SF 1610

1st Engrossment - 82nd Legislature (2001 - 2002) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act 
  1.2             relating to insurance; regulating liquidations and 
  1.3             investments of insurers; amending Minnesota Statutes 
  1.4             2000, sections 60A.11, subdivision 10, by adding a 
  1.5             subdivision; 60B.44, subdivision 4; 60L.01, 
  1.6             subdivision 14, by adding a subdivision; 60L.08, by 
  1.7             adding a subdivision; 60L.10, subdivision 1; 61A.276, 
  1.8             subdivision 2; 61A.28, subdivision 6, by adding a 
  1.9             subdivision; 61A.29, subdivision 2. 
  1.10  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.11     Section 1.  Minnesota Statutes 2000, section 60A.11, 
  1.12  subdivision 10, is amended to read: 
  1.13     Subd. 10.  [DEFINITIONS.] The following terms have the 
  1.14  meaning assigned in this subdivision for purposes of this 
  1.15  section and section 60A.111: 
  1.16     (a) "Adequate evidence" means a written confirmation, 
  1.17  advice, or other verification issued by a depository, issuer, or 
  1.18  custodian bank which shows that the investment is held for the 
  1.19  company; 
  1.20     (b) "Adequate security" means a letter of credit qualifying 
  1.21  under subdivision 11, paragraph (f), cash, or the pledge of an 
  1.22  investment authorized by any subdivision of this section; 
  1.23     (c) "Admitted assets," for purposes of computing percentage 
  1.24  limitations on particular types of investments, means the assets 
  1.25  as shown by the company's annual statement, required by section 
  1.26  60A.13, as of the December 31 immediately preceding the date the 
  1.27  company acquires the investment; 
  2.1      (d) "Clearing corporation" means The Depository Trust 
  2.2   Company or any other clearing agency registered with the 
  2.3   securities and exchange commission pursuant to the Securities 
  2.4   Exchange Act of 1934, section 17A, Euro-clear Clearance System 
  2.5   Limited and CEDEL S.A., and, with the approval of the 
  2.6   commissioner, any other clearing corporation as defined in 
  2.7   section 336.8-102; 
  2.8      (e) "Control" has the meaning assigned to that term in, and 
  2.9   must be determined in accordance with, section 60D.15, 
  2.10  subdivision 4; 
  2.11     (f) "Custodian bank" means a bank or trust company or a 
  2.12  branch of a bank or trust company that is acting as custodian 
  2.13  and is supervised and examined by state or federal authority 
  2.14  having supervision over the bank or trust company or with 
  2.15  respect to a company's foreign investments only by the 
  2.16  regulatory authority having supervision over banks or trust 
  2.17  companies in the jurisdiction in which the bank, trust company, 
  2.18  or branch is located, and any banking institutions qualifying as 
  2.19  an "Eligible Foreign Custodian" under the Code of Federal 
  2.20  Regulations, section 270.17f-5, adopted under section 17(f) of 
  2.21  the Investment Company Act of 1940, and specifically including 
  2.22  Euro-clear Clearance System Limited and CEDEL S.A., acting as 
  2.23  custodians; 
  2.24     (g) "Evergreen clause" means a provision that automatically 
  2.25  renews a letter of credit for a time certain if the issuer of 
  2.26  the letter of credit fails to affirmatively signify its 
  2.27  intention to nonrenew upon expiration; 
  2.28     (h) "Government obligations" means direct obligations for 
  2.29  the payment of money, or obligations for the payment of money to 
  2.30  the extent guaranteed as to the payment of principal and 
  2.31  interest by any governmental issuer where the obligations are 
  2.32  payable from ad valorem taxes or guaranteed by the full faith, 
  2.33  credit, and taxing power of the issuer and are not secured 
  2.34  solely by special assessments for local improvements; 
  2.35     (i) "Noninvestment grade obligations" means obligations 
  2.36  which, at the time of acquisition, were rated below Baa/BBB or 
  3.1   the equivalent by a securities rating agency or which, at the 
  3.2   time of acquisition, were not in one of the two highest 
  3.3   categories established by the securities valuation office of the 
  3.4   National Association of Insurance Commissioners; 
  3.5      (j) "Issuer" means the corporation, business trust, 
  3.6   governmental unit, partnership, association, individual, or 
  3.7   other entity which issues or on behalf of which is issued any 
  3.8   form of obligation; 
  3.9      (k) "Licensed real estate appraiser" means a person who 
  3.10  develops and communicates real estate appraisals and who holds a 
  3.11  current, valid license under chapter 82B or a substantially 
  3.12  similar licensing requirement in another jurisdiction; 
  3.13     (l) "Member bank" means a national bank, state bank or 
  3.14  trust company which is a member of the Federal Reserve System; 
  3.15     (m) "National securities exchange" means an exchange 
  3.16  registered under section 6 of the Securities Exchange Act of 
  3.17  1934 or an exchange regulated under the laws of the Dominion of 
  3.18  Canada; 
  3.19     (n) "NASDAQ" means the reporting system for securities 
  3.20  meeting the definition of National Market System security as 
  3.21  provided under Part I to Schedule D of the National Association 
  3.22  of Securities Dealers Incorporated bylaws; 
  3.23     (o) "Obligations" include bonds, notes, debentures, 
  3.24  transportation equipment certificates, repurchase agreements, 
  3.25  bank certificates of deposit, time deposits, bankers' 
  3.26  acceptances, and other obligations for the payment of money not 
  3.27  in default as to payments of principal and interest on the date 
  3.28  of investment, whether constituting general obligations of the 
  3.29  issuer or payable only out of certain revenues or certain funds 
  3.30  pledged or otherwise dedicated for payment.  Leases are 
  3.31  considered obligations if the lease is assigned for the benefit 
  3.32  of the company and is nonterminable by the lessee or lessees 
  3.33  thereunder upon foreclosure of any lien upon the leased 
  3.34  property, and rental payments are sufficient to amortize the 
  3.35  investment over the primary lease term; 
  3.36     (p) "Qualified assets" means the sum of (1) all investments 
  4.1   qualified in accordance with this section other than investments 
  4.2   in affiliates and subsidiaries, (2) investments in obligations 
  4.3   of affiliates as defined in section 60D.15, subdivision 2, 
  4.4   secured by real or personal property sufficient to qualify the 
  4.5   investment under subdivision 19 or 23, (3) qualified investments 
  4.6   in subsidiaries, as defined in section 60D.15, subdivision 9, on 
  4.7   a consolidated basis with the insurance company without 
  4.8   allowance for goodwill or other intangible value, and (4) cash 
  4.9   on hand and on deposit, agent's balances or uncollected premiums 
  4.10  not due more than 90 days, assets held pursuant to section 
  4.11  60A.12, subdivision 2, investment income due and accrued, funds 
  4.12  due or on deposit or recoverable on loss payments under 
  4.13  contracts of reinsurance entered into pursuant to section 
  4.14  60A.09, premium bills and notes receivable, federal income taxes 
  4.15  recoverable, and equities and deposits in pools and 
  4.16  associations; 
  4.17     (q) "Qualified net earnings" means that the net earnings of 
  4.18  the issuer after elimination of extraordinary nonrecurring items 
  4.19  of income and expense and before income taxes and fixed charges 
  4.20  over the five immediately preceding completed fiscal years, or 
  4.21  its period of existence if less than five years, has averaged 
  4.22  not less than 1-1/4 times its average annual fixed charges 
  4.23  applicable to the period; 
  4.24     (r) "Replicated investment position" means the statement 
  4.25  value of the position reported under the heading "Replicated 
  4.26  (Synthetic) Asset" on Schedule DB, Part F, of the annual 
  4.27  statement of the insurer, or any successor provision; 
  4.28     (s) "Replication transaction" means a derivative 
  4.29  transaction that is intended to replicate the performance of one 
  4.30  or more assets that an insurer is authorized to acquire under 
  4.31  this section.  A derivative transaction that either is 
  4.32  authorized by subdivision 18, clause (5), or by subdivision 24, 
  4.33  or is entered into as a hedging transaction shall not be 
  4.34  considered a replication transaction; 
  4.35     (t) "Required liabilities" means the sum of (1) total 
  4.36  liabilities as required to be reported in the company's most 
  5.1   recent annual report to the commissioner of commerce of this 
  5.2   state, (2) for companies operating under the stock plan, the 
  5.3   minimum paid-up capital and surplus required to be maintained 
  5.4   pursuant to section 60A.07, subdivision 5a, (3) for companies 
  5.5   operating under the mutual or reciprocal plan, the minimum 
  5.6   amount of surplus required to be maintained pursuant to section 
  5.7   60A.07, subdivision 5b, and (4) the amount, if any, by which the 
  5.8   company's loss and loss adjustment expense reserves exceed 350 
  5.9   percent of its surplus as it pertains to policyholders as of the 
  5.10  same date.  The commissioner may waive the requirement in clause 
  5.11  (4) unless the company's written premiums exceed 300 percent of 
  5.12  its surplus as it pertains to policyholders as of the same 
  5.13  date.  In addition to the required amounts pursuant to clauses 
  5.14  (1) to (4), the commissioner may require that the amount of any 
  5.15  apparent reserve deficiency that may be revealed by one to five 
  5.16  year loss and loss adjustment expense development analysis for 
  5.17  the five years reported in the company's most recent annual 
  5.18  statement to the commissioner be added to required liabilities; 
  5.19     (s) (u) "Revenue obligations" means obligations for the 
  5.20  payment of money by a governmental issuer where the obligations 
  5.21  are payable from revenues, earnings, or special assessments on 
  5.22  properties benefited by local improvements of the issuer which 
  5.23  are specifically pledged therefor; 
  5.24     (t) (v) "Security" has the meaning given in section 5 of 
  5.25  the Security Act of 1933 and specifically includes, but is not 
  5.26  limited to, stocks, stock equivalents, warrants, rights, 
  5.27  options, obligations, American Depository Receipts (ADR's), 
  5.28  repurchase agreements, and reverse repurchase agreements; and 
  5.29     (u) (w) "Unrestricted surplus" means the amount by which 
  5.30  qualified assets exceed 110 percent of required liabilities. 
  5.31     Sec. 2.  Minnesota Statutes 2000, section 60A.11, is 
  5.32  amended by adding a subdivision to read: 
  5.33     Subd. 25a.  [REPLICATION TRANSACTIONS.] An insurer engaging 
  5.34  in replication transactions shall include all replicated 
  5.35  investment positions in calculating compliance with the 
  5.36  limitations on investments applicable to the insurer.  
  6.1   Replication transactions are permitted only under the authority 
  6.2   of subdivision 25.  An insurer may invest its unrestricted 
  6.3   surplus in a replication transaction only to the extent that the 
  6.4   replicated investment position does not cause the total 
  6.5   positions represented by the unrestricted surplus to be greater 
  6.6   than the total positions represented by the unrestricted surplus 
  6.7   as would be permitted in the absence of the replicated 
  6.8   investment position. 
  6.9      Sec. 3.  Minnesota Statutes 2000, section 60B.44, 
  6.10  subdivision 4, is amended to read: 
  6.11     Subd. 4.  [LOSS CLAIMS; INCLUDING CLAIMS NOT COVERED BY A 
  6.12  GUARANTY ASSOCIATION.] All claims under policies or contracts of 
  6.13  coverage for losses incurred including third party claims, and 
  6.14  all claims against the insurer for liability for bodily injury 
  6.15  or for injury to or destruction of tangible property which are 
  6.16  not under policies or contracts.  All claims under life 
  6.17  insurance and annuity policies, including funding agreements 
  6.18  issued pursuant to section 61A.276, whether for death proceeds, 
  6.19  annuity proceeds, or investment values, shall be treated as loss 
  6.20  claims.  That portion of any loss for which indemnification is 
  6.21  provided by other benefits or advantages recovered or 
  6.22  recoverable by the claimant shall not be included in this class, 
  6.23  other than benefits or advantages recovered or recoverable in 
  6.24  discharge of familial obligations of support or by way of 
  6.25  succession at death or as proceeds of life insurance, or as 
  6.26  gratuities.  No payment made by an employer to an employee shall 
  6.27  be treated as a gratuity.  Claims not covered by a guaranty 
  6.28  association are loss claims.  
  6.29     Sec. 4.  Minnesota Statutes 2000, section 60L.01, is 
  6.30  amended by adding a subdivision to read: 
  6.31     Subd. 13a.  [REPLICATED INVESTMENT POSITION.] "Replicated 
  6.32  investment position" means the statement value of the position 
  6.33  reported under the heading "Replicated (Synthetic) Asset" on 
  6.34  Schedule DB, Part F, of the annual statement of the insurer, or 
  6.35  any successor provision. 
  6.36     Sec. 5.  Minnesota Statutes 2000, section 60L.01, 
  7.1   subdivision 14, is amended to read: 
  7.2      Subd. 14.  [REPLICATION TRANSACTION.] 
  7.3   "Replication transaction" means a derivative 
  7.4   transaction involving one or more derivative instruments being 
  7.5   used to modify the cash flow characteristics of one or more 
  7.6   investments held by an insurer in a manner so that the aggregate 
  7.7   cash flows of the derivative instruments and investments 
  7.8   reproduce the cash flows of another investment having a higher 
  7.9   risk-based capital charge than the risk-based capital charge of 
  7.10  the original investments or investments that is intended to 
  7.11  replicate the performance of one or more assets that an insurer 
  7.12  is authorized to acquire under sections 60L.01 to 60L.15.  A 
  7.13  derivative transaction that is entered into as a hedging 
  7.14  transaction is not considered a replication transaction. 
  7.15     Sec. 6.  Minnesota Statutes 2000, section 60L.08, is 
  7.16  amended by adding a subdivision to read: 
  7.17     Subd. 7.  [REPLICATION TRANSACTIONS.] (a) An insurer 
  7.18  engaging in replication transactions shall include all 
  7.19  replicated investment positions in calculating compliance with 
  7.20  the limitations on investments contained in this section.  So 
  7.21  long as the insurer so complies with the limitations on 
  7.22  investments contained in this section, then the insurer may 
  7.23  count a replication transaction and any related investment of 
  7.24  the insurer for the purposes specified in section 60L.11, to the 
  7.25  extent the insurer has appropriately assigned the transaction or 
  7.26  other investment to an investment class authorized in section 
  7.27  60L.07.  An insurer shall not otherwise count replicated 
  7.28  investment positions for the purposes specified in section 
  7.29  60L.11. 
  7.30     (b) If an investment position of the insurer includes a 
  7.31  replicated investment position and exceeds an applicable 
  7.32  limitation contained in this section, then the insurer may 
  7.33  allocate part or all of the replicated investment position as 
  7.34  follows for the purposes of calculating compliance with the 
  7.35  limitations on investments and other requirements contained in 
  7.36  sections 60L.01 to 60L.15:  to the extent an insurer owns assets 
  8.1   in excess of its minimum asset requirement, the insurer may deem 
  8.2   a replicated investment position to be among such excess assets, 
  8.3   but only to the extent that the replicated investment position 
  8.4   does not cause the total positions represented by such excess 
  8.5   assets to be greater than the total positions represented by 
  8.6   such excess assets as would be permitted in the absence of the 
  8.7   replicated investment position. 
  8.8      Sec. 7.  Minnesota Statutes 2000, section 60L.10, 
  8.9   subdivision 1, is amended to read: 
  8.10     Subdivision 1.  [PROHIBITIONS.] An insurer may not invest 
  8.11  in investments that are prohibited for an insurer by law.  The 
  8.12  use of a derivative instrument for replication, or for any 
  8.13  purposes other than hedging or, income generation, or 
  8.14  replication is prohibited. 
  8.15     Sec. 8.  Minnesota Statutes 2000, section 61A.276, 
  8.16  subdivision 2, is amended to read: 
  8.17     Subd. 2.  [ISSUANCE.] The funding agreements may be issued 
  8.18  to:  (1) individuals; or (2) persons authorized by a state or 
  8.19  foreign country to engage in an insurance business or 
  8.20  subsidiaries or affiliates of these persons; or (3) entities 
  8.21  other than individuals and other than persons authorized to 
  8.22  engage in an insurance business, and subsidiaries and affiliates 
  8.23  of these persons, for the following purposes:  (i) to fund 
  8.24  benefits under any employee benefit plan as defined in the 
  8.25  Employee Retirement Income Security Act of 1974, as now or 
  8.26  hereafter amended, maintained in the United States or in a 
  8.27  foreign country; (ii) to fund the activities of any organization 
  8.28  exempt from taxation under section 501(c) of the Internal 
  8.29  Revenue Code of 1986, as amended through December 31, 1992, or 
  8.30  of any similar organization in any foreign country; (iii) to 
  8.31  fund any program of any state, foreign country or political 
  8.32  subdivision thereof, or any agency or instrumentality thereof; 
  8.33  (iv) to fund any agreement providing for periodic payments in 
  8.34  satisfaction of a claim; or (v) to fund a program of a financial 
  8.35  an institution limited to banks, thrifts, credit unions, and 
  8.36  investment companies registered under the Investment Company Act 
  9.1   of 1940.  No funding agreement shall be issued in an amount less 
  9.2   than $1,000,000 that has assets in excess of $25,000,000.  No 
  9.3   funding agreement shall be issued in an amount less than 
  9.4   $1,000,000.  
  9.5      Sec. 9.  Minnesota Statutes 2000, section 61A.28, 
  9.6   subdivision 6, is amended to read: 
  9.7      Subd. 6.  [STOCKS, OBLIGATIONS, AND OTHER INVESTMENTS.] (a) 
  9.8   Common stocks, common stock equivalents, or securities 
  9.9   convertible into common stock or common stock equivalents of a 
  9.10  business entity organized under the laws of the United States or 
  9.11  any state thereof, or the Dominion of Canada or any province 
  9.12  thereof, if the net earnings of the business entity after the 
  9.13  elimination of extraordinary nonrecurring items of income and 
  9.14  expense and before income taxes and fixed charges over the five 
  9.15  immediately preceding completed fiscal years, or its period of 
  9.16  existence if less than five years, has averaged not less than 
  9.17  1-1/4 times its average annual fixed charges applicable to the 
  9.18  period.  
  9.19     (b) Preferred stock of, or common or preferred stock 
  9.20  guaranteed as to dividends by a business entity organized under 
  9.21  the laws of the United States or any state thereof, or the 
  9.22  Dominion of Canada or any province thereof, under the following 
  9.23  conditions:  (1) No investment may be made under this paragraph 
  9.24  in a stock upon which any dividend, current or cumulative, is in 
  9.25  arrears; (2) the company may not invest in stocks under this 
  9.26  paragraph and in common stocks under paragraph (a) if the 
  9.27  investment causes the company's aggregate investments in the 
  9.28  common or preferred stocks to exceed 25 percent of the company's 
  9.29  total admitted assets, provided that no more than 20 percent of 
  9.30  the company's admitted assets may be invested in common stocks 
  9.31  under paragraph (a); and (3) the company may not invest in any 
  9.32  preferred stock or common stock guaranteed as to dividends, 
  9.33  which is rated in the four lowest categories established by the 
  9.34  securities valuation office of the National Association of 
  9.35  Insurance Commissioners, if the investment causes the company's 
  9.36  aggregate investment in the lower rated preferred or common 
 10.1   stock guaranteed as to dividends to exceed five percent of its 
 10.2   total admitted assets.  
 10.3      (c) Warrants, options, and rights to purchase stock if the 
 10.4   stock, at the time of the acquisition of the warrant, option, or 
 10.5   right to purchase, would qualify as an investment under 
 10.6   paragraph (a) or (b), whichever is applicable.  A company shall 
 10.7   not invest in a warrant, option, or right to purchase stock if, 
 10.8   upon purchase and immediate exercise thereof, the acquisition of 
 10.9   the stock violates any of the concentration limitations 
 10.10  contained in paragraphs (a) and (b).  
 10.11     (d) In addition to amounts that may be invested under 
 10.12  subdivision 8 and without regard to the percentage limitation 
 10.13  applicable to stocks, warrants, options, and rights to purchase, 
 10.14  the securities of any face amount certificate company, unit 
 10.15  investment trust, or management type investment company, 
 10.16  registered or in the process of registration under the 
 10.17  Investment Company Act of 1940 as from time to time amended.  In 
 10.18  addition, the company may transfer assets into one or more of 
 10.19  its separate accounts for the purpose of establishing, or 
 10.20  supporting its contractual obligations under, the accounts in 
 10.21  accordance with the provisions of sections 61A.13 to 61A.21.  A 
 10.22  company may not invest in a security authorized under this 
 10.23  paragraph if the investment causes the company's aggregate 
 10.24  investments in the securities to exceed five ten percent of its 
 10.25  total admitted assets, except that for a health service plan 
 10.26  corporation operating under chapter 62C, and for a health 
 10.27  maintenance organization operating under chapter 62D, the 
 10.28  company's aggregate investments may not exceed 20 percent of its 
 10.29  total admitted assets.  No more than five percent of the allowed 
 10.30  investment by health service plan corporations or health 
 10.31  maintenance organizations may be invested in funds that invest 
 10.32  in assets not backed by the federal government.  When investing 
 10.33  in money market mutual funds, nonprofit health service plans 
 10.34  regulated under chapter 62C, and health maintenance 
 10.35  organizations regulated under chapter 62D, shall establish a 
 10.36  trustee custodial account for the transfer of cash into the 
 11.1   money market mutual fund. 
 11.2      (e) Investment grade obligations that are:  
 11.3      (1) bonds, obligations, notes, debentures, repurchase 
 11.4   agreements, or other evidences of indebtedness of a business 
 11.5   entity, organized under the laws of the United States or any 
 11.6   state thereof, or the Dominion of Canada or any province 
 11.7   thereof; and 
 11.8      (2) rated in one of the four highest rating categories by 
 11.9   at least one nationally recognized statistical rating 
 11.10  organization, or are rated in one of the two highest categories 
 11.11  established by the securities valuation office of the National 
 11.12  Association of Insurance Commissioners. 
 11.13     (f) Noninvestment grade obligations:  A company may acquire 
 11.14  noninvestment grade obligations as defined in subclause (i) 
 11.15  (hereinafter noninvestment grade obligations) which meet the 
 11.16  earnings test set forth in subclause (ii).  A company may not 
 11.17  acquire a noninvestment grade obligation if the acquisition will 
 11.18  cause the company to exceed the limitations set forth in 
 11.19  subclause (iii). 
 11.20     (i) A noninvestment grade obligation is an obligation of a 
 11.21  business entity, organized under the laws of the United States 
 11.22  or any state thereof, or the Dominion of Canada or any province 
 11.23  thereof, that is not rated in one of the four highest rating 
 11.24  categories by at least one nationally recognized statistical 
 11.25  rating organization, or is not rated in one of the two highest 
 11.26  categories established by the securities valuation office of the 
 11.27  National Association of Insurance Commissioners. 
 11.28     (ii) Noninvestment grade obligations authorized by this 
 11.29  subdivision may be acquired by a company if the business entity 
 11.30  issuing or assuming the obligation, or the business entity 
 11.31  securing or guaranteeing the obligation, has had net earnings 
 11.32  after the elimination of extraordinary nonrecurring items of 
 11.33  income and expense and before income taxes and fixed charges 
 11.34  over the five immediately preceding completed fiscal years, or 
 11.35  its period of existence of less than five years, has averaged 
 11.36  not less than 1-1/4 times its average annual fixed charges 
 12.1   applicable to the period; provided, however, that if a business 
 12.2   entity issuing or assuming the obligation, or the business 
 12.3   entity securing or guaranteeing the obligation, has undergone an 
 12.4   acquisition, recapitalization, or reorganization within the 
 12.5   immediately preceding 12 months, or will use the proceeds of the 
 12.6   obligation for an acquisition, recapitalization, or 
 12.7   reorganization, then such business entity shall also have, on a 
 12.8   pro forma basis, for the next succeeding 12 months, net earnings 
 12.9   averaging 1-1/4 times its average annual fixed charges 
 12.10  applicable to such period after elimination of extraordinary 
 12.11  nonrecurring items of income and expense and before taxes and 
 12.12  fixed charges; no investment may be made under this section upon 
 12.13  which any interest obligation is in default. 
 12.14     (iii) Limitation on aggregate interest in noninvestment 
 12.15  grade obligations.  A company may not invest in a noninvestment 
 12.16  grade obligation if the investment will cause the company's 
 12.17  aggregate investments in noninvestment grade obligations to 
 12.18  exceed the applicable percentage of admitted assets set forth in 
 12.19  the following table:  
 12.20                                          Percentage of
 12.21              Effective Date              Admitted Assets
 12.22              January 1, 1992                  20
 12.23              January 1, 1993                  17.5
 12.24              January 1, 1994                  15
 12.25     Nothing in this paragraph limits the ability of a company 
 12.26  to invest in noninvestment grade obligations as provided under 
 12.27  subdivision 12. 
 12.28     (g) Obligations for the payment of money under the 
 12.29  following conditions:  (1) The obligation must be secured, 
 12.30  either solely or in conjunction with other security, by an 
 12.31  assignment of a lease or leases on property, real or personal; 
 12.32  (2) the lease or leases must be nonterminable by the lessee or 
 12.33  lessees upon foreclosure of any lien upon the leased property; 
 12.34  (3) the rents payable under the lease or leases must be 
 12.35  sufficient to amortize at least 90 percent of the obligation 
 12.36  during the primary term of the lease; and (4) the lessee or 
 13.1   lessees under the lease or leases, or a governmental entity or 
 13.2   business entity, organized under the laws of the United States 
 13.3   or any state thereof, or the Dominion of Canada, or any province 
 13.4   thereof, that has assumed or guaranteed any lessee's performance 
 13.5   thereunder, must be a governmental entity or business entity 
 13.6   whose obligations would qualify as an investment under 
 13.7   subdivision 2 or paragraph (e) or (f).  A company may acquire 
 13.8   leases assumed or guaranteed by a noninvestment grade lessee 
 13.9   unless the value of the lease, when added to the other 
 13.10  noninvestment grade obligations owned by the company, exceeds 15 
 13.11  percent of the company's admitted assets.  
 13.12     (h) A company may sell call options against stocks or other 
 13.13  securities owned by the company and may purchase call options in 
 13.14  a closing transaction against a call option previously written 
 13.15  by the company.  In addition to the authority granted by 
 13.16  paragraph (c), to the extent and on the terms and conditions the 
 13.17  commissioner determines to be consistent with the purposes of 
 13.18  this chapter, a company may purchase or sell other 
 13.19  exchange-traded call options, and may sell or purchase 
 13.20  exchange-traded put options.  
 13.21     (i) A company may not invest in a security or other 
 13.22  obligation authorized under this subdivision if the investment, 
 13.23  valued at cost at the date of purchase, causes the company's 
 13.24  aggregate investment in any one business entity to exceed two 
 13.25  percent of the company's admitted assets.  
 13.26     (j) For nonprofit health service plan corporations 
 13.27  regulated under chapter 62C, and for health maintenance 
 13.28  organizations regulated under chapter 62D, a company may invest 
 13.29  in commercial paper rated in one of the two highest rating 
 13.30  categories by at least one nationally recognized statistical 
 13.31  rating organization, or rated in one of the two highest 
 13.32  categories established by the securities valuation office of the 
 13.33  National Association of Insurance Commissioners, if the 
 13.34  investment, valued at cost at the date of purchase, does not 
 13.35  cause the company's aggregate investment in any one business 
 13.36  entity to exceed six percent of the company's admitted assets. 
 14.1      Sec. 10.  Minnesota Statutes 2000, section 61A.28, is 
 14.2   amended by adding a subdivision to read: 
 14.3      Subd. 14.  [REPLICATION TRANSACTIONS.] An insurer engaging 
 14.4   in replication transactions shall include all replicated 
 14.5   investment positions in calculating compliance with the 
 14.6   limitations on investments applicable to the insurer.  
 14.7   Replication transactions are permitted only under the authority 
 14.8   of subdivision 12.  For these purposes, "replication 
 14.9   transaction" means a derivative transaction that is intended to 
 14.10  replicate the performance of one or more assets that an insurer 
 14.11  is authorized to acquire under applicable law.  A derivative 
 14.12  transaction that either is authorized by subdivision 6, 
 14.13  subdivision 8, or subdivision 9a or section 61A.29, subdivision 
 14.14  2, paragraph (d), or is entered into as a hedging transaction 
 14.15  shall not be considered a replication transaction.  "Replicated 
 14.16  investment position" means the statement value of the position 
 14.17  reported under the heading "Replicated (Synthetic) Asset" on 
 14.18  Schedule DB, Part F, of the annual statement of the insurer, or 
 14.19  any successor provision. 
 14.20     Sec. 11.  Minnesota Statutes 2000, section 61A.29, 
 14.21  subdivision 2, is amended to read: 
 14.22     Subd. 2.  [AUTHORIZED INVESTMENTS.] A company may invest in 
 14.23  (i) foreign assets denominated in United States dollars; (ii) 
 14.24  foreign assets denominated in foreign currency; and (iii) United 
 14.25  States assets denominated in foreign currency.  The investments 
 14.26  may be made in any combination of the following: 
 14.27     (a) Obligations of sovereign governments and political 
 14.28  subdivisions thereof and obligations issued or fully guaranteed 
 14.29  by a supranational bank or organization, other than those 
 14.30  described in section 61A.28, subdivision 2, paragraph (e), 
 14.31  provided that the obligations are rated in one of the two 
 14.32  highest rating categories by at least one nationally recognized 
 14.33  statistical rating organization in the United States.  For 
 14.34  purposes of this section, "supranational bank" means a bank 
 14.35  owned by a number of sovereign nations and engaging in 
 14.36  international borrowing and lending.  
 15.1      (b) Obligations of a foreign business entity, provided that 
 15.2   the obligation (i) is rated in one of the four highest rating 
 15.3   categories by at least one nationally recognized statistical 
 15.4   rating organization in the United States or by a similarly 
 15.5   recognized statistical rating organization, as approved by the 
 15.6   commissioner, in the country where the investment is made; or 
 15.7   (ii) is rated in one of the two highest categories established 
 15.8   by the securities valuation office of the National Association 
 15.9   of Insurance Commissioners.  
 15.10     (c) Stock or stock equivalents issued by a foreign entity 
 15.11  if the stock or stock equivalents are regularly traded on the 
 15.12  Frankfurt, London, Paris, or Tokyo stock exchange or any similar 
 15.13  securities exchange as may be approved from time to time by the 
 15.14  commissioner and subject to oversight by the government of the 
 15.15  country in which the exchange is located regular trading occurs. 
 15.16     (d) Financial transactions for the sole purpose of managing 
 15.17  the foreign currency risk of investments made under this 
 15.18  subdivision, provided that the financial transactions are 
 15.19  entered into under a detailed plan maintained by the company.  
 15.20  For purposes of this paragraph, "financial transactions"  
 15.21  include, but are not limited to, the purchase or sale of 
 15.22  currency swaps, forward agreements, and currency futures.