Senate Study Bill 1084 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED DEPARTMENT OF COMMERCE/INSURANCE DIVISION BILL) A BILL FOR An Act relating to investments of funds by life insurers, and 1 including applicability provisions. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 1188XD (9) 90 ko/rn
S.F. _____ H.F. _____ Section 1. Section 508.13, subsection 1, Code 2023, is 1 amended to read as follows: 2 1. On receipt of an application for a certificate of 3 authority or renewal of a certificate of authority, the 4 appropriate fees, the deposit provided in section 511.8, 5 subsection 16 , and the statement, and the statement and 6 evidence of investment of foreign companies, the commissioner 7 of insurance shall issue a certificate or a renewal of a 8 certificate setting forth the corporate name of the company, 9 its home office, that it has fully complied with the laws of 10 the state and is authorized to transact the business of life 11 insurance for the ensuing year, which certificate shall expire 12 on the first day of June of the ensuing year, or sooner upon 13 thirty days notice given by the commissioner, of the next 14 annual valuation of its policies. 15 Sec. 2. Section 508.14, subsections 1 and 3, Code 2023, are 16 amended to read as follows: 17 1. Upon a failure of a company organized under the laws 18 of this state to make the deposit provided in section 511.8, 19 subsection 16 , or file the statement in the time stated in 20 section 508.11 , or to file in a timely manner any financial 21 statement required by rule of the commissioner of insurance, 22 the commissioner of insurance shall notify the attorney general 23 of the default, who and the attorney general shall at once 24 apply to the district court of the county where the home 25 office of the company is located for an order requiring the 26 company to show cause, upon reasonable notice to be fixed as 27 determined by the court, why its the companys business shall 28 not be discontinued. If, upon the hearing, sufficient cause is 29 not shown, the court shall decree its the dissolution of the 30 company . 31 3. The commissioner may give notice to a company , which 32 that has failed to file evidence of deposit and all of the 33 companys delinquent statements within the required time 34 fixed, that the company is in violation of this section . If 35 -1- LSB 1188XD (9) 90 ko/rn 1/ 22
S.F. _____ H.F. _____ the company fails to file evidence of deposit and all of the 1 companys delinquent statements within ten days of the date of 2 the notice, the company is shall be subject to an additional 3 administrative penalty of one hundred dollars for each day the 4 failure continues. 5 Sec. 3. Section 508.29, Code 2023, is amended to read as 6 follows: 7 508.29 Authority to write other insurance. 8 1. Any life insurance company organized on the stock or 9 mutual plan , and that is authorized by its the companys 10 charter or articles of incorporation so to do , may in addition 11 to such life insurance, insure, either individually or on 12 the group plan, the health of persons and against personal 13 injuries, disablement or death, resulting from traveling or 14 general accidents by land or water, and insure employers 15 against loss in consequence of accidents or casualties of any 16 kind to employees or other persons, or to property resulting 17 from any act of the employee or any accident or casualty to 18 persons or property, or both, occurring in or connected with 19 the transaction of their transacting the employers business, 20 or from the operation of any machinery connected therewith with 21 transacting the employers business , but nothing contained 22 in this section shall be construed to authorize any life 23 insurance company to insure against loss or injury to person, 24 or property, or both, growing out of explosion or rupture 25 of steam boilers. An insurer may contract with health care 26 service providers and offer different levels of benefits to 27 policyholders based upon the provider contracts. 28 2. A company insuring risks authorized by this section shall 29 invest or hold in cash, funds equal to seventy-five percent of 30 the aggregate reserves and policy and contract claims for such 31 risks. Investments required by this subsection shall only be 32 made in securities enumerated in section 511.8 , and are subject 33 to the same limitations as provided for the investment of legal 34 reserve, and are subject to section 511.8, subsections 16, 17, 35 -2- LSB 1188XD (9) 90 ko/rn 2/ 22
S.F. _____ H.F. _____ and 21 . 1 Sec. 4. Section 508C.8, subsection 9, paragraph c, Code 2 2023, is amended to read as follows: 3 c. Borrow money to effect the purposes of this chapter . Any 4 notes or other evidence of indebtedness of the association held 5 by domestic insurers and not in default qualify as investments 6 eligible for deposit under section 511.8 , subsection 16 . 7 Sec. 5. Section 511.8, Code 2023, is amended by striking the 8 section and inserting in lieu thereof the following: 9 511.8 Investment of funds. 10 1. Definitions. As used in this section unless the context 11 otherwise requires: 12 a. Accounting practices and procedures manual means the 13 most recent edition of the national association of insurance 14 commissioners accounting practices and procedures manual. 15 b. Admitted assets means the assets permitted to be 16 reported as admitted assets on an insurers most recent 17 statutory financial statement required to be filed with the 18 commissioner. Admitted assets shall include reinsurance funds 19 withheld. Admitted assets shall not include assets held in 20 nonguaranteed separate accounts. 21 c. Affiliate of means the same as defined in section 22 521A.1. 23 d. Business entity means a sole proprietorship, 24 corporation, limited liability company, association, 25 partnership, joint stock company, joint venture, mutual 26 fund, trust, joint tenancy or other similar form of business 27 organization, whether organized for-profit or not-for-profit. 28 e. Capital and surplus means the sum of capital and 29 surplus of an insurer that is required to be shown on an 30 insurers most recent statutory financial statement required to 31 be filed with the commissioner. 32 f. Collateral loan means an unconditional obligation 33 for the payment of money that is secured by the pledge of 34 any assets or investments permitted under this section. A 35 -3- LSB 1188XD (9) 90 ko/rn 3/ 22
S.F. _____ H.F. _____ collateral loan cannot be a mortgage loan, rated credit 1 instrument, or other debt security as defined in this 2 subsection. 3 g. Commissioner means the commissioner of insurance. 4 h. Equity interest means any of the following: 5 (1) A common stock. 6 (2) A trust certificate. 7 (3) An equity investment in an investment company other than 8 an SVO-listed fixed income or preferred stock fund. 9 (4) An investment in a common trust fund with a bank that is 10 regulated by a federal or state agency as trustee. 11 (5) An ownership interest in minerals, oil, or gas, the 12 rights to which have been separated from the underlying fee 13 interest in the real estate where the minerals, oil, or gas are 14 located. 15 (6) An instrument that is mandatorily, or at the option of 16 the issuer, convertible to equity. 17 (7) A limited partnership interest or a general partnership 18 interest as authorized under subsection 4. 19 (8) An ownership interest in a limited liability company. 20 (9) A warrant or other right to acquire an ownership 21 interest that is created by the person that either owns or will 22 issue the ownership interest to be acquired. 23 (10) An investment categorized as an equity interest under 24 subsection 5. 25 i. Foreign investment means an investment in a foreign 26 jurisdiction, or an investment in an entity, real estate, or 27 asset domiciled in a foreign jurisdiction. Foreign investment 28 shall not include any of the following: 29 (1) An asset for which the issuing person or guarantor is 30 the United States or Canada, or is domiciled in the United 31 States or Canada. 32 (2) An asset for which the issuing person is domiciled in a 33 foreign jurisdiction that has a sovereign debt rating of SVO 1, 34 and the issuing person is a fund or other investment vehicle 35 -4- LSB 1188XD (9) 90 ko/rn 4/ 22
S.F. _____ H.F. _____ that invests, directly or indirectly, substantially all of 1 its assets in investments which are not foreign investments. 2 If an insurer invests in an asset under this subparagraph, 3 the commissioner may require the insurer to disclose to 4 the commissioner the investments held by the fund or other 5 investment vehicle. 6 j. Hedging transaction means a derivative transaction 7 entered into and maintained by an insurer to reduce any of the 8 following: 9 (1) The risk of a change in the value, yield, price, 10 cash flow, or quantity of assets or liabilities which the 11 insurer has acquired or incurred, or anticipates acquiring or 12 incurring. 13 (2) Currency exchange rate risk or the degree of exposure 14 as to assets or liabilities that the insurer has acquired or 15 incurred, or anticipates acquiring or incurring. 16 k. Income generation transaction means a derivative 17 transaction that involves writing a covered call option, 18 covered put option, covered cap, or covered floor, and that is 19 intended to generate income or enhance return. 20 l. Insurer means a company organized as a life insurance 21 company under chapter 508. 22 m. Investment company means an investment company as 23 defined in section 3(a) of the federal Investment Company Act 24 of 1940, as amended, and as codified at 15 U.S.C. 80a-3 et 25 seq., and a person described in section 3(c) of the federal 26 Investment Company Act. 27 n. Investment subsidiary means a subsidiary of an insurer 28 that is engaged or organized to engage exclusively in the 29 ownership and management of assets authorized as investments 30 for the insurer. 31 o. Lower grade investment means a rated credit instrument 32 that is designated 4, 5, or 6 by the SVO. 33 p. Medium grade investment means a rated credit instrument 34 that is designated 3 by the SVO. 35 -5- LSB 1188XD (9) 90 ko/rn 5/ 22
S.F. _____ H.F. _____ q. Mortgage loan means an obligation secured by a 1 mortgage, deed of trust, trust deed, or other consensual lien 2 on real estate. Mortgage loan includes a leasehold estate 3 in real property if fifty years or more of the term, including 4 renewals, is unexpired. 5 r. NAIC means the national association of insurance 6 commissioners. 7 s. Nonguaranteed separate account means a separate account 8 for which the insurers general account bears no risk related 9 to performance of the separate account assets. 10 t. Other debt security means an investment in the form 11 of a debt security that does not qualify as a bond, however, 12 the investment does qualify as an admissible asset under the 13 accounting practices and procedures manual. 14 u. Person means an individual, a business entity, 15 a multilateral development bank, or a governmental or 16 quasi-governmental body such as a political subdivision or a 17 government-sponsored enterprise. 18 v. Rated credit instrument means an investment that 19 is qualified as a bond under the accounting practices and 20 procedures manual, such as evidence of indebtedness of a 21 governmental unit or the instrumentality of the governmental 22 unit, or of a private business entity. Rated credit 23 instrument includes asset-backed securities, bank loans, and 24 SVO-listed funds that have a SVO designation, and that qualify 25 as a bond under the manual. 26 w. Real estate means any of the following: 27 (1) Real property. 28 (2) Interests in real property such as leaseholds, and 29 minerals, oil, and gas that have not been separated from the 30 underlying fee interest. 31 (3) Improvements and fixtures located on or in the real 32 property. 33 (4) The buyers equity in a contract providing for a sale 34 of real estate. 35 -6- LSB 1188XD (9) 90 ko/rn 6/ 22
S.F. _____ H.F. _____ (5) An investment categorized as real estate under 1 subsection 5. 2 x. Replication transaction means a derivative transaction 3 entered into in conjunction with other investments in order 4 to reproduce the investment characteristics of otherwise 5 permissible investments. Replication transaction does not 6 include a derivative transaction that is entered into as a 7 hedging transaction. 8 y. Securities valuation office or SVO means the 9 securities valuation office of the NAIC, or a successor entity. 10 z. Short-term investment means a highly liquid investment 11 or security that has a remaining term of maturity between 12 ninety days and three hundred sixty-five days, and that is 13 qualified as a short-term investment under the accounting 14 practices and procedures manual. 15 2. Prudence evaluation criteria. 16 a. For all investments under this section, an insurer 17 shall perform the insurers duties in good faith and with the 18 degree of care that persons of reasonable prudence in a similar 19 position exercise in a similar circumstance. The following 20 factors shall be evaluated by the insurer and considered along 21 with the insurers business to determine if an investment 22 portfolio or an investment policy is prudent: 23 (1) General economic conditions. 24 (2) The expected tax consequences of an investment decision 25 or strategy. 26 (3) The fairness and reasonableness of the terms of an 27 investment in relation to the investments risk and reward 28 characteristics. 29 (4) The effect of an investment on the characteristics of 30 the insurers investment portfolio as a whole. 31 (5) The extent of the diversification of the insurers 32 investments among all of the following: 33 (a) Individual investments. 34 (b) Classes of investments. 35 -7- LSB 1188XD (9) 90 ko/rn 7/ 22
S.F. _____ H.F. _____ (c) Industry concentrations. 1 (d) Issuers. 2 (e) Geographic areas. 3 (6) The economic substance of investments in affiliates. 4 (7) The investment exposure to each of the following risks, 5 consistent with the insurers acceptable risk level identified 6 under subsection 3: 7 (a) Liquidity. 8 (b) Credit and default. 9 (c) Market. 10 (d) Interest rate, including duration and convexity. 11 (e) Currency. 12 (8) The amount of the insurers assets, premium writings 13 and insurance in force, level of capitalization, and other 14 appropriate characteristics. 15 (9) The amount and adequacy of the insurers reported 16 liabilities. 17 (10) The relationship, and the risk of adverse changes, 18 of the expected cash flows of the insurers assets and 19 liabilities. 20 (11) The relationship, and the risk of adverse changes, of 21 the valuation of the insurers assets and liabilities. 22 (12) The insurers level of expertise with various types of 23 investments. 24 (13) The ability of the insurer to model the underlying 25 risks of an investment, with the modeling commensurate with the 26 complexity of the investment. 27 (14) The overall maturity of the insurers enterprise risk 28 management and investment risk management frameworks. 29 (15) The adequacy of the insurers capital and surplus to 30 secure the liabilities of the insurer in consideration of the 31 risk and potential magnitude of adverse experience or economic 32 conditions. 33 (16) The professional standards required by the insurer for 34 the individuals who make day-to-day investment decisions on 35 -8- LSB 1188XD (9) 90 ko/rn 8/ 22
S.F. _____ H.F. _____ behalf of the insurer. 1 (17) Any other factors relevant to whether an investment is 2 prudent. 3 b. The commissioner shall consider each of the factors in 4 paragraph a , subparagraphs (1) through (17), prior to making 5 a determination that an insurers investment portfolio or 6 investment policy is not prudent. 7 3. Insurer investment policies. In acquiring, investing, 8 exchanging, holding, selling, and managing investments, 9 an insurer shall establish and follow one or more written 10 investment policies that shall be annually reviewed and 11 approved by the insurers board of directors or the board of 12 directors designee. The content and format of an insurers 13 investment policies are at the insurers discretion; however, 14 the investment policies must include written guidelines and 15 controls appropriate to the insurers business. An insurer 16 shall consider all of the following: 17 a. Permissible asset types, including maximum or minimum 18 internal limits regarding the composition of classes of 19 investments. 20 b. Periodic evaluation of the investment portfolio as to the 21 portfolios risk and reward characteristics. 22 c. The relationship of investments to the insurers 23 insurance products and liabilities. 24 d. The manner in which the insurer intends to implement 25 subsection 2. 26 e. The appropriate level of risk, based on quantitative 27 measures, given the level of capitalization and expertise 28 available to the insurer. 29 4. Prohibited investments. An insurer shall not, directly 30 or indirectly, do any of the following: 31 a. Except as provided in subsection 5, invest in an 32 obligation or security, or make a guarantee for the benefit of 33 or in favor of an officer or director of the insurer. 34 b. Except as provided in chapter 521A or subsection 5, 35 -9- LSB 1188XD (9) 90 ko/rn 9/ 22
S.F. _____ H.F. _____ invest in an obligation or security of, make a guarantee for 1 the benefit of or in favor of, or make other investments in, 2 a business entity in which ten percent or more of the voting 3 securities or equity interests are owned directly or indirectly 4 by or for the benefit of one or more officers or directors of 5 the insurer. 6 c. Engage on the insurers own behalf, or through one or 7 more affiliates, in a transaction or series of transactions 8 intended to evade the prohibited investments under this 9 subsection. 10 d. Act or invest as a general partner, with the following 11 exceptions: 12 (1) If all other partners in the partnership are 13 subsidiaries of the insurer. 14 (2) For the purpose of any of the following: 15 (a) Meeting cash calls committed to by the partnership prior 16 to July 1, 2023. 17 (b) Completing specific projects or activities of the 18 partnership in which the insurer was a general partner before 19 July 1, 2023, and that had been undertaken before July 1, 2023. 20 (c) Making capital improvements to property owned by the 21 partnership before July 1, 2023, if the insurer was a general 22 partner before July 1, 2023. 23 e. Notwithstanding paragraphs c and d , a subsidiary or 24 an affiliate of an insurer shall not be prohibited from acting 25 or investing as a general partner. 26 f. (1) Invest in or lend the insurers funds upon the 27 security of shares of the insurers own stock, except that an 28 insurer may acquire shares of its own stock for any of the 29 following purposes: 30 (a) Conversion of a stock insurer into a mutual or 31 reciprocal insurer, or a mutual or reciprocal insurer into a 32 stock insurer. 33 (b) Issuance to the insurers officers, employees, or 34 agents in connection with a plan for converting a publicly 35 -10- LSB 1188XD (9) 90 ko/rn 10/ 22
S.F. _____ H.F. _____ held insurer into a privately held insurer, as approved by the 1 commissioner under section 508B.7, or in connection with other 2 stock option and employee benefit plans. 3 (c) In accordance with any other plan approved by the 4 commissioner. 5 (2) Stocks acquired by an insurer under subparagraph (1) 6 shall not be admitted assets of the insurer. 7 5. Valuation and categorization of investments. 8 a. Unless otherwise specified in this section, the 9 valuation and categorization of, or the amount of, an insurers 10 investment acquired or held under subsections 6 through 20, 11 shall be the classification and value at which the assets of an 12 insurer are required to be reported for statutory accounting 13 purposes, as determined in accordance with the accounting and 14 valuation standards of the NAIC including all of the following: 15 (1) The most recently published purposes and procedures 16 manual of the NAIC investment analysis office, or any successor 17 purposes and procedures adopted by the NAIC investment analysis 18 office. 19 (2) The most recently published valuation of securities 20 manual, or any successor valuation of securities procedures 21 adopted by the NAIC. 22 (3) The most recently published accounting practices and 23 procedures manual, or any successor accounting practices and 24 procedures adopted by the NAIC. 25 (4) The most recently published annual statement 26 instructions, or any successor annual statement instructions 27 adopted by the NAIC. 28 (5) Any successor valuation procedures adopted by the NAIC. 29 b. Upon approval of the commissioner, an insurers 30 investment in the equity interests of a business entity whose 31 primary purpose is to directly or indirectly invest in and 32 maintain assets and investments on behalf of the insurer and 33 the insurers affiliates, or on behalf of the insurer or the 34 insurers affiliates, may be deemed to be the insurer itself 35 -11- LSB 1188XD (9) 90 ko/rn 11/ 22
S.F. _____ H.F. _____ investing in such assets and investments of the business entity 1 based on the insurers pro-rata equity interest in the business 2 entity. 3 6. General five-percent diversification. 4 a. Except as otherwise specified in this section, an insurer 5 shall not directly or indirectly acquire an investment under 6 this section if, as a result of and after giving effect to the 7 investment, the insurer will hold more than five percent of the 8 insurers admitted assets in investments of all kinds issued, 9 assumed, accepted, insured, or guaranteed by a single person. 10 b. Notwithstanding paragraph a , an insurer shall not 11 acquire an asset-backed security if, as a result of and after 12 giving effect to the investment, the aggregate amount of 13 asset-backed securities secured by or evidencing an interest 14 in a single asset or single pool of assets held by a trust or 15 other business entity then held by the insurer will exceed five 16 percent of the insurers admitted assets. 17 c. Notwithstanding paragraph a , an insurer shall not 18 acquire a mortgage loan under subsection 12 if, as a result of 19 and after giving effect to the investment, the aggregate amount 20 of mortgage loans covering any one secured location will exceed 21 five percent of the insurers admitted assets. 22 7. Medium and lower grade investments. 23 a. An insurer shall not acquire an investment under this 24 section, including counterparty exposure net of collateral 25 held, if, as a result of and after giving effect to the 26 investment any of the following apply: 27 (1) The aggregate amount of medium and lower grade 28 investments then held by the insurer will exceed twenty percent 29 of the insurers admitted assets. 30 (2) The aggregate amount of lower grade investments then 31 held by the insurer will exceed ten percent of the insurers 32 admitted assets. 33 (3) The aggregate amount of investments designated 5 or 6 by 34 the SVO then held by the insurer will exceed three percent of 35 -12- LSB 1188XD (9) 90 ko/rn 12/ 22
S.F. _____ H.F. _____ the insurers admitted assets. 1 (4) The aggregate amount of investments designated 6 by the 2 SVO then held by the insurer will exceed one percent of the 3 insurers admitted assets. 4 b. An insurer shall not acquire an investment under this 5 section, including counterparty exposure net of collateral 6 held, if, as a result of and after giving effect to the 7 investment all of the following apply: 8 (1) The aggregate amount of medium and lower grade 9 investments issued, assumed, guaranteed, accepted, or insured 10 by any one person or, as to asset-backed securities secured 11 by or evidencing an interest in a single asset or pool of 12 assets, then held by the insurer will exceed one percent of the 13 insurers admitted assets. 14 (2) The aggregate amount of lower grade investments issued, 15 assumed, guaranteed, accepted, or insured by any one person 16 or, as to asset-backed securities secured by or evidencing an 17 interest in a single asset or pool of assets, then held by the 18 insurer will exceed one-half of one percent of the insurers 19 admitted assets. 20 c. If an insurer attains or exceeds the limit of any 21 one designation category under this subsection, the insurer 22 shall not be precluded from acquiring investments in 23 other designation categories, subject to the specific and 24 multi-category limits applicable to each of those investments. 25 8. Cash or cash equivalents. An insurer may acquire, 26 without limitation, cash and cash equivalents as such terms are 27 defined in the accounting practices and procedures manual. 28 9. Rated credit instruments and short-term investments. An 29 insurer may acquire the following rated credit instruments and 30 short-term investments subject to all of the following: 31 a. The following credit instruments acquired under this 32 subsection shall be subject to subsection 6, paragraphs b and 33 c , and to subsection 7: 34 (1) Credit instruments issued, assumed, guaranteed, or 35 -13- LSB 1188XD (9) 90 ko/rn 13/ 22
S.F. _____ H.F. _____ insured by the United States or Canada. 1 (2) Credit instruments issued, assumed, guaranteed, or 2 insured by a government-sponsored enterprise of the United 3 States or Canada, if the credit instruments are assumed, 4 guaranteed, or insured by the United States or Canada, or are 5 otherwise backed or supported by the full faith and credit of 6 the United States or Canada. 7 (3) Credit instruments, excluding asset-backed securities 8 that are any of the following: 9 (a) Issued, assumed, guaranteed, or insured by a 10 government-sponsored enterprise of a government other than the 11 United States or Canada. 12 (b) Issued, assumed, guaranteed, or insured by a state, if 13 the instruments are general obligations of the state. 14 b. Short-term investments acquired under this subsection 15 shall be subject to subsection 6. 16 c. All other rated credit instruments acquired under this 17 subsection shall be subject to subsections 6 and 7. 18 d. Foreign investments acquired under this subsection shall 19 be subject to subsection 15. 20 10. Equity interests. An insurer may acquire equity 21 interests subject to all of the following: 22 a. An insurer shall not acquire an investment under this 23 subsection, if, as a result of and after giving effect to the 24 investment the aggregate amount of investments then held by 25 the insurer will exceed ten percent of the insurers admitted 26 assets. 27 b. Foreign investments acquired under this subsection shall 28 be subject to subsection 15. 29 c. Equity interests in subsidiary corporations, as 30 authorized by section 508.33, shall be eligible investments 31 if the total investment does not exceed five percent of the 32 insurers admitted assets. Upon application to and approval 33 of the commissioner, an insurer may acquire additional equity 34 interests in direct or indirect subsidiary insurance companies 35 -14- LSB 1188XD (9) 90 ko/rn 14/ 22
S.F. _____ H.F. _____ that are domiciled in the United States, not to exceed an 1 additional two percent of the insurers admitted assets. 2 d. In addition to the investments authorized in paragraphs 3 a , b , and c , an insurer may acquire equity interests in 4 subsidiary entities as permitted by, and as subject to the 5 limitations of, section 521A.2. 6 11. Tangible personal property. 7 a. An insurer may acquire obligations secured by tangible 8 personal property that is under contract of sale or lease for 9 which contractual payments may reasonably be expected to return 10 the principal of, and provide earnings on, the investment 11 within the anticipated useful life of the tangible personal 12 property. 13 b. An insurer shall not acquire an obligation under 14 paragraph a , if, as a result of and after giving effect to 15 the investment, the aggregate amount of investments then held 16 by the insurer under this subsection will exceed either of the 17 following: 18 (1) Two percent of the insurers admitted assets. 19 (2) One-half of one percent of the insurers admitted assets 20 as to any single item of tangible personal property. 21 12. Mortgage loans. 22 a. An insurer may acquire obligations secured by a mortgage 23 or deed of trust that is a first or second lien upon otherwise 24 unencumbered real estate, or upon leasehold estates in real 25 property if fifty years or more of the term including renewals 26 is unexpired, or other similar instruments, including mezzanine 27 loans provided all of the following apply: 28 (1) The amount loaned by the insurer, together with any 29 amount secured by an equal or prior security interest, whether 30 of the insurer or another party, does not exceed ninety percent 31 of the appraised value of the real estate and improvements at 32 the time the insurer makes the investment, as evidenced by a 33 current qualified external appraisal or an internal appraisal 34 conducted using standards comparable to an external appraisal. 35 -15- LSB 1188XD (9) 90 ko/rn 15/ 22
S.F. _____ H.F. _____ (2) The amount of an obligation required to be included in 1 the calculation of the loan-to-value ratio may be reduced to 2 the extent the obligation is insured or guaranteed by an agency 3 of the United States government. 4 (3) A mezzanine loan acquired under this subsection shall 5 not exceed four percent of an insurers admitted assets. 6 b. This subsection shall not be construed to prevent any 7 amount invested under this subsection that exceeds ninety 8 percent of the appraised value of the real estate from being 9 an authorized asset under subsection 10, paragraph a , or 10 subsection 20, subject to the limitations of subsection 10, 11 paragraph a , and subsection 20. 12 13. Real estate. An insurer may acquire real estate either 13 directly or through certificates evidencing participation with 14 other investors. 15 a. An insurer may acquire real estate required for the 16 insurers home offices, or to be otherwise occupied by the 17 insurer or the insurers employees in transacting the insurers 18 business, and the insurer may lease any unused space to 19 other occupants. The value of an insurers investments under 20 this paragraph shall not exceed ten percent of the insurers 21 admitted assets. 22 b. Excluding investments under paragraph b , an insurers 23 investments under this subsection shall not exceed fifteen 24 percent of the insurers admitted assets. 25 c. An insurers aggregate investments under this subsection 26 and subsection 12 shall not exceed forty-five percent of the 27 insurers admitted assets. 28 14. Securities lending, repurchase, reverse repurchase, 29 and dollar roll transactions. An insurer may enter into 30 securities lending, repurchase, reverse repurchase, and dollar 31 roll transactions with business entities, provided that the 32 insurers board of directors, or the board of directors 33 designee, adopts a written plan that is consistent with the 34 insurers investment policies under subsection 3, and that 35 -16- LSB 1188XD (9) 90 ko/rn 16/ 22
S.F. _____ H.F. _____ specifies guidelines and objectives including all of the 1 following: 2 a. A description of how any cash received will either be 3 invested or used for the insurers general corporate purposes. 4 b. Operational procedures to manage interest rate risk, 5 counterparty default risk, the conditions under which proceeds 6 from repurchase transactions may be used in the ordinary course 7 of business, and the use of acceptable collateral in a manner 8 that reflects the liquidity needs of the transaction. 9 c. The extent to which the insurer may engage in 10 transactions under this subsection. 11 15. Foreign investments. An insurer may acquire foreign 12 investments, or engage in investment practices with persons 13 or business entities of or in foreign jurisdictions of 14 substantially the same types as those investments that an 15 insurer is permitted to acquire under this subsection, if, as a 16 result and after giving effect to the investment the following 17 apply: 18 a. The aggregate amount of foreign investments then held 19 by the insurer under this subsection does not exceed twenty 20 percent of the insurers admitted assets. 21 b. The aggregate amount of foreign investments under 22 this subsection then held by the insurer in a single foreign 23 jurisdiction that has a sovereign debt rating of SVO 1 does not 24 exceed ten percent of the insurers admitted assets, or does 25 not exceed three percent of the insurers admitted assets as to 26 any other foreign jurisdiction. 27 c. Investments acquired under this subsection shall be 28 aggregated with investments of the same type made in a similar 29 manner under any other subsection of this section for purposes 30 of determining compliance with any limitations contained in any 31 other subsection of this section. 32 d. This subsection shall not authorize investments issued, 33 assumed, or guaranteed by a foreign government which has 34 engaged in a consistent pattern of gross violations of human 35 -17- LSB 1188XD (9) 90 ko/rn 17/ 22
S.F. _____ H.F. _____ rights. 1 16. Derivative transactions. An insurer may engage in 2 derivative transactions if the insurer complies with all of the 3 following conditions: 4 a. The insurer shall include all counterparty exposure 5 amounts, net of collateral held, in determining compliance with 6 the limitations of subsections 6 and 7. 7 b. The insurer shall have sufficient experience with 8 derivatives such that the insurers performance and procedures 9 reflect all of the following: 10 (1) That the insurer has a successful history of adequately 11 identifying, measuring, monitoring, and limiting exposures 12 associated with derivative transactions. 13 (2) That the insurer has adequate corporate controls over 14 the activities in subparagraph (1). 15 (3) That the insurer has sufficient staff who are 16 knowledgeable, competent, and skilled in the use of the 17 sophisticated financial instruments necessary to execute 18 subparagraph (1). 19 c. Prior to engaging in a derivative transaction under 20 this subsection, the insurer shall develop guidelines and 21 internal control procedures pursuant to rules promulgated by 22 the commissioner. 23 d. An insurer may use derivative instruments to engage in 24 any of the following: 25 (1) Hedging transactions, provided that the insurer shall 26 be able to demonstrate the intended hedging characteristics 27 and the ongoing effectiveness of the derivative transaction or 28 combination of transactions through cash flow testing or other 29 appropriate analysis. 30 (2) Income generation transactions, provided that the 31 transaction is one of the following: 32 (a) A sale of a call option on assets, if during the entire 33 period the option is outstanding, the insurer holds, or has a 34 currently exercisable right to acquire, the underlying assets. 35 -18- LSB 1188XD (9) 90 ko/rn 18/ 22
S.F. _____ H.F. _____ (b) A sale of a put option on assets, if during the entire 1 period the option is outstanding, the insurer holds sufficient 2 short-term liquidity to purchase the underlying assets on 3 exercise of the option, the insurer has the ability to hold the 4 underlying assets in the insurers portfolio, and the total 5 market value of the put options sold by the insurer does not 6 exceed two percent of the insurers admitted assets. 7 (c) A sale of a covered cap or floor, if the insurer holds 8 in the insurers portfolio the investments generating the 9 cash flow necessary to make the required payments under the 10 cap or floor during the complete term that cap or floor is 11 outstanding. 12 (3) Replication transactions, provided that all of the 13 following apply: 14 (a) The insurer is otherwise authorized to invest in the 15 asset being replicated. 16 (b) The asset being replicated is subject to this section 17 as if the transaction constitutes a direct investment by the 18 insurer in the replicated asset. 19 (c) The transaction is filed timely with the SVO as a 20 replicated synthetic asset transaction. 21 17. Policy loans. An insurer may make a loan on any of the 22 insurers policies in an amount not to exceed the reserve that 23 the insurer is required to maintain on the policy on which a 24 loan is made. 25 18. Preferred stock. An insurer may acquire preferred 26 stock, if, as a result of and after giving effect to the 27 investment, the aggregate amount of preferred stock held by the 28 insurer does not exceed twenty-five percent of the insurers 29 admitted assets, and the aggregate amount of preferred stocks 30 held by the insurer that are not designated P1 or P2 by the SVO 31 does not exceed ten percent of the insurers admitted assets. 32 19. Collateral loans and other debt securities secured by 33 collateral. An insurer may acquire collateral loans or other 34 debt securities secured by collateral consisting of any assets 35 -19- LSB 1188XD (9) 90 ko/rn 19/ 22
S.F. _____ H.F. _____ or investments permitted under this section, provided that 1 the amount of the loan is not in excess of ninety percent of 2 the value of the collateral. For the purpose of determining 3 compliance with the quantitative limits in this subsection, the 4 collateral pledged to the insurer shall be aggregated with the 5 insurers direct investments. 6 20. Additional authorized investments. An insurer may 7 acquire investments not otherwise authorized under this 8 section, or that exceed the limitation of this section in 9 an amount in the aggregate not exceeding ten percent of the 10 insurers admitted assets. 11 a. Investments authorized under this subsection shall not 12 include investments prohibited under subsection 4. 13 b. An insurer shall not make investments under this 14 subsection if the insurer fails to maintain at least company 15 action level risk-based capital as defined by the NAIC. 16 c. This subsection shall not be construed to permit any 17 asset not allowed as an admitted asset under the requirements 18 of the accounting practices and procedures manual to be 19 considered an admitted asset under this section. 20 21. Application of limitations. An investment qualified, 21 in whole or in part, for acquisition or holding as an admitted 22 asset may be qualified or requalified, in whole or in part, by 23 the insurer at either the time of acquisition or a later date 24 under any subsection of this section if the relevant conditions 25 contained in the applicable subsection are satisfied at the 26 time of the insurers qualification or requalification. 27 22. Rules. The commissioner may adopt rules pursuant to 28 chapter 17A to administer this section. 29 23. Enforcement. Investments not conforming to this section 30 shall not be admitted assets. The commissioner may take any 31 enforcement action under the commissioners authority to 32 enforce compliance with this section. 33 Sec. 6. Section 511.8A, Code 2023, is amended to read as 34 follows: 35 -20- LSB 1188XD (9) 90 ko/rn 20/ 22
S.F. _____ H.F. _____ 511.8A Agricultural land. 1 Agricultural land, as defined in section 9H.1 , acquired as 2 provided in section 511.8, subsection 10 , paragraph b , a 3 result of foreclosure or in settlement or in satisfaction of 4 any indebtedness by a life insurance company or association 5 incorporated by or organized under the laws of this or any 6 other state, shall be sold or otherwise disposed of by the 7 company or association within five years after title is vested 8 in the company or association. A life insurance company or 9 association is a corporation for purposes of chapter 9H . 10 Sec. 7. Section 512B.21, Code 2023, is amended to read as 11 follows: 12 512B.21 Investments. 13 A society shall invest its the societys funds only as 14 authorized by the laws of this state for the investment of 15 assets of life insurers and subject to the same limitations. A 16 foreign or alien society permitted or seeking to do business in 17 this state which invests its funds in accordance with the laws 18 of the state or nation in which it the foreign or alien society 19 is incorporated, shall be held to meet the requirements of this 20 section for the investment of funds. A society organized under 21 the laws of this state shall deposit securities as required of 22 life insurance companies pursuant to section 511.8, subsection 23 16 . 24 Sec. 8. Section 514B.15, Code 2023, is amended to read as 25 follows: 26 514B.15 Investments. 27 With the exception of investments made in accordance with 28 section 514B.6 , the investable funds of a health maintenance 29 organization shall be invested only in securities or other 30 investments permitted by section 511.8 for the investment 31 of assets constituting the legal reserves of life insurance 32 companies or such other securities or investments as the 33 commissioner may permit. For purposes of this section , 34 investable funds of a health maintenance organization are 35 -21- LSB 1188XD (9) 90 ko/rn 21/ 22
S.F. _____ H.F. _____ all moneys held in trust for the purpose of fulfilling the 1 obligations incurred by a health maintenance organization in 2 providing health care services to enrollees. 3 Sec. 9. Section 521A.2, subsection 1, paragraph c, Code 4 2023, is amended to read as follows: 5 c. Investing, reinvesting, or trading in securities and 6 financial instruments as defined in derivative transactions 7 pursuant to section 511.8, subsection 22 16 , for its the 8 domestic insurers own account, that of its parent, any 9 subsidiary of its parent, or any affiliate or subsidiary. 10 Sec. 10. Section 521A.2, subsection 3, paragraph d, Code 11 2023, is amended to read as follows: 12 d. Invest, reinvest, and trade in financial instruments as 13 defined in derivative transactions pursuant to section 511.8, 14 subsection 22 16 , for its the domestic insurers own account, 15 that of its parent, any subsidiary of its parent, or any 16 affiliate or subsidiary. 17 EXPLANATION 18 The inclusion of this explanation does not constitute agreement with 19 the explanations substance by the members of the general assembly. 20 This bill relates to investments of funds by life insurers. 21 The bill strikes and replaces Code section 511.8, and makes 22 changes to the investments that life insurance companies 23 organized under Code chapter 508 are allowed to acquire. 24 The commissioner of insurance may adopt rules to administer 25 the bill and may take any enforcement action under the 26 commissioners authority to enforce compliance with the bill. 27 The bill makes conforming changes to Code sections 28 508.13(1), 508.14(1), 508.14(3), 508.29, 508C.8(9)(c), 511.8A, 29 512B.21, 514B.15, 521A.2(1)(c), and 521A.2(3)(d). 30 -22- LSB 1188XD (9) 90 ko/rn 22/ 22