (3) 87 av/rn/nh 4/ 6

S.F. _____ H.F. _____ association of insurance commissioners and in effect on 1 the date as of which the calculation is made, to the extent 2 applicable. 3 3. A rule adopted pursuant to this section is not applicable 4 to cessions to an assuming insurer that meets either of the 5 following requirements: 6 a. Is certified in Iowa. 7 b. Maintains at least two hundred fifty million dollars 8 in capital and surplus when determined in accordance with the 9 accounting practices and procedures manual of the national 10 association of insurance commissioners, including all 11 amendments adopted by the national association of insurance 12 commissioners, but excluding the impact of any permitted 13 or prescribed practices; and meets either of the following 14 requirements: 15 (1) Is licensed in at least twenty-six states. 16 (2) Is licensed in at least ten states, and is licensed or 17 accredited in a total of at least thirty-five states. 18 4. The commissioner’s authority to adopt rules pursuant 19 to subsection 2 does not limit the commissioner’s general 20 authority to adopt rules pursuant to subsection 1. 21 Sec. 8. RETROACTIVE APPLICABILITY. The following provision 22 of this Act applies retroactively to January 1, 2015, as to 23 specified reinsurance contracts described in section 521B.105, 24 subsection 2, paragraph “b”, as enacted in this Act: 25 1. The section of this Act amending section 521B.105. 26 EXPLANATION 27 The inclusion of this explanation does not constitute agreement with 28 the explanation’s substance by the members of the general assembly. 29 This bill relates to provisions applicable to life insurance 30 companies and associations and credit for reinsurance, and 31 contains a retroactive applicability provision. 32 The bill makes changes in Code section 511.8 by renaming a 33 money market fund that is referred to in the provision. 34 The bill makes changes in several provisions of Code 35 -5- LSB 1230XD (3) 87 av/rn/nh 5/ 6

S.F. _____ H.F. _____ chapter 521B, giving the commissioner of insurance specific 1 authorization to adopt rules applicable to reinsurance 2 arrangements, in addition to the commissioner’s existing 3 authorization to adopt rules to administer the Code chapter. 4 The amendments to Code section 521B.105 are made 5 retroactively applicable to January 1, 2015, as to rules that 6 are adopted and are applicable to certain specified life 7 insurance policies with reinsurance contracts containing 8 policies issued on or after January 1, 2015, or policies issued 9 prior to January 1, 2015, if risk pertaining to the policies is 10 ceded in connection with the reinsurance contract on or after 11 January 1, 2015. 12 -6- LSB 1230XD (3) 87 av/rn/nh 6/ 6