SF 3032

2nd Engrossment - 80th Legislature (1997 - 1998) Posted on 12/15/2009 12:00am

  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.15, the definitions in subdivisions 2 to 15 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  For purposes of any other investment limitation based on the 
  1.26  amount of the admitted assets of a life insurer governed by 
  2.1   sections 60L.01 to 60L.15, "admitted assets" has the meaning 
  2.2   given under this subdivision. 
  2.3      Subd. 3.  [COMMISSIONER.] "Commissioner" means the 
  2.4   commissioner of commerce. 
  2.5      Subd. 4.  [DERIVATIVE INSTRUMENT.] "Derivative instrument" 
  2.6   means an item appropriately reported in schedule DB, derivative 
  2.7   instruments, or schedule DC, insurance futures and insurance 
  2.8   futures options, of an insurer's statutory financial statement, 
  2.9   or successor schedules, as provided under applicable annual 
  2.10  statement instructions or statutory accounting guidelines. 
  2.11     Subd. 5.  [DERIVATIVE TRANSACTION.] "Derivative transaction"
  2.12  means a transaction involving the use of one or more derivative 
  2.13  instruments. 
  2.14     Subd. 6.  [GOVERNMENT SPONSORED ENTERPRISE.] "Government 
  2.15  sponsored enterprise" means a governmental agency, a 
  2.16  corporation, limited liability company, association, 
  2.17  partnership, joint stock company, joint venture, trust, or other 
  2.18  entity or instrumentality organized under the laws of the United 
  2.19  States to accomplish a public policy or other governmental 
  2.20  purpose. 
  2.21     Subd. 7.  [INCOME GENERATION.] "Income generation" means a 
  2.22  derivative transaction involving the writing of covered options, 
  2.23  caps, or floors that is intended to generate income or enhance 
  2.24  return. 
  2.25     Subd. 8.  [INSURER.] "Insurer" means a domestic insurance 
  2.26  company, including a fraternal benefit society. 
  2.27     Subd. 9.  [LOWER GRADE INVESTMENT.] "Lower grade investment"
  2.28  means a rated credit instrument or debt-like preferred stock 
  2.29  rated 4, 5, or 6 by the Securities Valuation Office of the 
  2.30  National Association of Insurance Commissioners or any successor 
  2.31  office. 
  2.32     Subd. 10.  [MEDIUM GRADE INVESTMENT.] "Medium grade 
  2.33  investment" means a rated credit instrument or debt-like 
  2.34  preferred stock rated 3 by the Securities Valuation Office of 
  2.35  the National Association of Insurance Commissioners or any 
  2.36  successor office. 
  3.1      Subd. 11.  [MINIMUM ASSET REQUIREMENT.] "Minimum asset 
  3.2   requirement" means:  (1) in the case of an insurer other than a 
  3.3   life insurer, the sum of an insurer's liabilities and its 
  3.4   minimum financial security benchmark; and (2) in the case of a 
  3.5   life insurer, the sum of the insurer's liabilities, other than 
  3.6   the asset valuation reserve, voluntary investment reserves and 
  3.7   liabilities on separate accounts, and its minimum financial 
  3.8   security benchmark. 
  3.9      Subd. 12.  [MINIMUM FINANCIAL SECURITY BENCHMARK.] "Minimum 
  3.10  financial security benchmark" means the amount an insurer is 
  3.11  required to have under section 60L.03. 
  3.12     Subd. 13.  [NATIONALLY RECOGNIZED STATISTICAL RATING 
  3.13  ORGANIZATION.] "Nationally recognized statistical rating 
  3.14  organization" means a rating organization so designated by the 
  3.15  Securities and Exchange Commission of the United States and that 
  3.16  has applied to, and whose status as a nationally recognized 
  3.17  statistical rating organization has been confirmed by, the 
  3.18  Securities Valuation Office of the National Association of 
  3.19  Insurance Commissioners, or any other rating organization 
  3.20  approved by the commissioner as a nationally recognized 
  3.21  statistical rating organization for purposes of sections 60L.01 
  3.22  to 60L.15. 
  3.23     Subd. 14.  [REPLICATION.] "Replication" means a derivative 
  3.24  transaction involving one or more derivative instruments being 
  3.25  used to modify the cash flow characteristics of one or more 
  3.26  investments held by an insurer in a manner so that the aggregate 
  3.27  cash flows of the derivative instruments and investments 
  3.28  reproduce the cash flows of another investment having a higher 
  3.29  risk-based capital charge than the risk-based capital charge of 
  3.30  the original investments or investments. 
  3.31     Subd. 15.  [SVO LISTED MUTUAL FUND.] "SVO listed mutual 
  3.32  fund" means a money market mutual fund or short-term bond fund 
  3.33  that is registered with the United States Securities and 
  3.34  Exchange Commission under the Investment Company Act of 1940, 
  3.35  and that has been determined by the Securities Valuation Office 
  3.36  of the National Association of Insurance Commissioners to be 
  4.1   eligible for special reserve and reporting treatment other than 
  4.2   as common stock. 
  4.3      Sec. 2.  [60L.02] [REQUIREMENTS.] 
  4.4      Subdivision 1.  [LIFE INSURERS.] In order to be eligible to 
  4.5   be governed by sections 60L.01 to 60L.15, a life insurer must 
  4.6   meet the following requirements: 
  4.7      (a) For each calendar year during which sections 60L.01 to 
  4.8   60L.15 apply to the insurer, the insurer shall have had, as of 
  4.9   the end of the immediately preceding calendar year: 
  4.10     (1) total admitted assets of at least $2,000,000,000; 
  4.11     (2) a total amount of capital plus surplus of at least 
  4.12  $200,000,000; and 
  4.13     (3) a total amount of capital plus surplus plus asset 
  4.14  valuation reserve of at least $250,000,000. 
  4.15     (b) For each calendar year during which sections 60L.01 to 
  4.16  60L.15 apply to the insurer, the insurer shall have had, as of 
  4.17  the end of the immediately preceding calendar year, total 
  4.18  adjusted capital equal to or greater than 200 percent of company 
  4.19  action level risk-based capital, as defined in section 60A.60, 
  4.20  subdivision 11.  For purposes of this subdivision, "total 
  4.21  adjusted capital" means total adjusted capital as defined in 
  4.22  section 60A.60, subdivision 14, adjusted to deduct the value of 
  4.23  capital notes and surplus notes as provided in the risk-based 
  4.24  instructions as defined in section 60A.60, subdivision 10. 
  4.25     (c) For each calendar year during which sections 60L.01 to 
  4.26  60L.15 apply to the insurer, the mean of the ratio, calculated 
  4.27  as of the end of each of the five immediately preceding calendar 
  4.28  years, of total adjusted capital to company action level 
  4.29  risk-based capital, as defined in section 60A.60, subdivision 
  4.30  11, must equal at least 2.0. 
  4.31     Subd. 2.  [OTHER INSURERS.] In order to be eligible to be 
  4.32  governed by sections 60L.01 to 60L.15, an insurer other than a 
  4.33  life insurer must meet the following requirements: 
  4.34     (a) For each calendar year during which sections 60L.01 to 
  4.35  60L.15 apply to the insurer, the insurer shall have had, as of 
  4.36  the end of the immediately preceding calendar year: 
  5.1      (1) total admitted assets of at least $2,000,000,000; and 
  5.2      (2) a total amount of capital plus surplus of at least 
  5.3   $200,000,000. 
  5.4      (b) For each calendar year during which sections 60L.01 to 
  5.5   60L.15 apply to the insurer, the insurer shall have had, as of 
  5.6   the end of the immediately preceding calendar year, total 
  5.7   adjusted capital equal to or greater than company action level 
  5.8   risk-based capital, as defined in section 60A.60, subdivision 
  5.9   11.  For purposes of this subdivision, "total adjusted capital" 
  5.10  means total adjusted capital as defined in section 60A.60, 
  5.11  subdivision 14, adjusted to deduct the value of capital notes 
  5.12  and surplus notes as provided in the risk-based instructions as 
  5.13  defined in section 60A.60, subdivision 10. 
  5.14     (c) For each calendar year during which sections 60L.01 to 
  5.15  60L.15 apply to the insurer, the mean of the ratio, calculated 
  5.16  as of the end of each of the five immediately preceding calendar 
  5.17  years, of total adjusted capital to company action level 
  5.18  risk-based capital, as defined in section 60A.60, subdivision 
  5.19  11, must equal at least 1.0. 
  5.20     (d) An insurer is considered to have met the requirements 
  5.21  of this subdivision if the insurer participates in a 100 percent 
  5.22  reinsurance pooling agreement which substantially affects the 
  5.23  solvency and integrity of its reserves and cedes all of its 
  5.24  direct and assumed business to the pool, and where the insurer 
  5.25  with the largest share of pooled business subject to the 
  5.26  agreement meets the requirements of this subdivision. 
  5.27     Subd. 3.  [ADDITIONAL REQUIREMENTS.] (a) In order to be 
  5.28  eligible to be governed by sections 60L.01 to 60L.15, the 
  5.29  insurer must meet the requirements specified under this 
  5.30  subdivision. 
  5.31     (b) The insurer shall: 
  5.32     (1) have been in continuous operation for a minimum of five 
  5.33  years; and 
  5.34     (2) maintain a minimum claims-paying, financial strength, 
  5.35  or equivalent rating from at least one nationally recognized 
  5.36  statistical rating organization in one of the organization's 
  6.1   three highest rating categories for the time period during which 
  6.2   sections 60L.01 to 60L.15 apply to the insurer.  For purposes of 
  6.3   this subdivision, the rating must be based on a review of the 
  6.4   insurer by the nationally recognized statistical rating 
  6.5   organization with the cooperation of the insurer; must not 
  6.6   depend on a guarantee or other credit enhancement from another 
  6.7   entity; and must not be modified or otherwise qualified to show 
  6.8   dependence of the rating on the performance or a contractual 
  6.9   obligation of, or the insurer's affiliation with, another 
  6.10  insurer.  
  6.11     (c) The insurer or an affiliate, as defined in section 
  6.12  60D.15, subdivision 2, of the insurer shall employ at least one 
  6.13  individual as a professional investment manager for the 
  6.14  insurer's investments whom the board of directors or trustees of 
  6.15  the insurer finds is qualified on the basis of experience, 
  6.16  education or training, competence, personal integrity, and who 
  6.17  conducts professional investment management activities in 
  6.18  accordance with the code of ethics and standards of professional 
  6.19  conduct of the association for investment management and 
  6.20  research.  For purposes of complying with this paragraph, an 
  6.21  employee of an affiliate may only be used if they are 
  6.22  responsible for managing the insurer's investments. 
  6.23     (d) The board of directors of the insurer must annually 
  6.24  adopt a resolution finding that the insurer or an affiliate, as 
  6.25  defined in section 60D.15, subdivision 2, of the insurer has 
  6.26  employed a professional investment manager for the insurer's 
  6.27  investments with sufficient expertise and has sufficient other 
  6.28  resources to implement and monitor the insurer's investment 
  6.29  policies and strategies. 
  6.30     (e) In the report required under section 60A.129, 
  6.31  subdivision 3, paragraph (l), the insurer's independent auditor 
  6.32  shall not have identified any significant deficiencies in the 
  6.33  insurer's internal control structure related to investments 
  6.34  during any of the five years immediately preceding the date on 
  6.35  which sections 60L.01 to 60L.15 begin to apply to the insurer, 
  6.36  and as long as sections 60L.01 to 60L.15 apply to the insurer. 
  7.1      Subd. 4.  [RESOLUTIONS.] Before sections 60L.01 to 60L.15 
  7.2   apply to an insurer, the board of directors of the insurer must 
  7.3   adopt the following resolutions: 
  7.4      (1) a resolution finding that the insurer or an affiliate, 
  7.5   as defined in section 60D.15, subdivision 2, of the insurer has 
  7.6   employed a professional investment manager for the insurer's 
  7.7   investments with sufficient expertise and has sufficient other 
  7.8   resources to implement and monitor the insurer's investment 
  7.9   policies and strategies; and 
  7.10     (2) a resolution electing that sections 60L.01 to 60L.15 
  7.11  apply to the insurer. 
  7.12     Subd. 5.  [COMMISSIONER REVIEW.] Sections 60L.01 to 60L.15 
  7.13  do not govern an insurer unless the insurer has notified the 
  7.14  commissioner in writing of its intention that sections 60L.01 to 
  7.15  60L.15 will govern the insurer at least 30 days before applying 
  7.16  sections 60L.01 to 60L.15 to its investment policies, or a 
  7.17  shorter period of time as the commissioner permits, and the 
  7.18  commissioner has not disapproved the governing of the insurer by 
  7.19  sections 60L.01 to 60L.15 within this period. 
  7.20     Subd. 6.  [SUBSTITUTION OF LAW.] When sections 60L.01 to 
  7.21  60L.15 begin to govern an insurer, then, in the case of a life 
  7.22  insurer, sections 61A.28; 61A.282, subdivision 2; 61A.283; 
  7.23  61A.29; 61A.31; and 61A.315; and, in the case of an insurer 
  7.24  other than a life insurer, section 60A.11, do not apply to an 
  7.25  insurer. 
  7.26     Subd. 7.  [TERMINATION.] (a) After sections 60L.01 to 
  7.27  60L.15 begin to govern an insurer, sections 60L.01 to 60L.15 
  7.28  apply to the insurer unless: 
  7.29     (1) the insurer has ceased to comply with the requirements 
  7.30  of subdivision 1, if the insurer is a life insurer, or 
  7.31  subdivision 2, if the insurer is other than a life insurer, and 
  7.32  with the requirements of subdivision 3 and has failed to bring 
  7.33  itself back into compliance with the requirements within 30 days 
  7.34  of ceasing to comply; or 
  7.35     (2) the commissioner has issued an order under section 
  7.36  60L.14, subdivision 2, that sections 60L.01 to 60L.15 no longer 
  8.1   govern the insurer, regardless of whether the insurer is 
  8.2   contesting the order; or 
  8.3      (3) all of the following conditions have been met:  
  8.4      (i) the insurer's board of directors has adopted a 
  8.5   resolution electing that sections 60L.01 to 60L.15 no longer 
  8.6   apply to its investments and investment practices; 
  8.7      (ii) the insurer has notified the commissioner in writing 
  8.8   of its intention that sections 60L.01 to 60L.15 no longer apply 
  8.9   to the insurer's investments and investment practices; and 
  8.10     (iii) during the period ending 30 days after the receipt by 
  8.11  the commissioner of the written notice, the commissioner has not 
  8.12  issued an order under section 60L.14 prohibiting the insurer 
  8.13  from ceasing to comply with sections 60L.01 to 60L.15. 
  8.14     (b) An insurer may not elect more than once in a 12-month 
  8.15  period that sections 60L.01 to 60L.15 do not apply to the 
  8.16  insurer's investments and investment practices. 
  8.17     (c) An investment which is held as an admitted asset by an 
  8.18  insurer on the date on which sections 60L.01 to 60L.15 cease to 
  8.19  govern the insurer and which qualified as an admitted asset 
  8.20  immediately before the date remains qualified as an admitted 
  8.21  asset of the insurer. 
  8.22     (d) If sufficient voting securities of the insurer or an 
  8.23  affiliate are acquired to require a filing under section 60D.17, 
  8.24  sections 60L.01 to 60L.15 cease to apply to the insurer 30 days 
  8.25  following the completion of the acquisition of voting 
  8.26  securities.  If the board of directors of the insurer desires 
  8.27  the insurer to continue to be governed by sections 60L.01 to 
  8.28  60L.15, it shall comply with the requirements of subdivision 4 
  8.29  and shall notify the commissioner as required under and subject 
  8.30  to subdivision 5.  If the notification is received within 30 
  8.31  days of the completion of the acquisition, the insurer is 
  8.32  governed by sections 60L.01 to 60L.15 during the time period 
  8.33  allowed for the commissioner's disapproval. 
  8.34     (e) When sections 60L.01 to 60L.15 cease to govern an 
  8.35  insurer, then, in the case of a life insurer, sections 61A.28; 
  8.36  61A.282, subdivision 2; 61A.283; 61A.29; 61A.31; and 61A.315, 
  9.1   and, in the case of an insurer other than a life insurer, 
  9.2   section 60A.11, apply to the insurer. 
  9.3      Subd. 8.  [CONFLICT OF LAWS.] Sections 60L.01 to 60L.15 
  9.4   prevail over any other law, except section 60D.16, that 
  9.5   authorizes an insurer to make a particular investment if the 
  9.6   other law was enacted before August 1, 1998. 
  9.7      Sec. 3.  [60L.03] [MINIMUM FINANCIAL SECURITY BENCHMARK.] 
  9.8      Subdivision 1.  [AMOUNT.] Except as otherwise provided in 
  9.9   subdivisions 2 and 3, the amount of the minimum financial 
  9.10  security benchmark for an insurer is the greater of: 
  9.11     (1) the authorized control level risk-based capital 
  9.12  applicable to the insurer as defined under section 60A.60, 
  9.13  subdivision 11, clause (3); or 
  9.14     (2) the minimum capital or minimum surplus required for 
  9.15  maintenance of an insurer's certificate of authority. 
  9.16     Subd. 2.  [AUTHORIZATION BY ORDER.] The commissioner may, 
  9.17  according to the controlling factors specified in subdivision 6, 
  9.18  establish by order a minimum financial security benchmark to 
  9.19  apply to a specific insurer provided it is not less than the 
  9.20  amount determined under subdivision 1. 
  9.21     Subd. 3.  [ADDITIONAL AUTHORIZATION.] The commissioner may 
  9.22  establish a minimum financial security benchmark that is a 
  9.23  multiple of authorized control level risk-based capital to apply 
  9.24  to any class of insurers provided the amount established is not 
  9.25  less than the amount specified under subdivision 1. 
  9.26     Subd. 4.  [SURPLUS.] The commissioner shall determine the 
  9.27  amount of surplus that constitutes an insurer's minimum 
  9.28  financial security benchmark as an amount that will provide 
  9.29  reasonable security against contingencies affecting the 
  9.30  insurer's financial position that are not fully covered by 
  9.31  reserves or by reinsurance. 
  9.32     Subd. 5.  [TYPES OF CONTINGENCIES.] The commissioner shall 
  9.33  consider the risks of: 
  9.34     (1) increases in the frequency or severity of losses beyond 
  9.35  the levels contemplated by the rates charged; 
  9.36     (2) increases in expenses beyond those contemplated by the 
 10.1   rates charged; 
 10.2      (3) decreases in the value of or the return on invested 
 10.3   assets below those planned on; 
 10.4      (4) changes in economic conditions that would make 
 10.5   liquidity more important than contemplated and would force 
 10.6   untimely sale of assets or prevent timely investments; 
 10.7      (5) currency devaluation to which the insurer may be 
 10.8   subject; and 
 10.9      (6) any other contingencies the commissioner can identify 
 10.10  that may affect the insurer's operations. 
 10.11     Subd. 6.  [CONTROLLING FACTORS.] In making the 
 10.12  determination under subdivision 4, the commissioner shall take 
 10.13  into account the following factors: 
 10.14     (1) the most reliable information available as to the 
 10.15  magnitude of the various risks under subdivision 5; 
 10.16     (2) the extent to which the risks specified under 
 10.17  subdivision 5 are independent of each other or are related, and 
 10.18  whether any dependency is direct or inverse; 
 10.19     (3) the insurer's recent history of profits or losses; 
 10.20     (4) the extent to which the insurer has provided protection 
 10.21  against the contingencies in other ways than the establishment 
 10.22  of surplus, including redundancy of premiums, adjustability of 
 10.23  contracts under their terms, investment valuation reserves 
 10.24  whether voluntary or mandatory, appropriate reinsurance, the use 
 10.25  of conservative actuarial assumptions to provide a margin of 
 10.26  security, reserve adjustments in recognition of previous rate 
 10.27  inadequacies, contingency or catastrophe reserves, 
 10.28  diversification of assets, and underwriting risks; 
 10.29     (5) independent judgments of the soundness of the insurer's 
 10.30  operations, as evidenced by the ratings of reliable professional 
 10.31  financial reporting services; and 
 10.32     (6) any other relevant factors. 
 10.33     Sec. 4.  [60L.04] [AUTHORIZED INVESTMENTS.] 
 10.34     Subdivision 1.  [AUTHORIZATION.] Subject to the provisions 
 10.35  of sections 60L.01 to 60L.15, an insurer may loan or invest its 
 10.36  funds, and may buy, sell, hold title to, possess, occupy, 
 11.1   pledge, convey, manage, protect, insure, and deal with its 
 11.2   investments, property, and other assets to the same extent as 
 11.3   any other corporation or other person under the laws of this 
 11.4   state or the United States. 
 11.5      Subd. 2.  [BOARD OF DIRECTORS; DUTIES.] With respect to all 
 11.6   of the insurer's investments, the board of directors of an 
 11.7   insurer shall exercise the judgment and care, under the 
 11.8   circumstances then prevailing, that persons of reasonable 
 11.9   prudence, discretion, and intelligence exercise in the 
 11.10  management of a like enterprise, not in regard to speculating 
 11.11  but in regard to the permanent disposition of their funds, 
 11.12  considering the probable income as well as the probable safety 
 11.13  of their capital.  Investments must be of sufficient value, 
 11.14  liquidity, and diversity to ensure the insurer's ability to meet 
 11.15  its outstanding obligations based on reasonable assumptions as 
 11.16  to new business production for current lines of business.  As 
 11.17  part of its exercise of judgment and care, the board of 
 11.18  directors shall take into account the prudence evaluation 
 11.19  criteria specified under section 60L.05. 
 11.20     Subd. 3.  [INTERNAL CONTROLS.] The insurer shall establish 
 11.21  and implement internal controls and procedures to ensure 
 11.22  compliance with investment policies and procedures to ensure 
 11.23  that: 
 11.24     (1) the insurer's investment staff and any consultants used 
 11.25  are reputable and capable; 
 11.26     (2) a periodic evaluation and monitoring process occurs for 
 11.27  assessing the effectiveness of investment policy and strategies; 
 11.28     (3) management's performance is assessed in meeting the 
 11.29  stated objectives within the investment policy; and 
 11.30     (4) appropriate analyses are undertaken of the degree to 
 11.31  which asset cash flows are adequate to meet liability cash flows 
 11.32  under different economic environments.  The analyses must be 
 11.33  conducted at least annually and make specific reference to 
 11.34  economic conditions. 
 11.35     Subd. 4.  [COMPLIANCE.] Compliance with sections 60L.01 to 
 11.36  60L.15 is determined in light of the facts and circumstances 
 12.1   existing at the time of the insurer's decision or action and not 
 12.2   by hindsight. 
 12.3      Sec. 5.  [60L.05] [PRUDENCE EVALUATION CRITERIA.] 
 12.4      The factors in clauses (1) to (12) shall be evaluated by 
 12.5   the insurer and considered along with its business in 
 12.6   determining whether an investment portfolio or investment policy 
 12.7   is prudent.  The commissioner shall consider the factors in 
 12.8   clauses (1) to (12) before making a determination that an 
 12.9   insurer's investment portfolio or investment policy is not 
 12.10  prudent: 
 12.11     (1) general economic conditions; 
 12.12     (2) the possible effect of inflation or deflation; 
 12.13     (3) the expected tax consequences of investment decisions 
 12.14  or strategies; 
 12.15     (4) the fairness and reasonableness of the terms of an 
 12.16  investment considering its probable risk and reward 
 12.17  characteristics and relationship to the investment portfolio as 
 12.18  a whole; 
 12.19     (5) the extent of the diversification of the insurer's 
 12.20  investments among individual investments, classes of 
 12.21  investments, industry concentrations, dates of maturity, and 
 12.22  geographic areas; 
 12.23     (6) the quality and liquidity of investments in affiliates; 
 12.24     (7) the investment exposure to the following risks, 
 12.25  quantified in a manner consistent with the insurer's acceptable 
 12.26  risk level identified in section 60L.06, clause (8):  liquidity; 
 12.27  credit and default; systemic (market); interest rate; call, 
 12.28  prepayment and extension; currency; and foreign sovereign; 
 12.29     (8) the amount of the insurer's assets, capital and 
 12.30  surplus, premium writings, insurance in force, and other 
 12.31  appropriate characteristics; 
 12.32     (9) the amount and adequacy of the insurer's reported 
 12.33  liabilities; 
 12.34     (10) the relationship of the expected cash flows of the 
 12.35  insurer's assets and liabilities, and the risk of adverse 
 12.36  changes in the insurer's assets and liabilities; 
 13.1      (11) the adequacy of the insurer's capital and surplus to 
 13.2   secure the risks and liabilities of the insurer; and 
 13.3      (12) any other factors relevant to whether an investment is 
 13.4   prudent. 
 13.5      Sec. 6.  [60L.06] [INSURER INVESTMENT POLICY.] 
 13.6      In acquiring, investing, exchanging, holding, selling, and 
 13.7   managing investments, an insurer shall establish and follow a 
 13.8   written investment policy that must be reviewed and approved by 
 13.9   the insurer's board of directors at least annually.  The content 
 13.10  and format of an insurer's investment policy are at the 
 13.11  insurer's discretion, but must include written guidelines 
 13.12  appropriate to the insurer's business as to the following: 
 13.13     (1) the general investment policy of the insurer containing 
 13.14  policies, procedures, and controls covering all aspects of the 
 13.15  investing function; 
 13.16     (2) quantified goals and objectives regarding the 
 13.17  composition of classes of investments, including maximum 
 13.18  internal limits; 
 13.19     (3) periodic evaluation of the investment portfolio as to 
 13.20  its risk and reward characteristics.  This clause does not 
 13.21  preclude an insurer from the use of modern portfolio theory to 
 13.22  manage its investments.  For purposes of this section, "modern 
 13.23  portfolio theory" means the collection of models and 
 13.24  applications that prescribe the maximization of expected returns 
 13.25  for a given level of aggregate risk as the primary objective of 
 13.26  investment portfolio management; 
 13.27     (4) professional standards for the individuals making 
 13.28  day-to-day investment decisions to ensure that investments are 
 13.29  managed in an ethical and capable manner; 
 13.30     (5) the types of investments to be made and those to be 
 13.31  avoided, based on their risk and reward characteristics and the 
 13.32  insurer's level of experience with the investments; 
 13.33     (6) the relationship of classes of investments to the 
 13.34  insurer's insurance products and liabilities; 
 13.35     (7) the manner in which the insurer intends to implement 
 13.36  section 60L.05; and 
 14.1      (8) the level of risk, based on quantitative measures, 
 14.2   appropriate for the insurer given the level of capitalization 
 14.3   and expertise available to the insurer. 
 14.4      Sec. 7.  [60L.07] [AUTHORIZED CLASSES OF INVESTMENTS.] 
 14.5      The following classes of investments may be counted for the 
 14.6   purposes specified in section 60L.11, whether they are made 
 14.7   directly or as a participant in a partnership, joint venture, or 
 14.8   limited liability company: 
 14.9      (1) cash in the direct possession of the insurer or on 
 14.10  deposit with a financial institution regulated by any federal or 
 14.11  state agency of the United States; 
 14.12     (2) bonds, debt-like preferred stock, and other evidences 
 14.13  of indebtedness of governmental units in the United States or 
 14.14  Canada, or the instrumentalities of the governmental units, or 
 14.15  private business entities domiciled in the United States or 
 14.16  Canada, including asset-backed securities and SVO listed mutual 
 14.17  funds; 
 14.18     (3) loans secured by mortgages, trust deeds, or other 
 14.19  security interests in real property located in the United States 
 14.20  or Canada or secured by insurance against default issued by a 
 14.21  government insurance corporation of the United States or Canada 
 14.22  or by an insurer authorized to do business in this state; 
 14.23     (4) common stock or equity-like preferred stock or equity 
 14.24  interests in any United States or Canadian business entity, or 
 14.25  shares of mutual funds registered with the Securities and 
 14.26  Exchange Commission of the United States under the Investment 
 14.27  Company Act of 1940, other than SVO listed mutual funds; 
 14.28     (5) real property necessary for the convenient transaction 
 14.29  of the insurer's business; 
 14.30     (6) real property and its fixtures, furniture, furnishings, 
 14.31  and equipment in the United States or Canada, which produces or 
 14.32  after suitable improvement can reasonably be expected to produce 
 14.33  substantial income; 
 14.34     (7) loans, securities, or other investments of the types 
 14.35  described in clauses (1) to (6) in countries other than the 
 14.36  United States and Canada; 
 15.1      (8) bonds or other evidences of indebtedness of 
 15.2   international development organizations of which the United 
 15.3   States is a member; 
 15.4      (9) loans upon the security of the insurer's own policies 
 15.5   in amounts that are adequately secured by the policies and that 
 15.6   in no case exceed the surrender values of the policies; 
 15.7      (10) tangible personal property under contract of sale or 
 15.8   lease under which contractual payments may reasonably be 
 15.9   expected to return the principal of and provide earnings on the 
 15.10  investment within its anticipated useful life; 
 15.11     (11) other investments authorized by the commissioner; and 
 15.12     (12) investments not otherwise permitted by this section, 
 15.13  and not specifically prohibited by other law, to the extent of 
 15.14  not more than five percent of the first $500,000,000 of the 
 15.15  insurer's admitted assets plus ten percent of the insurer's 
 15.16  admitted assets exceeding $500,000,000. 
 15.17     Sec. 8.  [60L.08] [LIMITATIONS GENERALLY APPLICABLE.] 
 15.18     Subdivision 1.  [CLASS LIMITATIONS.] For the purposes of 
 15.19  section 60L.11, the following limitations on classes of 
 15.20  investments apply: 
 15.21     (a) For investments authorized under section 60L.07, clause 
 15.22  (2), and investments authorized under section 60L.07, clause 
 15.23  (7), that are of the types described in section 60L.07, clause 
 15.24  (2), the following restrictions apply: 
 15.25     (1) the aggregate amount of medium and lower grade 
 15.26  investments may not exceed 20 percent of the insurer's admitted 
 15.27  assets; 
 15.28     (2) the aggregate amount of lower grade investments may not 
 15.29  exceed ten percent of the insurer's admitted assets; 
 15.30     (3) the aggregate amount of investments rated 5 or 6 by the 
 15.31  SVO may not exceed five percent of the insurer's admitted 
 15.32  assets; 
 15.33     (4) the aggregate amount of investments rated 6 by the SVO 
 15.34  may not exceed one percent of the insurer's admitted assets; or 
 15.35     (5) the aggregate amount of medium and lower grade 
 15.36  investments that receive as cash income less than the equivalent 
 16.1   yield for United States Treasury issues with a comparative 
 16.2   average life, may not exceed one percent of the insurer's 
 16.3   admitted assets. 
 16.4      (b) Investments authorized under section 60L.07, clause 
 16.5   (3), may not exceed 45 percent of admitted assets in the case of 
 16.6   life insurers and 25 percent of admitted assets in the case of 
 16.7   insurers other than life insurers. 
 16.8      (c) Investments authorized under section 60L.07, clause 
 16.9   (4), other than subsidiaries of the types authorized under 
 16.10  section 60A.11, subdivision 18, paragraph (a), clause (4); 
 16.11  60D.16; or 61A.281, may not exceed 20 percent of admitted assets 
 16.12  in the case of life insurers and 25 percent of admitted assets 
 16.13  in the case of insurers other than life insurers. 
 16.14     (d) Investments authorized under section 60L.07, clause 
 16.15  (5), may not exceed ten percent of admitted assets. 
 16.16     (e) Investments authorized under section 60L.07, clause 
 16.17  (6), may not exceed 20 percent of admitted assets in the case of 
 16.18  life insurers, and ten percent of admitted assets in the case of 
 16.19  insurers other than life insurers. 
 16.20     (f) Investments authorized under section 60L.07, clause 
 16.21  (7), may not exceed 20 percent of admitted assets. 
 16.22     (g) Investments authorized under section 60L.07, clause 
 16.23  (8), may not exceed two percent of admitted assets. 
 16.24     (h) Investments authorized under section 60L.07, clause 
 16.25  (9), may not exceed two percent of admitted assets. 
 16.26     Subd. 2.  [INDIVIDUAL LIMITATIONS.] For purposes of 
 16.27  determining compliance with section 60L.11, securities of a 
 16.28  single issuer and its affiliates, other than the government of 
 16.29  the United States and subsidiaries authorized under section 
 16.30  60A.11, subdivision 18, paragraph (a), clause (4); 60D.16; or 
 16.31  61A.281, may not exceed three percent of admitted assets in the 
 16.32  case of life insurers, and five percent in the case of insurers 
 16.33  other than life insurers.  For purposes of this subdivision, in 
 16.34  the case of asset-backed securities issued, assumed, insured, or 
 16.35  guaranteed by a government-sponsored enterprise and secured by 
 16.36  or evidencing an interest in a single asset or single pool of 
 17.1   assets held by a trust or other business entity, the issuer is 
 17.2   considered to be the asset or pool of assets. 
 17.3      Subd. 3.  [INVESTMENT SUBSIDIARIES.] For purposes of 
 17.4   determining compliance with this section, the admitted portion 
 17.5   of assets of subsidiaries under section 60A.11, subdivision 18, 
 17.6   paragraph (a) clause (4); 60D.16, subdivision 2, paragraph (b); 
 17.7   or 61A.281, subdivision 5, are considered to be owned directly 
 17.8   by the insurer and any other investors in proportion to the 
 17.9   market value, or if there is no market, the reasonable value, of 
 17.10  their interest in the subsidiaries. 
 17.11     Subd. 4.  [EFFECT OF QUANTITY LIMITATIONS.] To the extent 
 17.12  that investments exceed the limitations specified under 
 17.13  subdivisions 1 and 2, the excess may be assigned to the 
 17.14  investment class authorized in section 60L.07, clause (12), 
 17.15  until that limit is exhausted. 
 17.16     Subd. 5.  [MUTUAL FUNDS, POOLED INVESTMENT VEHICLES, AND 
 17.17  OTHER INVESTMENT COMPANIES.] If the commissioner considers it 
 17.18  desirable in order to get a proper evaluation of the investment 
 17.19  portfolio of an insurer, the commissioner may require that 
 17.20  investments in mutual funds, pooled investment vehicles, or 
 17.21  other investment companies be treated for purposes of sections 
 17.22  60L.01 to 60L.15, as if the investor owned directly its 
 17.23  proportional share of the assets owned by the mutual fund, 
 17.24  pooled investment vehicle, or investment company. 
 17.25     Subd. 6.  [INVESTMENT LIMITATION COMPUTATION.] Unless 
 17.26  otherwise specified, an investment limitation computed on the 
 17.27  basis of an insurer's admitted assets or capital and surplus 
 17.28  must relate to the amount required to be shown on the statutory 
 17.29  balance sheet of the insurer most recently required to be filed 
 17.30  with the commissioner. 
 17.31     Sec. 9.  [60L.09] [PROTECTION AGAINST CURRENCY 
 17.32  FLUCTUATIONS.] 
 17.33     An insurer doing business that requires it to make payments 
 17.34  in different currencies shall have investments in securities in 
 17.35  each of these currencies in an amount that independently of all 
 17.36  other investments meets the requirements of sections 60L.01 to 
 18.1   60L.15 as applied separately to the insurer's obligations in 
 18.2   each currency.  The commissioner may by order exempt an insurer, 
 18.3   or a class of insurers, from this requirement if the obligations 
 18.4   in other currencies are small enough that no significant problem 
 18.5   for financial solidity would be created by substantial 
 18.6   fluctuations in relative currency values. 
 18.7      Sec. 10.  [60L.10] [PROHIBITED INVESTMENTS.] 
 18.8      Subdivision 1.  [PROHIBITIONS.] An insurer may not invest 
 18.9   in investments that are prohibited for an insurer by law.  The 
 18.10  use of a derivative instrument for replication, or for any 
 18.11  purposes other than hedging or income generation, is prohibited. 
 18.12     Subd. 2.  [DISPOSAL OF PROHIBITED ASSET.] A reasonable 
 18.13  time, not to exceed five years, must be allowed for disposal of 
 18.14  a prohibited investment in hardship cases if the investment is 
 18.15  demonstrated by the insurer to have been legal when made, or the 
 18.16  result of a mistake made in good faith, or if the commissioner 
 18.17  determines that the sale of the asset would be contrary to the 
 18.18  interests of insureds, creditors, or the general public. 
 18.19     Sec. 11.  [60L.11] [EFFECT OF INVESTMENT RESTRICTIONS.] 
 18.20     Subdivision 1.  [INVESTED ASSETS.] Invested assets may be 
 18.21  counted toward satisfaction of the minimum asset requirement 
 18.22  only so far as they are invested in compliance with sections 
 18.23  60L.01 to 60L.15 and orders issued by the commissioner.  Assets 
 18.24  other than invested assets may be counted toward satisfaction of 
 18.25  the minimum asset requirement at admitted annual statement value.
 18.26     Subd. 2.  [ADMITTED ASSET.] An investment which is held as 
 18.27  an admitted asset by an insurer on the date on which sections 
 18.28  60L.01 to 60L.15 begin to govern the insurer and which qualified 
 18.29  as an admitted asset immediately before this date remain 
 18.30  qualified as an admitted asset under sections 60L.01 to 60L.15. 
 18.31     Subd. 3.  [ACQUIRED ASSETS.] Assets acquired in the bona 
 18.32  fide enforcement of creditors' rights or in bona fide workouts 
 18.33  or settlements of disputed claims may be counted for the 
 18.34  purposes of subdivision 1 for five years after acquisition if 
 18.35  real property and three years if not real property, even if they 
 18.36  could not otherwise be counted under sections 60L.01 to 60L.15.  
 19.1   The commissioner may allow reasonable extensions of these 
 19.2   periods if replacement of the assets within the periods would 
 19.3   not be possible without substantial loss. 
 19.4      Subd. 4.  [LIQUIDATION AND REHABILITATION.] If an insurer 
 19.5   does not own, or is unable to apply toward compliance with 
 19.6   sections 60L.01 to 60L.15, an amount of assets equal to its 
 19.7   minimum asset requirement, the commissioner may consider it to 
 19.8   be financially hazardous under section 60B.15; 60B.20; or 60G.20.
 19.9      Sec. 12.  [60L.12] [REPORTS AND REPLIES.] 
 19.10     Subdivision 1.  [REQUIREMENTS.] The commissioner may 
 19.11  require any of the following from a person subject to regulation 
 19.12  under sections 60L.01 to 60L.15: 
 19.13     (1) statements, reports, answers to questionnaires and 
 19.14  other information, and evidence in whatever reasonable form the 
 19.15  commissioner designates, and at reasonable intervals as the 
 19.16  commissioner chooses; 
 19.17     (2) full explanation of the programming of any data storage 
 19.18  or communication system in use; or 
 19.19     (3) that information from any books, records, electronic 
 19.20  data processing systems, computers, or any other information 
 19.21  storage system be made available to the commissioner at a 
 19.22  reasonable time and in a reasonable manner. 
 19.23     Subd. 2.  [FORMS.] The commissioner may prescribe forms for 
 19.24  the reports required under subdivision 1 and specify who shall 
 19.25  execute or certify the reports.  The forms for the reports 
 19.26  required under subdivision 1 must be consistent, so far as 
 19.27  practicable, with those prescribed by other jurisdictions. 
 19.28     Subd. 3.  [ACCOUNTING.] The commissioner may prescribe 
 19.29  reasonable minimum standards and techniques of accounting and 
 19.30  data handling to ensure that timely and reliable information 
 19.31  will exist and will be available to the commissioner. 
 19.32     Subd. 4.  [PROMPT REPLY.] Any officer, manager, or general 
 19.33  agent of an insurer subject to sections 60L.01 to 60L.15, any 
 19.34  person controlling or having a contract under which the person 
 19.35  has a right to control the insurer, whether exclusively or 
 19.36  otherwise, or a person with executive authority over or in 
 20.1   charge of any segment of the insurer's affairs, shall reply 
 20.2   promptly in writing or in other reasonably designated form, to a 
 20.3   written inquiry from the commissioner requesting a reply. 
 20.4      Subd. 5.  [VERIFIED COMMUNICATION.] The commissioner may 
 20.5   require that any communication made to the commissioner under 
 20.6   this section be verified. 
 20.7      Subd. 6.  [NO ACTION FOR DAMAGES.] A communication to the 
 20.8   commissioner, or to an expert or consultant retained by the 
 20.9   commissioner, required under sections 60L.01 to 60L.15, shall 
 20.10  not subject the person making it to an action for damages for 
 20.11  the communication in the absence of actual malice. 
 20.12     Subd. 7.  [INFORMATION.] Notwithstanding subdivision 6, the 
 20.13  commissioner may bring suit against any person providing 
 20.14  information required under sections 60L.01 to 60L.15 that is not 
 20.15  truthful and accurate. 
 20.16     Sec. 13.  [60L.13] [RETENTION OF EXPERTS.] 
 20.17     The commissioner may retain at the insurer's expense 
 20.18  attorneys, actuaries, accountants, and other experts not 
 20.19  otherwise a part of the commissioner's staff as may be 
 20.20  reasonably necessary to assist in reviewing the insurer's 
 20.21  investments.  Persons so retained are under the direction and 
 20.22  control of the commissioner and shall act in a purely advisory 
 20.23  capacity. 
 20.24     Sec. 14.  [60L.14] [COMMISSIONER'S ORDERS.] 
 20.25     Subdivision 1.  [NECESSARY CHANGES.] If the commissioner 
 20.26  determines that an insurer's investment practices do not meet 
 20.27  the requirements of sections 60L.01 to 60L.15, the commissioner 
 20.28  may, after notification to the insurer of the commissioner's 
 20.29  findings, order the insurer to make changes necessary to comply 
 20.30  with the requirements of sections 60L.01 to 60L.15. 
 20.31     Subd. 2.  [ADDITIONAL RESTRICTIONS.] If the commissioner 
 20.32  determines that by reason of the financial condition, current 
 20.33  investment practice, or current investment plan of an insurer, 
 20.34  the interests of insureds, creditors, or the general public are 
 20.35  or may be endangered, the commissioner may impose reasonable 
 20.36  additional restrictions upon the admissibility or valuation of 
 21.1   investments or may impose restrictions on the investment 
 21.2   practices of an insurer, including prohibition, divestment, or 
 21.3   requiring investments by insurers to be governed by section 
 21.4   60A.11 in the case of insurers other than life insurers, and 
 21.5   sections 61A.28; 61A.282, subdivision 2; 61A.283; 61A.29; 
 21.6   61A.31; and 61A.315 in the case of life insurers. 
 21.7      Subd. 3.  [ADDITIONAL ASSETS.] The commissioner may count 
 21.8   toward satisfaction of the minimum asset requirement any assets 
 21.9   in which an insurer is required to invest under the laws of a 
 21.10  country other than the United States as a condition for doing 
 21.11  business in that country if the commissioner finds that counting 
 21.12  them does not endanger the interests of insureds, creditors, or 
 21.13  the general public. 
 21.14     Subd. 4.  [ADJUSTMENTS.] If the commissioner is satisfied 
 21.15  by evidence of the solidity of an insurer and the competence of 
 21.16  management and its investment advisors, the commissioner, after 
 21.17  a hearing, may by order adjust the class limitations under 
 21.18  section 60L.08, for that insurer, to the extent that the 
 21.19  commissioner is satisfied that the interests of insureds, 
 21.20  creditors, and the public are sufficiently protected in other 
 21.21  ways.  Adjustments to the class limitations granted under 
 21.22  section 60L.08, in aggregate, are limited to an amount equal to 
 21.23  ten percent of the insurer's liabilities. 
 21.24     Sec. 15.  [60L.15] [ADMINISTRATIVE HEARINGS.] 
 21.25     Subdivision 1.  [AUTHORIZATION.] An insurer aggrieved by an 
 21.26  order or any other act or failure to act of the commissioner 
 21.27  regarding compliance with sections 60L.01 to 60L.15 may request 
 21.28  a hearing by following the procedures of chapter 14. 
 21.29     Subd. 2.  [PRIVATE HEARING.] The commissioner shall hold 
 21.30  hearings under this section privately unless the insurer 
 21.31  requests a public hearing, in which case the hearing is public. 
 21.32     Sec. 16.  Minnesota Statutes 1996, section 61A.14, 
 21.33  subdivision 4, is amended to read: 
 21.34     Subd. 4.  [OTHER INVESTMENTS.] For purposes of determining 
 21.35  whether the capital, surplus and other funds of a domestic life 
 21.36  insurance company, other than assets held in a separate account 
 22.1   pursuant to this section, are invested in accordance with 
 22.2   sections 60A.11 and 61A.28 to 61A.31, and 60L.01 to 60L.15, 
 22.3   assets held by the company in a separate account in accordance 
 22.4   with this section shall be disregarded. 
 22.5      Sec. 17.  Minnesota Statutes 1996, section 61A.276, 
 22.6   subdivision 4, is amended to read: 
 22.7      Subd. 4.  [ALLOCATION TO SEPARATE ACCOUNTS.] Amounts paid 
 22.8   to the insurer, and proceeds applied under optional modes of 
 22.9   settlement, under the funding agreements may be allocated by the 
 22.10  insurer to one or more separate accounts pursuant to section 
 22.11  61A.275 or, 61A.14, or 60L.01 to 60L.15.  Notwithstanding the 
 22.12  provisions of section 61A.275, subdivision 1, a separate account 
 22.13  for funding agreement proceeds may include funds from any source 
 22.14  authorized to purchase a funding agreement pursuant to this 
 22.15  section.