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Minnesota Legislature

Office of the Revisor of Statutes

Key: (1) language to be deleted (2) new language

                            CHAPTER 319-S.F.No. 3032 
                  An act relating to insurance; regulating investments 
                  of certain insurers; amending Minnesota Statutes 1996, 
                  sections 61A.14, subdivision 4; and 61A.276, 
                  subdivision 4; proposing coding for new law as 
                  Minnesota Statutes, chapter 60L. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
                          INVESTMENTS OF INSURERS ACT 
           Section 1.  [60L.01] [DEFINITIONS.] 
           Subdivision 1.  [APPLICATION.] For purposes of sections 
        60L.01 to 60L.15, the definitions in subdivisions 2 to 15 have 
        the meanings given them. 
           Subd. 2.  [ADMITTED ASSETS.] "Admitted assets" means the 
        assets as shown by an insurer's financial statement most 
        recently required to be filed with the commissioner, or such 
        other financial statement required to be filed with the 
        commissioner as the context may require, but excluding assets 
        allocated to separate accounts.  For these purposes, assets must 
        be valued according to valuation regulations prescribed by the 
        National Association of Insurance Commissioners and procedures 
        adopted by the National Association of Insurance Commissioners' 
        financial condition Ex.4 subcommittee if not addressed in 
        another section, unless the commissioner requires or finds 
        another method of valuation reasonable under the circumstances.  
        For purposes of any other investment limitation based on the 
        amount of the admitted assets of a life insurer governed by 
        sections 60L.01 to 60L.15, "admitted assets" has the meaning 
        given under this subdivision. 
           Subd. 3.  [COMMISSIONER.] "Commissioner" means the 
        commissioner of commerce. 
           Subd. 4.  [DERIVATIVE INSTRUMENT.] "Derivative instrument" 
        means an item appropriately reported in schedule DB, derivative 
        instruments, or schedule DC, insurance futures and insurance 
        futures options, of an insurer's statutory financial statement, 
        or successor schedules, as provided under applicable annual 
        statement instructions or statutory accounting guidelines. 
           Subd. 5.  [DERIVATIVE TRANSACTION.] "Derivative transaction"
        means a transaction involving the use of one or more derivative 
        instruments. 
           Subd. 6.  [GOVERNMENT SPONSORED ENTERPRISE.] "Government 
        sponsored enterprise" means a governmental agency, a 
        corporation, limited liability company, association, 
        partnership, joint stock company, joint venture, trust, or other 
        entity or instrumentality organized under the laws of the United 
        States to accomplish a public policy or other governmental 
        purpose. 
           Subd. 7.  [INCOME GENERATION.] "Income generation" means a 
        derivative transaction involving the writing of covered options, 
        caps, or floors that is intended to generate income or enhance 
        return. 
           Subd. 8.  [INSURER.] "Insurer" means a domestic insurance 
        company, including a fraternal benefit society. 
           Subd. 9.  [LOWER GRADE INVESTMENT.] "Lower grade investment"
        means a rated credit instrument or debt-like preferred stock 
        rated 4, 5, or 6 by the Securities Valuation Office of the 
        National Association of Insurance Commissioners or any successor 
        office. 
           Subd. 10.  [MEDIUM GRADE INVESTMENT.] "Medium grade 
        investment" means a rated credit instrument or debt-like 
        preferred stock rated 3 by the Securities Valuation Office of 
        the National Association of Insurance Commissioners or any 
        successor office. 
           Subd. 11.  [MINIMUM ASSET REQUIREMENT.] "Minimum asset 
        requirement" means:  (1) in the case of an insurer other than a 
        life insurer, the sum of an insurer's liabilities and its 
        minimum financial security benchmark; and (2) in the case of a 
        life insurer, the sum of the insurer's liabilities, other than 
        the asset valuation reserve, voluntary investment reserves and 
        liabilities on separate accounts, and its minimum financial 
        security benchmark. 
           Subd. 12.  [MINIMUM FINANCIAL SECURITY BENCHMARK.] "Minimum 
        financial security benchmark" means the amount an insurer is 
        required to have under section 60L.03. 
           Subd. 13.  [NATIONALLY RECOGNIZED STATISTICAL RATING 
        ORGANIZATION.] "Nationally recognized statistical rating 
        organization" means a rating organization so designated by the 
        Securities and Exchange Commission of the United States and that 
        has applied to, and whose status as a nationally recognized 
        statistical rating organization has been confirmed by, the 
        Securities Valuation Office of the National Association of 
        Insurance Commissioners, or any other rating organization 
        approved by the commissioner as a nationally recognized 
        statistical rating organization for purposes of sections 60L.01 
        to 60L.15. 
           Subd. 14.  [REPLICATION.] "Replication" means a derivative 
        transaction involving one or more derivative instruments being 
        used to modify the cash flow characteristics of one or more 
        investments held by an insurer in a manner so that the aggregate 
        cash flows of the derivative instruments and investments 
        reproduce the cash flows of another investment having a higher 
        risk-based capital charge than the risk-based capital charge of 
        the original investments or investments. 
           Subd. 15.  [SVO LISTED MUTUAL FUND.] "SVO listed mutual 
        fund" means a money market mutual fund or short-term bond fund 
        that is registered with the United States Securities and 
        Exchange Commission under the Investment Company Act of 1940, 
        and that has been determined by the Securities Valuation Office 
        of the National Association of Insurance Commissioners to be 
        eligible for special reserve and reporting treatment other than 
        as common stock. 
           Sec. 2.  [60L.02] [REQUIREMENTS.] 
           Subdivision 1.  [LIFE INSURERS.] In order to be eligible to 
        be governed by sections 60L.01 to 60L.15, a life insurer must 
        meet the following requirements: 
           (a) For each calendar year during which sections 60L.01 to 
        60L.15 apply to the insurer, the insurer shall have had, as of 
        the end of the immediately preceding calendar year: 
           (1) total admitted assets of at least $2,000,000,000; 
           (2) a total amount of capital plus surplus of at least 
        $200,000,000; and 
           (3) a total amount of capital plus surplus plus asset 
        valuation reserve of at least $250,000,000. 
           (b) For each calendar year during which sections 60L.01 to 
        60L.15 apply to the insurer, the insurer shall have had, as of 
        the end of the immediately preceding calendar year, total 
        adjusted capital equal to or greater than 200 percent of company 
        action level risk-based capital, as defined in section 60A.60, 
        subdivision 11.  For purposes of this subdivision, "total 
        adjusted capital" means total adjusted capital as defined in 
        section 60A.60, subdivision 14, adjusted to deduct the value of 
        capital notes and surplus notes as provided in the risk-based 
        instructions as defined in section 60A.60, subdivision 10. 
           (c) For each calendar year during which sections 60L.01 to 
        60L.15 apply to the insurer, the mean of the ratio, calculated 
        as of the end of each of the five immediately preceding calendar 
        years, of total adjusted capital to company action level 
        risk-based capital, as defined in section 60A.60, subdivision 
        11, must equal at least 2.0. 
           Subd. 2.  [OTHER INSURERS.] In order to be eligible to be 
        governed by sections 60L.01 to 60L.15, an insurer other than a 
        life insurer must meet the following requirements: 
           (a) For each calendar year during which sections 60L.01 to 
        60L.15 apply to the insurer, the insurer shall have had, as of 
        the end of the immediately preceding calendar year: 
           (1) total admitted assets of at least $2,000,000,000; and 
           (2) a total amount of capital plus surplus of at least 
        $200,000,000. 
           (b) For each calendar year during which sections 60L.01 to 
        60L.15 apply to the insurer, the insurer shall have had, as of 
        the end of the immediately preceding calendar year, total 
        adjusted capital equal to or greater than company action level 
        risk-based capital, as defined in section 60A.60, subdivision 
        11.  For purposes of this subdivision, "total adjusted capital" 
        means total adjusted capital as defined in section 60A.60, 
        subdivision 14, adjusted to deduct the value of capital notes 
        and surplus notes as provided in the risk-based instructions as 
        defined in section 60A.60, subdivision 10. 
           (c) For each calendar year during which sections 60L.01 to 
        60L.15 apply to the insurer, the mean of the ratio, calculated 
        as of the end of each of the five immediately preceding calendar 
        years, of total adjusted capital to company action level 
        risk-based capital, as defined in section 60A.60, subdivision 
        11, must equal at least 1.0. 
           (d) An insurer is considered to have met the requirements 
        of this subdivision if the insurer participates in a 100 percent 
        reinsurance pooling agreement which substantially affects the 
        solvency and integrity of its reserves and cedes all of its 
        direct and assumed business to the pool, and where the insurer 
        with the largest share of pooled business subject to the 
        agreement meets the requirements of this subdivision. 
           Subd. 3.  [ADDITIONAL REQUIREMENTS.] (a) In order to be 
        eligible to be governed by sections 60L.01 to 60L.15, the 
        insurer must meet the requirements specified under this 
        subdivision. 
           (b) The insurer shall: 
           (1) have been in continuous operation for a minimum of five 
        years; and 
           (2) maintain a minimum claims-paying, financial strength, 
        or equivalent rating from at least one nationally recognized 
        statistical rating organization in one of the organization's 
        three highest rating categories for the time period during which 
        sections 60L.01 to 60L.15 apply to the insurer.  For purposes of 
        this subdivision, the rating must be based on a review of the 
        insurer by the nationally recognized statistical rating 
        organization with the cooperation of the insurer; must not 
        depend on a guarantee or other credit enhancement from another 
        entity; and must not be modified or otherwise qualified to show 
        dependence of the rating on the performance or a contractual 
        obligation of, or the insurer's affiliation with, another 
        insurer.  
           (c) The insurer or an affiliate, as defined in section 
        60D.15, subdivision 2, of the insurer shall employ at least one 
        individual as a professional investment manager for the 
        insurer's investments whom the board of directors or trustees of 
        the insurer finds is qualified on the basis of experience, 
        education or training, competence, personal integrity, and who 
        conducts professional investment management activities in 
        accordance with the code of ethics and standards of professional 
        conduct of the association for investment management and 
        research.  For purposes of complying with this paragraph, an 
        employee of an affiliate may only be used if they are 
        responsible for managing the insurer's investments. 
           (d) The board of directors of the insurer must annually 
        adopt a resolution finding that the insurer or an affiliate, as 
        defined in section 60D.15, subdivision 2, of the insurer has 
        employed a professional investment manager for the insurer's 
        investments with sufficient expertise and has sufficient other 
        resources to implement and monitor the insurer's investment 
        policies and strategies. 
           (e) In the report required under section 60A.129, 
        subdivision 3, paragraph (l), the insurer's independent auditor 
        shall not have identified any significant deficiencies in the 
        insurer's internal control structure related to investments 
        during any of the five years immediately preceding the date on 
        which sections 60L.01 to 60L.15 begin to apply to the insurer, 
        and as long as sections 60L.01 to 60L.15 apply to the insurer. 
           Subd. 4.  [RESOLUTIONS.] Before sections 60L.01 to 60L.15 
        apply to an insurer, the board of directors of the insurer must 
        adopt the following resolutions: 
           (1) a resolution finding that the insurer or an affiliate, 
        as defined in section 60D.15, subdivision 2, of the insurer has 
        employed a professional investment manager for the insurer's 
        investments with sufficient expertise and has sufficient other 
        resources to implement and monitor the insurer's investment 
        policies and strategies; and 
           (2) a resolution electing that sections 60L.01 to 60L.15 
        apply to the insurer. 
           Subd. 5.  [COMMISSIONER REVIEW.] Sections 60L.01 to 60L.15 
        do not govern an insurer unless the insurer has notified the 
        commissioner in writing of its intention that sections 60L.01 to 
        60L.15 will govern the insurer at least 30 days before applying 
        sections 60L.01 to 60L.15 to its investment policies, or a 
        shorter period of time as the commissioner permits, and the 
        commissioner has not disapproved the governing of the insurer by 
        sections 60L.01 to 60L.15 within this period. 
           Subd. 6.  [SUBSTITUTION OF LAW.] When sections 60L.01 to 
        60L.15 begin to govern an insurer, then, in the case of a life 
        insurer, sections 61A.28; 61A.282, subdivision 2; 61A.283; 
        61A.29; 61A.31; and 61A.315; and, in the case of an insurer 
        other than a life insurer, section 60A.11, do not apply to an 
        insurer. 
           Subd. 7.  [TERMINATION.] (a) After sections 60L.01 to 
        60L.15 begin to govern an insurer, sections 60L.01 to 60L.15 
        apply to the insurer unless: 
           (1) the insurer has ceased to comply with the requirements 
        of subdivision 1, if the insurer is a life insurer, or 
        subdivision 2, if the insurer is other than a life insurer, and 
        with the requirements of subdivision 3 and has failed to bring 
        itself back into compliance with the requirements within 30 days 
        of ceasing to comply; or 
           (2) the commissioner has issued an order under section 
        60L.14, subdivision 2, that sections 60L.01 to 60L.15 no longer 
        govern the insurer, regardless of whether the insurer is 
        contesting the order; or 
           (3) all of the following conditions have been met:  
           (i) the insurer's board of directors has adopted a 
        resolution electing that sections 60L.01 to 60L.15 no longer 
        apply to its investments and investment practices; 
           (ii) the insurer has notified the commissioner in writing 
        of its intention that sections 60L.01 to 60L.15 no longer apply 
        to the insurer's investments and investment practices; and 
           (iii) during the period ending 30 days after the receipt by 
        the commissioner of the written notice, the commissioner has not 
        issued an order under section 60L.14 prohibiting the insurer 
        from ceasing to comply with sections 60L.01 to 60L.15. 
           (b) An insurer may not elect more than once in a 12-month 
        period that sections 60L.01 to 60L.15 do not apply to the 
        insurer's investments and investment practices. 
           (c) An investment which is held as an admitted asset by an 
        insurer on the date on which sections 60L.01 to 60L.15 cease to 
        govern the insurer and which qualified as an admitted asset 
        immediately before the date remains qualified as an admitted 
        asset of the insurer. 
           (d) If sufficient voting securities of the insurer or an 
        affiliate are acquired to require a filing under section 60D.17, 
        sections 60L.01 to 60L.15 cease to apply to the insurer 30 days 
        following the completion of the acquisition of voting 
        securities.  If the board of directors of the insurer desires 
        the insurer to continue to be governed by sections 60L.01 to 
        60L.15, it shall comply with the requirements of subdivision 4 
        and shall notify the commissioner as required under and subject 
        to subdivision 5.  If the notification is received within 30 
        days of the completion of the acquisition, the insurer is 
        governed by sections 60L.01 to 60L.15 during the time period 
        allowed for the commissioner's disapproval. 
           (e) When sections 60L.01 to 60L.15 cease to govern an 
        insurer, then, in the case of a life insurer, sections 61A.28; 
        61A.282, subdivision 2; 61A.283; 61A.29; 61A.31; and 61A.315, 
        and, in the case of an insurer other than a life insurer, 
        section 60A.11, apply to the insurer. 
           Subd. 8.  [CONFLICT OF LAWS.] Sections 60L.01 to 60L.15 
        prevail over any other law, except section 60D.16, that 
        authorizes an insurer to make a particular investment if the 
        other law was enacted before August 1, 1998. 
           Sec. 3.  [60L.03] [MINIMUM FINANCIAL SECURITY BENCHMARK.] 
           Subdivision 1.  [AMOUNT.] Except as otherwise provided in 
        subdivisions 2 and 3, the amount of the minimum financial 
        security benchmark for an insurer is the greater of: 
           (1) the authorized control level risk-based capital 
        applicable to the insurer as defined under section 60A.60, 
        subdivision 11, clause (3); or 
           (2) the minimum capital or minimum surplus required for 
        maintenance of an insurer's certificate of authority. 
           Subd. 2.  [AUTHORIZATION BY ORDER.] The commissioner may, 
        according to the controlling factors specified in subdivision 6, 
        establish by order a minimum financial security benchmark to 
        apply to a specific insurer provided it is not less than the 
        amount determined under subdivision 1. 
           Subd. 3.  [ADDITIONAL AUTHORIZATION.] The commissioner may 
        establish a minimum financial security benchmark that is a 
        multiple of authorized control level risk-based capital to apply 
        to any class of insurers provided the amount established is not 
        less than the amount specified under subdivision 1. 
           Subd. 4.  [SURPLUS.] The commissioner shall determine the 
        amount of surplus that constitutes an insurer's minimum 
        financial security benchmark as an amount that will provide 
        reasonable security against contingencies affecting the 
        insurer's financial position that are not fully covered by 
        reserves or by reinsurance. 
           Subd. 5.  [TYPES OF CONTINGENCIES.] The commissioner shall 
        consider the risks of: 
           (1) increases in the frequency or severity of losses beyond 
        the levels contemplated by the rates charged; 
           (2) increases in expenses beyond those contemplated by the 
        rates charged; 
           (3) decreases in the value of or the return on invested 
        assets below those planned on; 
           (4) changes in economic conditions that would make 
        liquidity more important than contemplated and would force 
        untimely sale of assets or prevent timely investments; 
           (5) currency devaluation to which the insurer may be 
        subject; and 
           (6) any other contingencies the commissioner can identify 
        that may affect the insurer's operations. 
           Subd. 6.  [CONTROLLING FACTORS.] In making the 
        determination under subdivision 4, the commissioner shall take 
        into account the following factors: 
           (1) the most reliable information available as to the 
        magnitude of the various risks under subdivision 5; 
           (2) the extent to which the risks specified under 
        subdivision 5 are independent of each other or are related, and 
        whether any dependency is direct or inverse; 
           (3) the insurer's recent history of profits or losses; 
           (4) the extent to which the insurer has provided protection 
        against the contingencies in other ways than the establishment 
        of surplus, including redundancy of premiums, adjustability of 
        contracts under their terms, investment valuation reserves 
        whether voluntary or mandatory, appropriate reinsurance, the use 
        of conservative actuarial assumptions to provide a margin of 
        security, reserve adjustments in recognition of previous rate 
        inadequacies, contingency or catastrophe reserves, 
        diversification of assets, and underwriting risks; 
           (5) independent judgments of the soundness of the insurer's 
        operations, as evidenced by the ratings of reliable professional 
        financial reporting services; and 
           (6) any other relevant factors. 
           Sec. 4.  [60L.04] [AUTHORIZED INVESTMENTS.] 
           Subdivision 1.  [AUTHORIZATION.] Subject to the provisions 
        of sections 60L.01 to 60L.15, an insurer may loan or invest its 
        funds, and may buy, sell, hold title to, possess, occupy, 
        pledge, convey, manage, protect, insure, and deal with its 
        investments, property, and other assets to the same extent as 
        any other corporation or other person under the laws of this 
        state or the United States. 
           Subd. 2.  [BOARD OF DIRECTORS; DUTIES.] With respect to all 
        of the insurer's investments, the board of directors of an 
        insurer shall exercise the judgment and care, under the 
        circumstances then prevailing, that persons of reasonable 
        prudence, discretion, and intelligence exercise in the 
        management of a like enterprise, not in regard to speculating 
        but in regard to the permanent disposition of their funds, 
        considering the probable income as well as the probable safety 
        of their capital.  Investments must be of sufficient value, 
        liquidity, and diversity to ensure the insurer's ability to meet 
        its outstanding obligations based on reasonable assumptions as 
        to new business production for current lines of business.  As 
        part of its exercise of judgment and care, the board of 
        directors shall take into account the prudence evaluation 
        criteria specified under section 60L.05. 
           Subd. 3.  [INTERNAL CONTROLS.] The insurer shall establish 
        and implement internal controls and procedures to ensure 
        compliance with investment policies and procedures to ensure 
        that: 
           (1) the insurer's investment staff and any consultants used 
        are reputable and capable; 
           (2) a periodic evaluation and monitoring process occurs for 
        assessing the effectiveness of investment policy and strategies; 
           (3) management's performance is assessed in meeting the 
        stated objectives within the investment policy; and 
           (4) appropriate analyses are undertaken of the degree to 
        which asset cash flows are adequate to meet liability cash flows 
        under different economic environments.  The analyses must be 
        conducted at least annually and make specific reference to 
        economic conditions. 
           Subd. 4.  [COMPLIANCE.] Compliance with sections 60L.01 to 
        60L.15 is determined in light of the facts and circumstances 
        existing at the time of the insurer's decision or action and not 
        by hindsight. 
           Sec. 5.  [60L.05] [PRUDENCE EVALUATION CRITERIA.] 
           The factors in clauses (1) to (12) shall be evaluated by 
        the insurer and considered along with its business in 
        determining whether an investment portfolio or investment policy 
        is prudent.  The commissioner shall consider the factors in 
        clauses (1) to (12) before making a determination that an 
        insurer's investment portfolio or investment policy is not 
        prudent: 
           (1) general economic conditions; 
           (2) the possible effect of inflation or deflation; 
           (3) the expected tax consequences of investment decisions 
        or strategies; 
           (4) the fairness and reasonableness of the terms of an 
        investment considering its probable risk and reward 
        characteristics and relationship to the investment portfolio as 
        a whole; 
           (5) the extent of the diversification of the insurer's 
        investments among individual investments, classes of 
        investments, industry concentrations, dates of maturity, and 
        geographic areas; 
           (6) the quality and liquidity of investments in affiliates; 
           (7) the investment exposure to the following risks, 
        quantified in a manner consistent with the insurer's acceptable 
        risk level identified in section 60L.06, clause (8):  liquidity; 
        credit and default; systemic (market); interest rate; call, 
        prepayment and extension; currency; and foreign sovereign; 
           (8) the amount of the insurer's assets, capital and 
        surplus, premium writings, insurance in force, and other 
        appropriate characteristics; 
           (9) the amount and adequacy of the insurer's reported 
        liabilities; 
           (10) the relationship of the expected cash flows of the 
        insurer's assets and liabilities, and the risk of adverse 
        changes in the insurer's assets and liabilities; 
           (11) the adequacy of the insurer's capital and surplus to 
        secure the risks and liabilities of the insurer; and 
           (12) any other factors relevant to whether an investment is 
        prudent. 
           Sec. 6.  [60L.06] [INSURER INVESTMENT POLICY.] 
           In acquiring, investing, exchanging, holding, selling, and 
        managing investments, an insurer shall establish and follow a 
        written investment policy that must be reviewed and approved by 
        the insurer's board of directors at least annually.  The content 
        and format of an insurer's investment policy are at the 
        insurer's discretion, but must include written guidelines 
        appropriate to the insurer's business as to the following: 
           (1) the general investment policy of the insurer containing 
        policies, procedures, and controls covering all aspects of the 
        investing function; 
           (2) quantified goals and objectives regarding the 
        composition of classes of investments, including maximum 
        internal limits; 
           (3) periodic evaluation of the investment portfolio as to 
        its risk and reward characteristics.  This clause does not 
        preclude an insurer from the use of modern portfolio theory to 
        manage its investments.  For purposes of this section, "modern 
        portfolio theory" means the collection of models and 
        applications that prescribe the maximization of expected returns 
        for a given level of aggregate risk as the primary objective of 
        investment portfolio management; 
           (4) professional standards for the individuals making 
        day-to-day investment decisions to ensure that investments are 
        managed in an ethical and capable manner; 
           (5) the types of investments to be made and those to be 
        avoided, based on their risk and reward characteristics and the 
        insurer's level of experience with the investments; 
           (6) the relationship of classes of investments to the 
        insurer's insurance products and liabilities; 
           (7) the manner in which the insurer intends to implement 
        section 60L.05; and 
           (8) the level of risk, based on quantitative measures, 
        appropriate for the insurer given the level of capitalization 
        and expertise available to the insurer. 
           Sec. 7.  [60L.07] [AUTHORIZED CLASSES OF INVESTMENTS.] 
           The following classes of investments may be counted for the 
        purposes specified in section 60L.11, whether they are made 
        directly or as a participant in a partnership, joint venture, or 
        limited liability company: 
           (1) cash in the direct possession of the insurer or on 
        deposit with a financial institution regulated by any federal or 
        state agency of the United States; 
           (2) bonds, debt-like preferred stock, and other evidences 
        of indebtedness of governmental units in the United States or 
        Canada, or the instrumentalities of the governmental units, or 
        private business entities domiciled in the United States or 
        Canada, including asset-backed securities and SVO listed mutual 
        funds; 
           (3) loans secured by mortgages, trust deeds, or other 
        security interests in real property located in the United States 
        or Canada or secured by insurance against default issued by a 
        government insurance corporation of the United States or Canada 
        or by an insurer authorized to do business in this state; 
           (4) common stock or equity-like preferred stock or equity 
        interests in any United States or Canadian business entity, or 
        shares of mutual funds registered with the Securities and 
        Exchange Commission of the United States under the Investment 
        Company Act of 1940, other than SVO listed mutual funds; 
           (5) real property necessary for the convenient transaction 
        of the insurer's business; 
           (6) real property and its fixtures, furniture, furnishings, 
        and equipment in the United States or Canada, which produces or 
        after suitable improvement can reasonably be expected to produce 
        substantial income; 
           (7) loans, securities, or other investments of the types 
        described in clauses (1) to (6) in countries other than the 
        United States and Canada; 
           (8) bonds or other evidences of indebtedness of 
        international development organizations of which the United 
        States is a member; 
           (9) loans upon the security of the insurer's own policies 
        in amounts that are adequately secured by the policies and that 
        in no case exceed the surrender values of the policies; 
           (10) tangible personal property under contract of sale or 
        lease under which contractual payments may reasonably be 
        expected to return the principal of and provide earnings on the 
        investment within its anticipated useful life; 
           (11) other investments authorized by the commissioner; and 
           (12) investments not otherwise permitted by this section, 
        and not specifically prohibited by other law, to the extent of 
        not more than five percent of the first $500,000,000 of the 
        insurer's admitted assets plus ten percent of the insurer's 
        admitted assets exceeding $500,000,000. 
           Sec. 8.  [60L.08] [LIMITATIONS GENERALLY APPLICABLE.] 
           Subdivision 1.  [CLASS LIMITATIONS.] For the purposes of 
        section 60L.11, the following limitations on classes of 
        investments apply: 
           (a) For investments authorized under section 60L.07, clause 
        (2), and investments authorized under section 60L.07, clause 
        (7), that are of the types described in section 60L.07, clause 
        (2), the following restrictions apply: 
           (1) the aggregate amount of medium and lower grade 
        investments may not exceed 20 percent of the insurer's admitted 
        assets; 
           (2) the aggregate amount of lower grade investments may not 
        exceed ten percent of the insurer's admitted assets; 
           (3) the aggregate amount of investments rated 5 or 6 by the 
        SVO may not exceed five percent of the insurer's admitted 
        assets; 
           (4) the aggregate amount of investments rated 6 by the SVO 
        may not exceed one percent of the insurer's admitted assets; or 
           (5) the aggregate amount of medium and lower grade 
        investments that receive as cash income less than the equivalent 
        yield for United States Treasury issues with a comparative 
        average life, may not exceed one percent of the insurer's 
        admitted assets. 
           (b) Investments authorized under section 60L.07, clause 
        (3), may not exceed 45 percent of admitted assets in the case of 
        life insurers and 25 percent of admitted assets in the case of 
        insurers other than life insurers. 
           (c) Investments authorized under section 60L.07, clause 
        (4), other than subsidiaries of the types authorized under 
        section 60A.11, subdivision 18, paragraph (a), clause (4); 
        60D.16; or 61A.281, may not exceed 20 percent of admitted assets 
        in the case of life insurers and 25 percent of admitted assets 
        in the case of insurers other than life insurers. 
           (d) Investments authorized under section 60L.07, clause 
        (5), may not exceed ten percent of admitted assets. 
           (e) Investments authorized under section 60L.07, clause 
        (6), may not exceed 20 percent of admitted assets in the case of 
        life insurers, and ten percent of admitted assets in the case of 
        insurers other than life insurers. 
           (f) Investments authorized under section 60L.07, clause 
        (7), may not exceed 20 percent of admitted assets. 
           (g) Investments authorized under section 60L.07, clause 
        (8), may not exceed two percent of admitted assets. 
           (h) Investments authorized under section 60L.07, clause 
        (9), may not exceed two percent of admitted assets. 
           Subd. 2.  [INDIVIDUAL LIMITATIONS.] For purposes of 
        determining compliance with section 60L.11, securities of a 
        single issuer and its affiliates, other than the government of 
        the United States and subsidiaries authorized under section 
        60A.11, subdivision 18, paragraph (a), clause (4); 60D.16; or 
        61A.281, may not exceed three percent of admitted assets in the 
        case of life insurers, and five percent in the case of insurers 
        other than life insurers.  For purposes of this subdivision, in 
        the case of asset-backed securities issued, assumed, insured, or 
        guaranteed by a government-sponsored enterprise and secured by 
        or evidencing an interest in a single asset or single pool of 
        assets held by a trust or other business entity, the issuer is 
        considered to be the asset or pool of assets. 
           Subd. 3.  [INVESTMENT SUBSIDIARIES.] For purposes of 
        determining compliance with this section, the admitted portion 
        of assets of subsidiaries under section 60A.11, subdivision 18, 
        paragraph (a) clause (4); 60D.16, subdivision 2, paragraph (b); 
        or 61A.281, subdivision 5, are considered to be owned directly 
        by the insurer and any other investors in proportion to the 
        market value, or if there is no market, the reasonable value, of 
        their interest in the subsidiaries. 
           Subd. 4.  [EFFECT OF QUANTITY LIMITATIONS.] To the extent 
        that investments exceed the limitations specified under 
        subdivisions 1 and 2, the excess may be assigned to the 
        investment class authorized in section 60L.07, clause (12), 
        until that limit is exhausted. 
           Subd. 5.  [MUTUAL FUNDS, POOLED INVESTMENT VEHICLES, AND 
        OTHER INVESTMENT COMPANIES.] If the commissioner considers it 
        desirable in order to get a proper evaluation of the investment 
        portfolio of an insurer, the commissioner may require that 
        investments in mutual funds, pooled investment vehicles, or 
        other investment companies be treated for purposes of sections 
        60L.01 to 60L.15, as if the investor owned directly its 
        proportional share of the assets owned by the mutual fund, 
        pooled investment vehicle, or investment company. 
           Subd. 6.  [INVESTMENT LIMITATION COMPUTATION.] Unless 
        otherwise specified, an investment limitation computed on the 
        basis of an insurer's admitted assets or capital and surplus 
        must relate to the amount required to be shown on the statutory 
        balance sheet of the insurer most recently required to be filed 
        with the commissioner. 
           Sec. 9.  [60L.09] [PROTECTION AGAINST CURRENCY 
        FLUCTUATIONS.] 
           An insurer doing business that requires it to make payments 
        in different currencies shall have investments in securities in 
        each of these currencies in an amount that independently of all 
        other investments meets the requirements of sections 60L.01 to 
        60L.15 as applied separately to the insurer's obligations in 
        each currency.  The commissioner may by order exempt an insurer, 
        or a class of insurers, from this requirement if the obligations 
        in other currencies are small enough that no significant problem 
        for financial solidity would be created by substantial 
        fluctuations in relative currency values. 
           Sec. 10.  [60L.10] [PROHIBITED INVESTMENTS.] 
           Subdivision 1.  [PROHIBITIONS.] An insurer may not invest 
        in investments that are prohibited for an insurer by law.  The 
        use of a derivative instrument for replication, or for any 
        purposes other than hedging or income generation, is prohibited. 
           Subd. 2.  [DISPOSAL OF PROHIBITED ASSET.] A reasonable 
        time, not to exceed five years, must be allowed for disposal of 
        a prohibited investment in hardship cases if the investment is 
        demonstrated by the insurer to have been legal when made, or the 
        result of a mistake made in good faith, or if the commissioner 
        determines that the sale of the asset would be contrary to the 
        interests of insureds, creditors, or the general public. 
           Sec. 11.  [60L.11] [EFFECT OF INVESTMENT RESTRICTIONS.] 
           Subdivision 1.  [INVESTED ASSETS.] Invested assets may be 
        counted toward satisfaction of the minimum asset requirement 
        only so far as they are invested in compliance with sections 
        60L.01 to 60L.15 and orders issued by the commissioner.  Assets 
        other than invested assets may be counted toward satisfaction of 
        the minimum asset requirement at admitted annual statement value.
           Subd. 2.  [ADMITTED ASSET.] An investment which is held as 
        an admitted asset by an insurer on the date on which sections 
        60L.01 to 60L.15 begin to govern the insurer and which qualified 
        as an admitted asset immediately before this date remain 
        qualified as an admitted asset under sections 60L.01 to 60L.15. 
           Subd. 3.  [ACQUIRED ASSETS.] Assets acquired in the bona 
        fide enforcement of creditors' rights or in bona fide workouts 
        or settlements of disputed claims may be counted for the 
        purposes of subdivision 1 for five years after acquisition if 
        real property and three years if not real property, even if they 
        could not otherwise be counted under sections 60L.01 to 60L.15.  
        The commissioner may allow reasonable extensions of these 
        periods if replacement of the assets within the periods would 
        not be possible without substantial loss. 
           Subd. 4.  [LIQUIDATION AND REHABILITATION.] If an insurer 
        does not own, or is unable to apply toward compliance with 
        sections 60L.01 to 60L.15, an amount of assets equal to its 
        minimum asset requirement, the commissioner may consider it to 
        be financially hazardous under section 60B.15; 60B.20; or 60G.20.
           Sec. 12.  [60L.12] [REPORTS AND REPLIES.] 
           Subdivision 1.  [REQUIREMENTS.] The commissioner may 
        require any of the following from a person subject to regulation 
        under sections 60L.01 to 60L.15: 
           (1) statements, reports, answers to questionnaires and 
        other information, and evidence in whatever reasonable form the 
        commissioner designates, and at reasonable intervals as the 
        commissioner chooses; 
           (2) full explanation of the programming of any data storage 
        or communication system in use; or 
           (3) that information from any books, records, electronic 
        data processing systems, computers, or any other information 
        storage system be made available to the commissioner at a 
        reasonable time and in a reasonable manner. 
           Subd. 2.  [FORMS.] The commissioner may prescribe forms for 
        the reports required under subdivision 1 and specify who shall 
        execute or certify the reports.  The forms for the reports 
        required under subdivision 1 must be consistent, so far as 
        practicable, with those prescribed by other jurisdictions. 
           Subd. 3.  [ACCOUNTING.] The commissioner may prescribe 
        reasonable minimum standards and techniques of accounting and 
        data handling to ensure that timely and reliable information 
        will exist and will be available to the commissioner. 
           Subd. 4.  [PROMPT REPLY.] Any officer, manager, or general 
        agent of an insurer subject to sections 60L.01 to 60L.15, any 
        person controlling or having a contract under which the person 
        has a right to control the insurer, whether exclusively or 
        otherwise, or a person with executive authority over or in 
        charge of any segment of the insurer's affairs, shall reply 
        promptly in writing or in other reasonably designated form, to a 
        written inquiry from the commissioner requesting a reply. 
           Subd. 5.  [VERIFIED COMMUNICATION.] The commissioner may 
        require that any communication made to the commissioner under 
        this section be verified. 
           Subd. 6.  [NO ACTION FOR DAMAGES.] A communication to the 
        commissioner, or to an expert or consultant retained by the 
        commissioner, required under sections 60L.01 to 60L.15, shall 
        not subject the person making it to an action for damages for 
        the communication in the absence of actual malice. 
           Subd. 7.  [INFORMATION.] Notwithstanding subdivision 6, the 
        commissioner may bring suit against any person providing 
        information required under sections 60L.01 to 60L.15 that is not 
        truthful and accurate. 
           Sec. 13.  [60L.13] [RETENTION OF EXPERTS.] 
           The commissioner may retain at the insurer's expense 
        attorneys, actuaries, accountants, and other experts not 
        otherwise a part of the commissioner's staff as may be 
        reasonably necessary to assist in reviewing the insurer's 
        investments.  Persons so retained are under the direction and 
        control of the commissioner and shall act in a purely advisory 
        capacity. 
           Sec. 14.  [60L.14] [COMMISSIONER'S ORDERS.] 
           Subdivision 1.  [NECESSARY CHANGES.] If the commissioner 
        determines that an insurer's investment practices do not meet 
        the requirements of sections 60L.01 to 60L.15, the commissioner 
        may, after notification to the insurer of the commissioner's 
        findings, order the insurer to make changes necessary to comply 
        with the requirements of sections 60L.01 to 60L.15. 
           Subd. 2.  [ADDITIONAL RESTRICTIONS.] If the commissioner 
        determines that by reason of the financial condition, current 
        investment practice, or current investment plan of an insurer, 
        the interests of insureds, creditors, or the general public are 
        or may be endangered, the commissioner may impose reasonable 
        additional restrictions upon the admissibility or valuation of 
        investments or may impose restrictions on the investment 
        practices of an insurer, including prohibition, divestment, or 
        requiring investments by insurers to be governed by section 
        60A.11 in the case of insurers other than life insurers, and 
        sections 61A.28; 61A.282, subdivision 2; 61A.283; 61A.29; 
        61A.31; and 61A.315 in the case of life insurers. 
           Subd. 3.  [ADDITIONAL ASSETS.] The commissioner may count 
        toward satisfaction of the minimum asset requirement any assets 
        in which an insurer is required to invest under the laws of a 
        country other than the United States as a condition for doing 
        business in that country if the commissioner finds that counting 
        them does not endanger the interests of insureds, creditors, or 
        the general public. 
           Subd. 4.  [ADJUSTMENTS.] If the commissioner is satisfied 
        by evidence of the solidity of an insurer and the competence of 
        management and its investment advisors, the commissioner, after 
        a hearing, may by order adjust the class limitations under 
        section 60L.08, for that insurer, to the extent that the 
        commissioner is satisfied that the interests of insureds, 
        creditors, and the public are sufficiently protected in other 
        ways.  Adjustments to the class limitations granted under 
        section 60L.08, in aggregate, are limited to an amount equal to 
        ten percent of the insurer's liabilities. 
           Sec. 15.  [60L.15] [ADMINISTRATIVE HEARINGS.] 
           Subdivision 1.  [AUTHORIZATION.] An insurer aggrieved by an 
        order or any other act or failure to act of the commissioner 
        regarding compliance with sections 60L.01 to 60L.15 may request 
        a hearing by following the procedures of chapter 14. 
           Subd. 2.  [PRIVATE HEARING.] The commissioner shall hold 
        hearings under this section privately unless the insurer 
        requests a public hearing, in which case the hearing is public. 
           Sec. 16.  Minnesota Statutes 1996, section 61A.14, 
        subdivision 4, is amended to read: 
           Subd. 4.  [OTHER INVESTMENTS.] For purposes of determining 
        whether the capital, surplus and other funds of a domestic life 
        insurance company, other than assets held in a separate account 
        pursuant to this section, are invested in accordance with 
        sections 60A.11 and 61A.28 to 61A.31, and 60L.01 to 60L.15, 
        assets held by the company in a separate account in accordance 
        with this section shall be disregarded. 
           Sec. 17.  Minnesota Statutes 1996, section 61A.276, 
        subdivision 4, is amended to read: 
           Subd. 4.  [ALLOCATION TO SEPARATE ACCOUNTS.] Amounts paid 
        to the insurer, and proceeds applied under optional modes of 
        settlement, under the funding agreements may be allocated by the 
        insurer to one or more separate accounts pursuant to section 
        61A.275 or, 61A.14, or 60L.01 to 60L.15.  Notwithstanding the 
        provisions of section 61A.275, subdivision 1, a separate account 
        for funding agreement proceeds may include funds from any source 
        authorized to purchase a funding agreement pursuant to this 
        section. 
           Presented to the governor March 19, 1998 
           Signed by the governor March 23, 1998, 10:55 a.m.