1.1                          A bill for an act 
  1.2             relating to insurance; regulating investments of 
  1.3             certain insurers; amending Minnesota Statutes 1996, 
  1.4             sections 61A.14, subdivision 4; and 61A.276, 
  1.5             subdivision 4; proposing coding for new law as 
  1.6             Minnesota Statutes, chapter 60L. 
  1.7   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.8                     INVESTMENTS OF INSURERS ACT 
  1.9      Section 1.  [60L.01] [DEFINITIONS.] 
  1.10     Subdivision 1.  [APPLICATION.] For purposes of sections 
  1.11  60L.01 to 60L.16, the definitions in subdivisions 2 to 14 have 
  1.12  the meanings given them. 
  1.13     Subd. 2.  [ADMITTED ASSETS.] "Admitted assets" means the 
  1.14  assets as shown by an insurer's financial statement most 
  1.15  recently required to be filed with the commissioner, or such 
  1.16  other financial statement required to be filed with the 
  1.17  commissioner as the context may require, but excluding assets 
  1.18  allocated to separate accounts.  For these purposes, assets must 
  1.19  be valued according to valuation regulations prescribed by the 
  1.20  National Association of Insurance Commissioners and procedures 
  1.21  adopted by the National Association of Insurance Commissioners' 
  1.22  financial condition Ex.4 subcommittee if not addressed in 
  1.23  another section, unless the commissioner requires or finds 
  1.24  another method of valuation reasonable under the circumstances. 
  1.25     Subd. 3.  [COMMISSIONER.] "Commissioner" means the 
  1.26  commissioner of commerce. 
  2.1      Subd. 4.  [DERIVATIVE INSTRUMENT.] "Derivative instrument" 
  2.2   means an item appropriately reported in schedule DB, derivative 
  2.3   instruments, or schedule DC, insurance futures and insurance 
  2.4   futures options, of an insurer's statutory financial statement, 
  2.5   or successor schedules, as provided under applicable annual 
  2.6   statement instructions or statutory accounting guidelines. 
  2.7      Subd. 5.  [DERIVATIVE TRANSACTION.] "Derivative transaction"
  2.8   means a transaction involving the use of one or more derivative 
  2.9   instruments. 
  2.10     Subd. 6.  [GOVERNMENT SPONSORED ENTERPRISE.] "Government 
  2.11  sponsored enterprise" means a governmental agency, a 
  2.12  corporation, limited liability company, association, 
  2.13  partnership, joint stock company, joint venture, trust, or other 
  2.14  entity or instrumentality organized under the federal laws of 
  2.15  the United States to accomplish a public policy or other 
  2.16  governmental purpose. 
  2.17     Subd. 7.  [INCOME GENERATION.] "Income generation" means a 
  2.18  derivative transaction involving the writing of covered options, 
  2.19  caps, or floors that is intended to generate income or enhance 
  2.20  return. 
  2.21     Subd. 8.  [INSURER.] "Insurer" means a domestic insurance 
  2.22  company, including a fraternal benefit society, and a United 
  2.23  States branch of an alien insurance company entered through this 
  2.24  state. 
  2.25     Subd. 9.  [LOWER GRADE INVESTMENT.] "Lower grade investment"
  2.26  means a rated credit instrument or debt-like preferred stock 
  2.27  rated 4, 5, or 6 by the Securities Valuation Office of the 
  2.28  National Association of Insurance Commissioners or any successor 
  2.29  office. 
  2.30     Subd. 10.  [MEDIUM GRADE INVESTMENT.] "Medium grade 
  2.31  investment" means a rated credit instrument or debt-like 
  2.32  preferred stock rated 3 by the Securities Valuation Office of 
  2.33  the National Association of Insurance Commissioners or any 
  2.34  successor office. 
  2.35     Subd. 11.  [MINIMUM ASSET REQUIREMENT.] "Minimum asset 
  2.36  requirement" means:  (1) in the case of an insurer other than a 
  3.1   life insurer, the sum of an insurer's liabilities and its 
  3.2   minimum financial security benchmark; and (2) in the case of a 
  3.3   life insurer, the sum of the insurer's liabilities, other than 
  3.4   the asset valuation reserve, voluntary investment reserves and 
  3.5   liabilities on separate accounts, and its minimum financial 
  3.6   security benchmark. 
  3.7      Subd. 12.  [MINIMUM FINANCIAL SECURITY BENCHMARK.] "Minimum 
  3.8   financial security benchmark" means the amount an insurer is 
  3.9   required to have under section 60L.03. 
  3.10     Subd. 13.  [REPLICATION.] "Replication" means a derivative 
  3.11  transaction involving one or more derivative instruments being 
  3.12  used to modify the cash flow characteristics of one or more 
  3.13  investments held by an insurer in a manner so that the aggregate 
  3.14  cash flows of the derivative instruments and investments 
  3.15  reproduce the cash flows of another investment having a higher 
  3.16  risk-based capital charge than the risk-based capital charge of 
  3.17  the original investments or investments. 
  3.18     Subd. 14.  [SVO LISTED MUTUAL FUND.] "SVO listed mutual 
  3.19  fund" means a money market mutual fund or short-term bond fund 
  3.20  that is registered with the United States Securities and 
  3.21  Exchange Commission under the Investment Company Act of 1940, 
  3.22  and that has been determined by the Securities Valuation Office 
  3.23  of the National Association of Insurance Commissioners to be 
  3.24  eligible for special reserve and reporting treatment other than 
  3.25  as common stock. 
  3.26     Sec. 2.  [60L.02] [REQUIREMENTS.] 
  3.27     Subdivision 1.  [LIFE INSURERS.] In order to be eligible to 
  3.28  be governed by sections 60L.01 to 60L.16, a life insurer must 
  3.29  meet the following requirements: 
  3.30     (a) For each calendar year during which sections 60L.01 to 
  3.31  60L.16 apply to the insurer, the insurer shall have had, as of 
  3.32  the end of the immediately preceding calendar year: 
  3.33     (1) total admitted assets of at least $2,000,000,000; 
  3.34     (2) a total amount of capital plus surplus of at least 
  3.35  $200,000,000; and 
  3.36     (3) a total amount of capital plus surplus plus asset 
  4.1   valuation reserve of at least $250,000,000. 
  4.2      (b) For each calendar year during which sections 60L.01 to 
  4.3   60L.16 apply to the insurer, the insurer shall have had, as of 
  4.4   the end of the immediately preceding calendar year, total 
  4.5   adjusted capital equal to or greater than 200 percent of company 
  4.6   action level risk-based capital, as defined in section 60A.60, 
  4.7   subdivision 11.  For purposes of this subdivision, "total 
  4.8   adjusted capital" means total adjusted capital as defined in 
  4.9   section 60A.60, subdivision 14, adjusted to deduct the value of 
  4.10  capital and surplus notes as provided in the risk-based 
  4.11  instructions as defined in section 60A.60, subdivision 10. 
  4.12     (c) For each calendar year during which sections 60L.01 to 
  4.13  60L.16 apply to the insurer, the mean of the ratio, calculated 
  4.14  as of the end of each of the five immediately preceding calendar 
  4.15  years, of total adjusted capital to company action level 
  4.16  risk-based capital, as defined in section 60A.60, subdivision 
  4.17  11, must equal at least 2.0. 
  4.18     (d) The insurer shall: 
  4.19     (1) have been in continuous operation for a minimum of five 
  4.20  years; and 
  4.21     (2) maintain a minimum claims-paying or equivalent rating 
  4.22  from at least one nationally recognized statistical rating 
  4.23  organization in one of the organization's three highest rating 
  4.24  categories for the time period during which sections 60L.01 to 
  4.25  60L.16 apply to the insurer. 
  4.26     (e) The insurer or an affiliate, as defined in section 
  4.27  60D.15, subdivision 2, of the insurer shall employ at least one 
  4.28  individual or group of individuals as a professional investment 
  4.29  manager for the insurer's investments whom the board of 
  4.30  directors or trustees of the insurer finds is qualified on the 
  4.31  basis of experience, education or training, competence, personal 
  4.32  integrity, and who conducts professional investment management 
  4.33  activities in accordance with the code of ethics and standards 
  4.34  of professional conduct of the association for investment 
  4.35  management and research. 
  4.36     (f) The board of directors of the insurer must annually 
  5.1   adopt a resolution finding that the insurer or an affiliate, as 
  5.2   defined in section 60D.15, subdivision 2, of the insurer has 
  5.3   employed a professional investment manager for the insurer's 
  5.4   investments with sufficient expertise and has sufficient other 
  5.5   resources to implement and monitor the insurer's investment 
  5.6   policies and strategies. 
  5.7      (g) In the report required under section 60A.129, 
  5.8   subdivision 3, paragraph (j), the insurer's independent auditor 
  5.9   shall not have identified any material deficiencies in the 
  5.10  insurer's systems of internal controls related to investments 
  5.11  during any of the five years immediately preceding the date on 
  5.12  which sections 60L.01 to 60L.16 begin to apply to the insurer, 
  5.13  and as long as sections 60L.01 to 60L.16 apply to the insurer. 
  5.14     Subd. 2.  [OTHER INSURERS.] Sections 60L.01 to 60L.16 apply 
  5.15  to insurers, other than life insurers, that meet the following 
  5.16  requirements: 
  5.17     (1) admitted assets as defined under section 60A.02 of at 
  5.18  least $2,000,000,000; 
  5.19     (2) a total amount of capital plus policyholder surplus of 
  5.20  at least $200,000,000; and 
  5.21     (3) at least five years of operating history. 
  5.22     An insurer is considered to have met the requirements of 
  5.23  clause (2) if the insurer participates in a 100 percent 
  5.24  reinsurance pooling agreement which substantially affects the 
  5.25  solvency and integrity of its reserves and cedes all of its 
  5.26  direct and assumed business to the pool, and where the insurer 
  5.27  with the largest share of pooled business subject to the 
  5.28  agreement, meets the requirements of clause (2). 
  5.29     Subd. 3.  [RESOLUTIONS.] Before sections 60L.01 to 60L.16 
  5.30  apply to an insurer, the board of directors of the insurer must 
  5.31  adopt the following resolutions: 
  5.32     (1) a resolution finding that the insurer or an affiliate, 
  5.33  as defined in section 60D.15, subdivision 2, of the insurer has 
  5.34  employed a professional investment manager for the insurer's 
  5.35  investments with sufficient expertise and has sufficient other 
  5.36  resources to implement and monitor the insurer's investment 
  6.1   policies and strategies; and 
  6.2      (2) a resolution electing that sections 60L.01 to 60L.16 
  6.3   apply to the insurer. 
  6.4      Subd. 4.  [COMMISSIONER REVIEW.] Sections 60L.01 to 60L.16 
  6.5   do not govern an insurer unless the insurer has notified the 
  6.6   commissioner in writing of its intention that sections 60L.01 to 
  6.7   60L.16 will govern the insurer at least 30 days before applying 
  6.8   sections 60L.01 to 60L.16 to its investment policies, or a 
  6.9   shorter period of time as the commissioner permits, and the 
  6.10  commissioner has not disapproved the governing of the insurer by 
  6.11  sections 60L.01 to 60L.16 within this period. 
  6.12     Subd. 5.  [SUBSTITUTION OF LAW.] When sections 60L.01 to 
  6.13  60L.16 begin to govern an insurer, sections 61A.28; 61A.282, 
  6.14  subdivision 2; 61A.283; 61A.29; 61A.31; and in the case of a 
  6.15  life insurer, section 61A.315, do not apply to an insurer. 
  6.16     Subd. 6.  [TERMINATION.] (a) After sections 60L.01 to 
  6.17  60L.16 begin to govern an insurer, sections 60L.01 to 60L.16 
  6.18  apply to the insurer unless: 
  6.19     (1) the insurer has ceased to comply with the requirements 
  6.20  of subdivision 1, if the insurer is a life insurer, or 
  6.21  subdivision 2, if the insurer is other than a life insurer, and 
  6.22  has failed to bring itself back into compliance with the 
  6.23  requirements within 30 days of ceasing to comply; or 
  6.24     (2) the commissioner has issued an order under section 
  6.25  60L.14, subdivision 2, that sections 60L.01 to 60L.16 no longer 
  6.26  govern the insurer, regardless of whether the insurer is 
  6.27  contesting the order; or 
  6.28     (i) the insurer's board of directors adopts a resolution 
  6.29  electing that sections 60L.01 to 60L.16 no longer apply to its 
  6.30  investments and investment practices; 
  6.31     (ii) the insurer has notified the commissioner in writing 
  6.32  of its intention that sections 60L.01 to 60L.16 no longer apply 
  6.33  to the insurer's investments and investment practices; and 
  6.34     (iii) the commissioner has not issued an order under 
  6.35  section 60L.14, subdivision 2, within 30 days of receipt of the 
  6.36  notice prohibiting the insurer from ceasing to comply with 
  7.1   sections 60L.01 to 60L.16. 
  7.2      (b) An insurer may not elect more than once in a 12-month 
  7.3   period that sections 60L.01 to 60L.16 do not apply to the 
  7.4   insurer's investments and investment practices. 
  7.5      (c) An investment which is held as an admitted asset by an 
  7.6   insurer on the date on which sections 60L.01 to 60L.16 cease to 
  7.7   govern the insurer and which qualified as an admitted asset 
  7.8   immediately before the date remains qualified as an admitted 
  7.9   asset of the insurer. 
  7.10     (d) When sections 60L.01 to 60L.16 cease to govern an 
  7.11  insurer, then sections 61A.28; 61A.282, subdivision 2; 61A.283; 
  7.12  61A.29; 61A.31; and, in the case of a life insurer, section 
  7.13  61A.315, apply to the insurer. 
  7.14     Subd. 7.  [CONFLICT OF LAWS.] Sections 60L.01 to 60L.16 
  7.15  prevail over any other law, except section 60D.15, that 
  7.16  authorizes an insurer to make a particular investment if the 
  7.17  other law was enacted before August 1, 1998. 
  7.18     Sec. 3.  [60L.03] [MINIMUM FINANCIAL SECURITY BENCHMARK.] 
  7.19     Subdivision 1.  [AMOUNT.] Except as otherwise provided in 
  7.20  subdivisions 2 and 3, the amount of the minimum financial 
  7.21  security benchmark for an insurer is the greater of: 
  7.22     (1) the authorized control level risk-based capital 
  7.23  applicable to the insurer as defined under section 60A.60, 
  7.24  subdivision 11, clause (3); or 
  7.25     (2) the minimum capital or minimum surplus required for 
  7.26  maintenance of an insurer's certificate of authority. 
  7.27     Subd. 2.  [AUTHORIZATION BY ORDER.] The commissioner may, 
  7.28  according to the controlling factors specified in subdivision 6, 
  7.29  establish by order a minimum financial security benchmark to 
  7.30  apply to a specific insurer provided it is not less than the 
  7.31  amount determined under subdivision 1. 
  7.32     Subd. 3.  [ADDITIONAL AUTHORIZATION.] The commissioner may 
  7.33  establish a minimum financial security benchmark that is a 
  7.34  multiple of authorized control level risk-based capital to apply 
  7.35  to any class of insurers provided the amount established is not 
  7.36  less than the amount specified under subdivision 1. 
  8.1      Subd. 4.  [SURPLUS.] The commissioner shall determine the 
  8.2   amount of surplus that constitutes an insurer's minimum 
  8.3   financial security benchmark as an amount that will provide 
  8.4   reasonable security against contingencies affecting the 
  8.5   insurer's financial position that are not fully covered by 
  8.6   reserves or by reinsurance. 
  8.7      Subd. 5.  [TYPES OF CONTINGENCIES.] The commissioner shall 
  8.8   consider the risks of: 
  8.9      (1) increases in the frequency or severity of losses beyond 
  8.10  the levels contemplated by the rates charged; 
  8.11     (2) increases in expenses beyond those contemplated by the 
  8.12  rates charged; 
  8.13     (3) decreases in the value of or the return on invested 
  8.14  assets below those planned on; 
  8.15     (4) changes in economic conditions that would make 
  8.16  liquidity more important than contemplated and would force 
  8.17  untimely sale of assets or prevent timely investments; 
  8.18     (5) currency devaluation to which the insurer may be 
  8.19  subject; and 
  8.20     (6) any other contingencies the commissioner can identify 
  8.21  that may affect the insurer's operations. 
  8.22     Subd. 6.  [CONTROLLING FACTORS.] In making the 
  8.23  determination under subdivision 4, the commissioner shall take 
  8.24  into account the following factors: 
  8.25     (1) the most reliable information available as to the 
  8.26  magnitude of the various risks under subdivision 5; 
  8.27     (2) the extent to which the risks specified under 
  8.28  subdivision 5 are independent of each other or are related, and 
  8.29  whether any dependency is direct or inverse; 
  8.30     (3) the insurer's recent history of profits or losses; 
  8.31     (4) the extent to which the insurer has provided protection 
  8.32  against the contingencies in other ways than the establishment 
  8.33  of surplus, including redundancy of premiums, adjustability of 
  8.34  contracts under their terms, investment valuation reserves 
  8.35  whether voluntary or mandatory, appropriate reinsurance, the use 
  8.36  of conservative actuarial assumptions to provide a margin of 
  9.1   security, reserve adjustments in recognition of previous rate 
  9.2   inadequacies, contingency or catastrophe reserves, 
  9.3   diversification of assets, and underwriting risks; 
  9.4      (5) independent judgments of the soundness of the insurer's 
  9.5   operations, as evidenced by the ratings of reliable professional 
  9.6   financial reporting services; and 
  9.7      (6) any other relevant factors. 
  9.8      Sec. 4.  [60L.04] [AUTHORIZED INVESTMENTS.] 
  9.9      Subdivision 1.  [AUTHORIZATION.] Subject to the provisions 
  9.10  of sections 60L.01 to 60L.16, an insurer may loan or invest its 
  9.11  funds, and may buy, sell, hold title to, possess, occupy, 
  9.12  pledge, convey, manage, protect, insure, and deal with its 
  9.13  investments, property, and other assets to the same extent as 
  9.14  any other corporation or other person under the laws of this 
  9.15  state or the United States. 
  9.16     Subd. 2.  [BOARD OF DIRECTORS; DUTIES.] With respect to all 
  9.17  of the insurer's investments, the board of directors of an 
  9.18  insurer shall exercise the judgment and care, under the 
  9.19  circumstances then prevailing, that persons of reasonable 
  9.20  prudence, discretion, and intelligence exercise in the 
  9.21  management of a like enterprise, not in regard to speculating 
  9.22  but in regard to the permanent disposition of their funds, 
  9.23  considering the probable income as well as the probable safety 
  9.24  of their capital.  Investments must be of sufficient value, 
  9.25  liquidity, and diversity to ensure the insurer's ability to meet 
  9.26  its outstanding obligations based on reasonable assumptions as 
  9.27  to new business production for current lines of business.  As 
  9.28  part of its exercise of judgment and care, the board of 
  9.29  directors shall take into account the prudence evaluation 
  9.30  criteria specified under section 60L.05. 
  9.31     Subd. 3.  [INTERNAL CONTROLS.] The insurer shall establish 
  9.32  and implement internal controls and procedures to ensure 
  9.33  compliance with investment policies and procedures to ensure 
  9.34  that: 
  9.35     (1) the insurer's investment staff and any consultants used 
  9.36  are reputable and capable; 
 10.1      (2) a periodic evaluation and monitoring process occurs for 
 10.2   assessing the effectiveness of investment policy and strategies; 
 10.3      (3) management's performance is assessed in meeting the 
 10.4   stated objectives within the investment policy; and 
 10.5      (4) appropriate analyses are undertaken of the degree to 
 10.6   which asset cash flows are adequate to meet liability cash flows 
 10.7   under different economic environments.  The analyses must be 
 10.8   conducted at least annually and make specific reference to 
 10.9   economic conditions. 
 10.10     Sec. 5.  [60L.05] [PRUDENCE EVALUATION CRITERIA.] 
 10.11     The factors in clauses (1) to (12) shall be evaluated by 
 10.12  the insurer and considered along with its business in 
 10.13  determining whether an investment portfolio or investment policy 
 10.14  is prudent.  The commissioner shall consider the factors in 
 10.15  clauses (1) to (12) before making a determination that an 
 10.16  insurer's investment portfolio or investment policy is not 
 10.17  prudent: 
 10.18     (1) general economic conditions; 
 10.19     (2) the possible effect of inflation or deflation; 
 10.20     (3) the expected tax consequences of investment decisions 
 10.21  or strategies; 
 10.22     (4) the fairness and reasonableness of the terms of an 
 10.23  investment considering its probable risk and reward 
 10.24  characteristics and relationship to the investment portfolio as 
 10.25  a whole; 
 10.26     (5) the extent of the diversification of the insurer's 
 10.27  investments among individual investments, classes of 
 10.28  investments, industry concentrations, dates of maturity, and 
 10.29  geographic areas; 
 10.30     (6) the quality and liquidity of investments in affiliates; 
 10.31     (7) the investment exposure to the following risks, 
 10.32  quantified in a manner consistent with the insurer's acceptable 
 10.33  risk level identified in section 60L.06, clause (8):  liquidity; 
 10.34  credit and default; systemic (market); interest rate; call, 
 10.35  prepayment and extension; currency; and foreign sovereign; 
 10.36     (8) the amount of the insurer's assets, capital and 
 11.1   surplus, premium writings, insurance in force, and other 
 11.2   appropriate characteristics; 
 11.3      (9) the amount and adequacy of the insurer's reported 
 11.4   liabilities; 
 11.5      (10) the relationship of the expected cash flows of the 
 11.6   insurer's assets and liabilities, and the risk of adverse 
 11.7   changes in the insurer's assets and liabilities; 
 11.8      (11) the adequacy of the insurer's capital and surplus to 
 11.9   secure the risks and liabilities of the insurer; and 
 11.10     (12) any other factors relevant to whether an investment is 
 11.11  prudent. 
 11.12     Sec. 6.  [60L.06] [INSURER INVESTMENT POLICY.] 
 11.13     In acquiring, investing, exchanging, holding, selling, and 
 11.14  managing investments, an insurer shall establish and follow a 
 11.15  written investment policy that must be reviewed and approved by 
 11.16  the insurer's board of directors at least annually.  The content 
 11.17  and format of an insurer's investment policy are at the 
 11.18  insurer's discretion, but must include written guidelines 
 11.19  appropriate to the insurer's business as to the following: 
 11.20     (1) the general investment policy of the insurer containing 
 11.21  policies, procedures, and controls covering all aspects of the 
 11.22  investing function; 
 11.23     (2) quantified goals and objectives regarding the 
 11.24  composition of classes of investments, including maximum 
 11.25  internal limits; 
 11.26     (3) periodic evaluation of the investment portfolio as to 
 11.27  its risk and reward characteristics.  This clause does not 
 11.28  preclude an insurer from the use of "modern portfolio theory" to 
 11.29  manage its investments; 
 11.30     (4) professional standards for the individuals making 
 11.31  day-to-day investment decisions to ensure that investments are 
 11.32  managed in an ethical and capable manner; 
 11.33     (5) the types of investments to be made and those to be 
 11.34  avoided, based on their risk and reward characteristics and the 
 11.35  insurer's level of experience with the investments; 
 11.36     (6) the relationship of classes of investments to the 
 12.1   insurer's insurance products and liabilities; 
 12.2      (7) the manner in which the insurer intends to implement 
 12.3   section 60L.05; and 
 12.4      (8) the level of risk, based on quantitative measures, 
 12.5   appropriate for the insurer given the level of capitalization 
 12.6   and expertise available to the insurer. 
 12.7      Sec. 7.  [60L.07] [AUTHORIZED CLASSES OF INVESTMENTS.] 
 12.8      The following classes of investments may be counted for the 
 12.9   purposes specified in section 60L.11, whether they are made 
 12.10  directly or as a participant in a partnership, joint venture, or 
 12.11  limited liability company: 
 12.12     (1) cash in the direct possession of the insurer or on 
 12.13  deposit with a financial institution regulated by any federal or 
 12.14  state agency of the United States; 
 12.15     (2) bonds, debt-like preferred stock, and other evidences 
 12.16  of indebtedness of governmental units in the United States or 
 12.17  Canada, or the instrumentalities of the governmental units, or 
 12.18  private business entities domiciled in the United States or 
 12.19  Canada, including asset-backed securities and SVO listed mutual 
 12.20  funds; 
 12.21     (3) loans secured by mortgages, trust deeds, or other 
 12.22  security interests in real property located in the United States 
 12.23  or Canada or secured by insurance against default issued by a 
 12.24  government insurance corporation of the United States or Canada 
 12.25  or by an insurer authorized to do business in this state; 
 12.26     (4) common stock or equity-like preferred stock or equity 
 12.27  interests in any United States or Canadian business entity, or 
 12.28  shares of mutual funds registered with the Securities and 
 12.29  Exchange Commission of the United States under the Investment 
 12.30  Company Act of 1940, other than SVO listed mutual funds; 
 12.31     (5) real property necessary for the convenient transaction 
 12.32  of the insurer's business; 
 12.33     (6) real property and its fixtures, furniture, furnishings, 
 12.34  and equipment in the United States or Canada, which produces or 
 12.35  after suitable improvement can reasonably be expected to produce 
 12.36  substantial income; 
 13.1      (7) loans, securities, or other investments of the types 
 13.2   described in clauses (1) to (6) in countries other than the 
 13.3   United States and Canada; 
 13.4      (8) bonds or other evidences of indebtedness of 
 13.5   international development organizations of which the United 
 13.6   States is a member; 
 13.7      (9) loans upon the security of the insurer's own policies 
 13.8   in amounts that are adequately secured by the policies and that 
 13.9   in no case exceed the surrender values of the policies; 
 13.10     (10) tangible personal property under contract of sale or 
 13.11  lease under which contractual payments may reasonably be 
 13.12  expected to return the principal of and provide earnings on the 
 13.13  investment within its anticipated useful life; 
 13.14     (11) other investments authorized by the commissioner; and 
 13.15     (12) investments not otherwise permitted by this section, 
 13.16  and not specifically prohibited by other law, to the extent of 
 13.17  not more than five percent of the first $500,000,000 of the 
 13.18  insurer's admitted assets plus ten percent of the insurer's 
 13.19  admitted assets exceeding $500,000,000. 
 13.20     Sec. 8.  [60L.08] [LIMITATIONS GENERALLY APPLICABLE.] 
 13.21     Subdivision 1.  [CLASS LIMITATIONS.] For the purposes of 
 13.22  section 60L.11, the following limitations on classes of 
 13.23  investments apply: 
 13.24     (a) For investments authorized under section 60L.07, clause 
 13.25  (2), and investments authorized under section 60L.07, clause 
 13.26  (7), that are of the types described in section 60L.07, clause 
 13.27  (2), the following restrictions apply: 
 13.28     (1) the aggregate amount of medium and lower grade 
 13.29  investments may not exceed 20 percent of the insurer's admitted 
 13.30  assets; 
 13.31     (2) the aggregate amount of lower grade investments may not 
 13.32  exceed ten percent of the insurer's admitted assets; 
 13.33     (3) the aggregate amount of investments rated 5 or 6 by the 
 13.34  SVO may not exceed five percent of the insurer's admitted 
 13.35  assets; 
 13.36     (4) the aggregate amount of investments rated 6 by the SVO 
 14.1   may not exceed one percent of the insurer's admitted assets; or 
 14.2      (5) the aggregate amount of medium and lower grade 
 14.3   investments that receive as cash income less than the equivalent 
 14.4   yield for United States Treasury issues with a comparative 
 14.5   average life, may not exceed one percent of the insurer's 
 14.6   admitted assets. 
 14.7      (b) Investments authorized under section 60L.07, clause 
 14.8   (3), may not exceed 45 percent of admitted assets in the case of 
 14.9   life insurers and 25 percent of admitted assets in the case of 
 14.10  nonlife insurers. 
 14.11     (c) Investments authorized under section 60L.07, clause 
 14.12  (4), other than subsidiaries of the types authorized under 
 14.13  section 60A.11, subdivision 18, paragraph (a), clause (4); 
 14.14  60D.16; or 61A.281, may not exceed 20 percent of admitted assets 
 14.15  in the case of life insurers and 25 percent of admitted assets 
 14.16  in the case of nonlife insurers. 
 14.17     (d) Investments authorized under section 60L.07, clause 
 14.18  (5), may not exceed ten percent of admitted assets. 
 14.19     (e) Investments authorized under section 60L.07, clause 
 14.20  (6), may not exceed 20 percent of admitted assets in the case of 
 14.21  life insurers, and ten percent of admitted assets in the case of 
 14.22  nonlife insurers. 
 14.23     (f) Investments authorized under section 60L.07, clause 
 14.24  (7), may not exceed 20 percent of admitted assets. 
 14.25     (g) Investments authorized under section 60L.07, clause 
 14.26  (8), may not exceed two percent of admitted assets. 
 14.27     (h) Investments authorized under section 60L.07, clause 
 14.28  (9), may not exceed two percent of admitted assets. 
 14.29     Subd. 2.  [INDIVIDUAL LIMITATIONS.] For purposes of 
 14.30  determining compliance with section 60L.11, securities of a 
 14.31  single issuer and its affiliates, other than the government of 
 14.32  the United States and subsidiaries authorized under section 
 14.33  60A.11, subdivision 18, paragraph (a), clause (4); 60D.16; or 
 14.34  61A.281, may not exceed three percent of admitted assets in the 
 14.35  case of life insurers, and five percent in the case of nonlife 
 14.36  insurers.  For purposes of this subdivision, in the case of 
 15.1   asset-backed securities issued, assumed, insured, or guaranteed 
 15.2   by a government-sponsored enterprise and secured by or 
 15.3   evidencing an interest in a single asset or single pool of 
 15.4   assets held by a trust or other business entity, the issuer is 
 15.5   considered to be the asset or pool of assets. 
 15.6      Subd. 3.  [INVESTMENT SUBSIDIARIES.] For purposes of 
 15.7   determining compliance with this section, the admitted portion 
 15.8   of assets of subsidiaries under section 60A.11, subdivision 18, 
 15.9   paragraph (a) clause (4); 60D.16, subdivision 2, paragraph (b); 
 15.10  or 61A.281, subdivision 5, are considered to be owned directly 
 15.11  by the insurer and any other investors in proportion to the 
 15.12  market value or if there is no market, the reasonable value, of 
 15.13  their interest in the subsidiaries. 
 15.14     Subd. 4.  [EFFECT OF QUANTITY LIMITATIONS.] To the extent 
 15.15  that investments exceed the limitations specified under 
 15.16  subdivisions 1 and 2, the excess may be assigned to the 
 15.17  investment class authorized in section 60L.07, clause (12), 
 15.18  until that limit is exhausted. 
 15.19     Subd. 5.  [MUTUAL FUNDS, POOLED INVESTMENT VEHICLES, AND 
 15.20  OTHER INVESTMENT COMPANIES.] If the commissioner considers it 
 15.21  desirable in order to get a proper evaluation of the investment 
 15.22  portfolio of an insurer, the commissioner may require that 
 15.23  investments in mutual funds, pooled investment vehicles, or 
 15.24  other investment companies be treated for purposes of sections 
 15.25  60L.01 to 60L.16, as if the investor owned directly its 
 15.26  proportional share of the assets owned by the mutual fund, 
 15.27  pooled investment vehicle, or investment company. 
 15.28     Subd. 6.  [INVESTMENT LIMITATION COMPUTATION.] Unless 
 15.29  otherwise specified, an investment limitation computed on the 
 15.30  basis of an insurer's admitted assets or capital and surplus 
 15.31  must relate to the amount required to be shown on the statutory 
 15.32  balance sheet of the insurer most recently required to be filed 
 15.33  with the commissioner. 
 15.34     Sec. 9.  [60L.09] [PROTECTION AGAINST CURRENCY 
 15.35  FLUCTUATIONS.] 
 15.36     An insurer doing business that requires it to make payments 
 16.1   in different currencies shall have investments in securities in 
 16.2   each of these currencies in an amount that independently of all 
 16.3   other investments meets the requirements of sections 60L.01 to 
 16.4   60L.16 as applied separately to the insurer's obligations in 
 16.5   each currency.  The commissioner may by order exempt an insurer, 
 16.6   or a class of insurers, from this requirement if the obligations 
 16.7   in other currencies are small enough that no significant problem 
 16.8   for financial solidity would be created by substantial 
 16.9   fluctuations in relative currency values. 
 16.10     Sec. 10.  [60A.10] [PROHIBITED INVESTMENTS.] 
 16.11     Subdivision 1.  [PROHIBITIONS.] An insurer may not invest 
 16.12  in investments that are prohibited for an insurer by law.  The 
 16.13  use of a derivative instrument for replication, or for any 
 16.14  purposes other than hedging or income generation, is prohibited. 
 16.15     Subd. 2.  [DISPOSAL OF PROHIBITED ASSET.] A reasonable 
 16.16  time, not to exceed five years, must be allowed for disposal of 
 16.17  a prohibited investment in hardship cases if the investment is 
 16.18  demonstrated by the insurer to have been legal when made, or the 
 16.19  result of a mistake made in good faith, or if the commissioner 
 16.20  determines that the sale of the asset would be contrary to the 
 16.21  interests of insureds, creditors, or the general public. 
 16.22     Sec. 11.  [60L.11] [EFFECT OF INVESTMENT RESTRICTIONS.] 
 16.23     Subdivision 1.  [INVESTED ASSETS.] Invested assets may be 
 16.24  counted toward satisfaction of the minimum asset requirement 
 16.25  only so far as they are invested in compliance with sections 
 16.26  60L.01 to 60L.16 and orders issued by the commissioner.  Assets 
 16.27  other than invested assets may be counted toward satisfaction of 
 16.28  the minimum asset requirement at admitted annual statement value.
 16.29     Subd. 2.  [ADMITTED ASSET.] An investment which is held as 
 16.30  an admitted asset by an insurer on the date on which sections 
 16.31  60L.01 to 60L.16 begin to govern the insurer and which qualified 
 16.32  as an admitted asset immediately before this date remain 
 16.33  qualified as an admitted asset under sections 60L.01 to 60L.16. 
 16.34     Subd. 3.  [ACQUIRED ASSETS.] Assets acquired in the bona 
 16.35  fide enforcement of creditors' rights or in bona fide workouts 
 16.36  or settlements of disputed claims may be counted for the 
 17.1   purposes of subdivision 1 for five years after acquisition if 
 17.2   real property and three years if not real property, even if they 
 17.3   could not otherwise be counted under sections 60L.01 to 60L.16.  
 17.4   The commissioner may allow reasonable extensions of these 
 17.5   periods if replacement of the assets within the periods would 
 17.6   not be possible without substantial loss. 
 17.7      Subd. 4.  [LIQUIDATION AND REHABILITATION.] If an insurer 
 17.8   does not own, or is unable to apply toward compliance with 
 17.9   sections 60L.01 to 60L.16, an amount of assets equal to its 
 17.10  minimum asset requirement, the commissioner may consider it to 
 17.11  be financially hazardous under section 60B.15; 60B.20; or 60G.20.
 17.12     Sec. 12.  [60L.12] [REPORTS AND REPLIES.] 
 17.13     Subdivision 1.  [REQUIREMENTS.] The commissioner may 
 17.14  require any of the following from a person subject to regulation 
 17.15  under sections 60L.01 to 60L.16: 
 17.16     (1) statements, reports, answers to questionnaires and 
 17.17  other information, and evidence in whatever reasonable form the 
 17.18  commissioner designates, and at reasonable intervals as the 
 17.19  commissioner chooses; 
 17.20     (2) full explanation of the programming of any data storage 
 17.21  or communication system in use; or 
 17.22     (3) that information from any books, records, electronic 
 17.23  data processing systems, computers, or any other information 
 17.24  storage system be made available to the commissioner at a 
 17.25  reasonable time and in a reasonable manner. 
 17.26     Subd. 2.  [FORMS.] The commissioner may prescribe forms for 
 17.27  the reports required under subdivision 1 and specify who shall 
 17.28  execute or certify the reports.  The forms for the reports 
 17.29  required under subdivision 1 must be consistent, so far as 
 17.30  practicable, with those prescribed by other jurisdictions. 
 17.31     Subd. 3.  [ACCOUNTING.] The commissioner may prescribe 
 17.32  reasonable minimum standards and techniques of accounting and 
 17.33  data handling to ensure that timely and reliable information 
 17.34  will exist and will be available to the commissioner. 
 17.35     Subd. 4.  [PROMPT REPLY.] Any officer, manager, or general 
 17.36  agent of an insurer subject to sections 60L.01 to 60L.16, any 
 18.1   person controlling or having a contract under which the person 
 18.2   has a right to control the insurer, whether exclusively or 
 18.3   otherwise, or a person with executive authority over or in 
 18.4   charge of any segment of the insurer's affairs, shall reply 
 18.5   promptly in writing or in other reasonably designated form, to a 
 18.6   written inquiry from the commissioner requesting a reply. 
 18.7      Subd. 5.  [VERIFIED COMMUNICATION.] The commissioner may 
 18.8   require that any communication made to the commissioner under 
 18.9   this section be verified. 
 18.10     Subd. 6.  [NO ACTION FOR DAMAGES.] A communication to the 
 18.11  commissioner, or to an expert or consultant retained by the 
 18.12  commissioner, required under sections 60L.01 to 60L.16, shall 
 18.13  not subject the person making it to an action for damages for 
 18.14  the communication in the absence of actual malice. 
 18.15     Subd. 7.  [INFORMATION.] Notwithstanding subdivision 6, the 
 18.16  commissioner may bring suit against any person providing 
 18.17  information required under sections 60L.01 to 60L.16 that is not 
 18.18  truthful and accurate. 
 18.19     Sec. 13.  [60L.13] [RETENTION OF EXPERTS.] 
 18.20     The commissioner may retain at the insurer's expense 
 18.21  attorneys, actuaries, accountants, and other experts not 
 18.22  otherwise a part of the commissioner's staff as may be 
 18.23  reasonably necessary to assist in reviewing the insurer's 
 18.24  investments.  Persons so retained are under the direction and 
 18.25  control of the commissioner and shall act in a purely advisory 
 18.26  capacity. 
 18.27     Sec. 14.  [60L.14] [COMMISSIONER'S ORDERS.] 
 18.28     Subdivision 1.  [NECESSARY CHANGES.] If the commissioner 
 18.29  determines that an insurer's investment practices do not meet 
 18.30  the requirements of sections 60L.01 to 60L.16, the commissioner 
 18.31  may, after notification to the insurer of the commissioner's 
 18.32  findings, order the insurer to make changes necessary to comply 
 18.33  with the requirements of sections 60L.01 to 60L.16. 
 18.34     Subd. 2.  [ADDITIONAL RESTRICTIONS.] If the commissioner 
 18.35  determines that by reason of the financial condition, current 
 18.36  investment practice, or current investment plan of an insurer, 
 19.1   the interests of insureds, creditors, or the general public are 
 19.2   or may be endangered, the commissioner may impose reasonable 
 19.3   additional restrictions upon the admissibility or valuation of 
 19.4   investments or may impose restrictions on the investment 
 19.5   practices of an insurer, including prohibition or divestment. 
 19.6      Subd. 3.  [ADDITIONAL ASSETS.] The commissioner may count 
 19.7   toward satisfaction of the minimum asset requirement any assets 
 19.8   in which an insurer is required to invest under the laws of a 
 19.9   country other than the United States as a condition for doing 
 19.10  business in that country if the commissioner finds that counting 
 19.11  them does not endanger the interests of insureds, creditors, or 
 19.12  the general public. 
 19.13     Subd. 4.  [ADJUSTMENTS.] If the commissioner is satisfied 
 19.14  by evidence of the solidity of an insurer and the competence of 
 19.15  management and its investment advisors, the commissioner, after 
 19.16  a hearing, may by order adjust the class limitations under 
 19.17  section 60L.08, for that insurer, to the extent that the 
 19.18  commissioner is satisfied that the interests of insureds, 
 19.19  creditors, and the public are sufficiently protected in other 
 19.20  ways.  Adjustments to the class limitations granted under 
 19.21  section 60L.08, in aggregate, are limited to an amount equal to 
 19.22  ten percent of the insurer's liabilities. 
 19.23     Sec. 15.  [60L.15] [ADMINISTRATIVE HEARINGS.] 
 19.24     Subdivision 1.  [AUTHORIZATION.] An insurer aggrieved by an 
 19.25  order or any other act or failure to act of the commissioner 
 19.26  regarding compliance with sections 60L.01 to 60L.16 may request 
 19.27  a hearing by following the procedures of chapter 14. 
 19.28     Subd. 2.  [PRIVATE HEARING.] The commissioner shall hold 
 19.29  hearings under this section privately unless the insurer 
 19.30  requests a public hearing, in which case the hearing is public. 
 19.31     Sec. 16.  Minnesota Statutes 1996, section 61A.14, 
 19.32  subdivision 4, is amended to read: 
 19.33     Subd. 4.  [OTHER INVESTMENTS.] For purposes of determining 
 19.34  whether the capital, surplus and other funds of a domestic life 
 19.35  insurance company, other than assets held in a separate account 
 19.36  pursuant to this section, are invested in accordance with 
 20.1   sections 60A.11 and, 61A.28 to 61A.31, and 60L.01 to 60L.16, 
 20.2   assets held by the company in a separate account in accordance 
 20.3   with this section shall be disregarded. 
 20.4      Sec. 17.  Minnesota Statutes 1996, section 61A.276, 
 20.5   subdivision 4, is amended to read: 
 20.6      Subd. 4.  [ALLOCATION TO SEPARATE ACCOUNTS.] Amounts paid 
 20.7   to the insurer, and proceeds applied under optional modes of 
 20.8   settlement, under the funding agreements may be allocated by the 
 20.9   insurer to one or more separate accounts pursuant to section 
 20.10  sections 61A.275 or, 61A.14, or 60L.01 to 60L.16.  
 20.11  Notwithstanding the provisions of section 61A.275, subdivision 
 20.12  1, a separate account for funding agreement proceeds may include 
 20.13  funds from any source authorized to purchase a funding agreement 
 20.14  pursuant to this section.