Minnesota Session Laws - 1998, Regular Session

                            CHAPTER 328-S.F.No. 2659 
                  An act relating to insurance; regulating life 
                  insurance company investments and financial 
                  transactions; regulating qualified long-term care 
                  policies; modifying the definition of chronically ill 
                  individual; amending Minnesota Statutes 1996, section 
                  61A.28, subdivisions 6, 9a, and 12; Minnesota Statutes 
                  1997 Supplement, section 62S.01, subdivision 8. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1996, section 61A.28, 
        subdivision 6, is amended to read: 
           Subd. 6.  [STOCKS, OBLIGATIONS, AND OTHER INVESTMENTS.] (a) 
        Common stocks, common stock equivalents, or securities 
        convertible into common stock or common stock equivalents of a 
        business entity organized under the laws of the United States or 
        any state thereof, or the Dominion of Canada or any province 
        thereof, if the net earnings of the business entity after the 
        elimination of extraordinary nonrecurring items of income and 
        expense and before income taxes and fixed charges over the five 
        immediately preceding completed fiscal years, or its period of 
        existence if less than five years, has averaged not less than 
        1-1/4 times its average annual fixed charges applicable to the 
        period.  
           (b) Preferred stock of, or common or preferred stock 
        guaranteed as to dividends by a business entity organized under 
        the laws of the United States or any state thereof, or the 
        Dominion of Canada or any province thereof, under the following 
        conditions:  (1) No investment may be made under this paragraph 
        in a stock upon which any dividend, current or cumulative, is in 
        arrears; (2) the company may not invest in stocks under this 
        paragraph and in common stocks under paragraph (a) if the 
        investment causes the company's aggregate investments in the 
        common or preferred stocks to exceed 25 percent of the company's 
        total admitted assets, provided that no more than 20 percent of 
        the company's admitted assets may be invested in common stocks 
        under paragraph (a); and (3) the company may not invest in any 
        preferred stock or common stock guaranteed as to dividends, 
        which is rated in the four lowest categories established by the 
        securities valuation office of the National Association of 
        Insurance Commissioners, if the investment causes the company's 
        aggregate investment in the lower rated preferred or common 
        stock guaranteed as to dividends to exceed five percent of its 
        total admitted assets.  
           (c) Warrants, options, and rights to purchase stock if the 
        stock, at the time of the acquisition of the warrant, option, or 
        right to purchase, would qualify as an investment under 
        paragraph (a) or (b), whichever is applicable.  A company shall 
        not invest in a warrant, option, or right to purchase stock if, 
        upon purchase and immediate exercise thereof, the acquisition of 
        the stock violates any of the concentration limitations 
        contained in paragraphs (a) and (b).  
           (d) In addition to amounts that may be invested under 
        subdivision 8 and without regard to the percentage limitation 
        applicable to stocks, warrants, options, and rights to purchase, 
        the securities of any face amount certificate company, unit 
        investment trust, or management type investment company, 
        registered or in the process of registration under the 
        Investment Company Act of 1940 as from time to time amended.  In 
        addition, the company may transfer assets into one or more of 
        its separate accounts for the purpose of establishing, or 
        supporting its contractual obligations under, the accounts in 
        accordance with the provisions of sections 61A.13 to 61A.21.  A 
        company may not invest in a security authorized under this 
        paragraph if the investment causes the company's aggregate 
        investments in the securities to exceed five percent of its 
        total admitted assets, except that for a health service plan 
        corporation operating under chapter 62C, and for a health 
        maintenance organization operating under chapter 62D, the 
        company's aggregate investments may not exceed 20 percent of its 
        total admitted assets.  No more than five percent of the allowed 
        investment by health service plan corporations or health 
        maintenance organizations may be invested in funds that invest 
        in assets not backed by the federal government.  When investing 
        in money market mutual funds, nonprofit health service plans 
        regulated under chapter 62C, and health maintenance 
        organizations regulated under chapter 62D, shall establish a 
        trustee custodial account for the transfer of cash into the 
        money market mutual fund. 
           (e) Investment grade obligations that are:  
           (1) bonds, obligations, notes, debentures, repurchase 
        agreements, or other evidences of indebtedness of a business 
        entity, organized under the laws of the United States or any 
        state thereof, or the Dominion of Canada or any province 
        thereof; and 
           (2) rated in one of the four highest rating categories by 
        at least one nationally recognized statistical rating 
        organization, or are rated in one of the two highest categories 
        established by the securities valuation office of the National 
        Association of Insurance Commissioners. 
           (f) Noninvestment grade obligations:  A company may acquire 
        noninvestment grade obligations as defined in subclause (i) 
        (hereinafter noninvestment grade obligations) which meet the 
        earnings test set forth in subclause (ii).  A company may not 
        acquire a noninvestment grade obligation if the acquisition will 
        cause the company to exceed the limitations set forth in 
        subclause (iii). 
           (i) A noninvestment grade obligation is an obligation of a 
        business entity, organized under the laws of the United States 
        or any state thereof, or the Dominion of Canada or any province 
        thereof, that is not rated in one of the four highest rating 
        categories by at least one nationally recognized statistical 
        rating organization, or is not rated in one of the two highest 
        categories established by the securities valuation office of the 
        National Association of Insurance Commissioners. 
           (ii) Noninvestment grade obligations authorized by this 
        subdivision may be acquired by a company if the business entity 
        issuing or assuming the obligation, or the business entity 
        securing or guaranteeing the obligation, has had net earnings 
        after the elimination of extraordinary nonrecurring items of 
        income and expense and before income taxes and fixed charges 
        over the five immediately preceding completed fiscal years, or 
        its period of existence of less than five years, has averaged 
        not less than 1-1/4 times its average annual fixed charges 
        applicable to the period; provided, however, that if a business 
        entity issuing or assuming the obligation, or the business 
        entity securing or guaranteeing the obligation, has undergone an 
        acquisition, recapitalization, or reorganization within the 
        immediately preceding 12 months, or will use the proceeds of the 
        obligation for an acquisition, recapitalization, or 
        reorganization, then such business entity shall also have, on a 
        pro forma basis, for the next succeeding 12 months, net earnings 
        averaging 1-1/4 times its average annual fixed charges 
        applicable to such period after elimination of extraordinary 
        nonrecurring items of income and expense and before taxes and 
        fixed charges; no investment may be made under this section upon 
        which any interest obligation is in default. 
           (iii) Limitation on aggregate interest in noninvestment 
        grade obligations.  A company may not invest in a noninvestment 
        grade obligation if the investment will cause the company's 
        aggregate investments in noninvestment grade obligations to 
        exceed the applicable percentage of admitted assets set forth in 
        the following table:  
                                                Percentage of
                    Effective Date              Admitted Assets
                    January 1, 1992                  20
                    January 1, 1993                  17.5
                    January 1, 1994                  15
           Nothing in this paragraph limits the ability of a company 
        to invest in noninvestment grade obligations as provided under 
        subdivision 12. 
           (g) Obligations for the payment of money under the 
        following conditions:  (1) The obligation must be secured, 
        either solely or in conjunction with other security, by an 
        assignment of a lease or leases on property, real or personal; 
        (2) the lease or leases must be nonterminable by the lessee or 
        lessees upon foreclosure of any lien upon the leased property; 
        (3) the rents payable under the lease or leases must be 
        sufficient to amortize at least 90 percent of the obligation 
        during the primary term of the lease; and (4) the lessee or 
        lessees under the lease or leases, or a governmental entity or 
        business entity, organized under the laws of the United States 
        or any state thereof, or the Dominion of Canada, or any province 
        thereof, that has assumed or guaranteed any lessee's performance 
        thereunder, must be a governmental entity or business entity 
        whose obligations would qualify as an investment under 
        subdivision 2 or paragraph (e) or (f).  A company may acquire 
        leases assumed or guaranteed by a noninvestment grade lessee 
        unless the value of the lease, when added to the other 
        noninvestment grade obligations owned by the company, exceeds 15 
        percent of the company's admitted assets.  
           (h) A company may sell exchange-traded call options against 
        stocks or other securities owned by the company and may purchase 
        exchange-traded call options in a closing transaction against a 
        call option previously written by the company.  In addition to 
        the authority granted by paragraph (c), to the extent and on the 
        terms and conditions the commissioner determines to be 
        consistent with the purposes of this chapter, a company may 
        purchase or sell other exchange-traded call options, and may 
        sell or purchase exchange-traded put options.  
           (i) A company may not invest in a security or other 
        obligation authorized under this subdivision if the investment, 
        valued at cost at the date of purchase, causes the company's 
        aggregate investment in any one business entity to exceed two 
        percent of the company's admitted assets.  
           (j) For nonprofit health service plan corporations 
        regulated under chapter 62C, and for health maintenance 
        organizations regulated under chapter 62D, a company may invest 
        in commercial paper rated in one of the two highest rating 
        categories by at least one nationally recognized statistical 
        rating organization, or rated in one of the two highest 
        categories established by the securities valuation office of the 
        National Association of Insurance Commissioners, if the 
        investment, valued at cost at the date of purchase, does not 
        cause the company's aggregate investment in any one business 
        entity to exceed six percent of the company's admitted assets. 
           Sec. 2.  Minnesota Statutes 1996, section 61A.28, 
        subdivision 9a, is amended to read: 
           Subd. 9a.  [HEDGING.] A domestic life insurance company may 
        enter into financial transactions solely for the purpose of 
        managing reducing the interest rate risk associated with the 
        company's assets and liabilities that the company has acquired 
        or incurred or has legally contracted to acquire or incur, and 
        not for speculative or other purposes.  For purposes of this 
        subdivision, "financial transactions"  include, but are not 
        limited to, futures, options to buy or sell fixed income 
        securities, repurchase and reverse repurchase agreements, and 
        interest rate swaps, caps, and floors.  This authority is in 
        addition to any other authority of the insurer.  
           Sec. 3.  Minnesota Statutes 1996, section 61A.28, 
        subdivision 12, is amended to read: 
           Subd. 12.  [ADDITIONAL INVESTMENTS.] Investments of any 
        kind, without regard to the categories, conditions, standards, 
        or other limitations set forth in the foregoing subdivisions and 
        section 61A.31, subdivision 3, except that the prohibitions in 
        clause (d) of subdivision 3 remains applicable, may be made by a 
        domestic life insurance company in an amount not to exceed the 
        lesser of the following: 
           (1) Five percent of the company's total admitted assets as 
        of the end of the preceding calendar year, or 
           (2) Fifty percent of the amount by which its capital and 
        surplus as of the end of the preceding calendar year exceeds 
        $675,000.  Except as provided in section 61A.281, a company's 
        total investment under this section in the common stock of any 
        corporation, other than the stock of the types of corporations 
        specified in section 61A.284, may not exceed ten percent of the 
        common stock of the corporation.  No investment may be made 
        under the authority of this clause or clause (1) by a company 
        that has not completed five years of actual operation since the 
        date of its first certificate of authority.  
           If, subsequent to being made under the provisions of this 
        subdivision, an investment is determined to have become 
        qualified or eligible under any of the other provisions of this 
        chapter, the company may consider the investment as being held 
        under the other provision and the investment need no longer be 
        considered as having been made under the provisions of this 
        subdivision.  
           In addition to the investments authorized by this 
        subdivision, with the written order of the commissioner, a 
        domestic life insurance company may make qualified investments 
        in any additional securities or property of the type authorized 
        by subdivision 6, paragraph (e), (f), or (g), with the written 
        order of the commissioner other type of investment or exceed any 
        limitations of quality, quantity, or percentage of admitted 
        assets contained in this section, section 61A.29 or 61A.31, or 
        other provision governing the investments of a domestic life 
        insurance company.  This approval is at the discretion of the 
        commissioner, provided that the additional investments allowed 
        by the commissioner's written order may not exceed five percent 
        of the company's admitted assets.  This authorization does not 
        negate or reduce the investment authority granted in subdivision 
        6, paragraph (e), (f), or (g), or this subdivision. 
           Sec. 4.  Minnesota Statutes 1997 Supplement, section 
        62S.01, subdivision 8, is amended to read: 
           Subd. 8.  [CHRONICALLY ILL INDIVIDUAL.] "Chronically ill 
        individual" means an individual who has been certified by a 
        licensed health care practitioner, within the preceding 12-month 
        period, as either: 
           (1) being unable to perform, without substantial assistance 
        from another individual, at least two activities of daily living 
        for a period of at least 90 days due to a loss of functional 
        capacity; or 
           (2) having a disability similar to the level of disability 
        described in clause (1); or 
           (3) requiring substantial supervision to protect the 
        individual from threats to health and safety due to severe 
        cognitive impairment.  
           Sec. 5.  [EFFECTIVE DATES.] 
           Sections 1 to 4 are effective the day following final 
        enactment. 
           Presented to the governor March 20, 1998 
           Signed by the governor March 23, 1998, 10:58 a.m.