Minnesota Legislature
Office of the Revisor of Statutes
Minnesota Session Laws - 1998, Regular Session
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.
Official Publication of the State of Minnesota
Revisor of Statutes