1.1                          A bill for an act 
  1.2             relating to insurance; regulating liquidations and 
  1.3             investments of insurers; regulating consolidated or 
  1.4             combined financial statements and annuities purchased 
  1.5             to finance structured settlement agreements; 
  1.6             authorizing domestic mutual life companies to be 
  1.7             formed with or establish guaranty funds; regulating 
  1.8             certain workers compensation rates and rating plans; 
  1.9             amending Minnesota Statutes 2000, sections 60A.11, 
  1.10            subdivision 10, by adding a subdivision; 60A.129, 
  1.11            subdivision 5; 60B.44, subdivision 4; 60L.01, 
  1.12            subdivision 14, by adding a subdivision; 60L.08, by 
  1.13            adding a subdivision; 60L.10, subdivision 1; 61A.276, 
  1.14            subdivision 2; 61A.28, subdivision 6, by adding a 
  1.15            subdivision; 61A.29, subdivision 2; 79.56, subdivision 
  1.16            3; proposing coding for new law in Minnesota Statutes, 
  1.17            chapters 60A; 61A. 
  1.18  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.19     Section 1.  Minnesota Statutes 2000, section 60A.11, 
  1.20  subdivision 10, is amended to read: 
  1.21     Subd. 10.  [DEFINITIONS.] The following terms have the 
  1.22  meaning assigned in this subdivision for purposes of this 
  1.23  section and section 60A.111: 
  1.24     (a) "Adequate evidence" means a written confirmation, 
  1.25  advice, or other verification issued by a depository, issuer, or 
  1.26  custodian bank which shows that the investment is held for the 
  1.27  company; 
  1.28     (b) "Adequate security" means a letter of credit qualifying 
  1.29  under subdivision 11, paragraph (f), cash, or the pledge of an 
  1.30  investment authorized by any subdivision of this section; 
  1.31     (c) "Admitted assets," for purposes of computing percentage 
  2.1   limitations on particular types of investments, means the assets 
  2.2   as shown by the company's annual statement, required by section 
  2.3   60A.13, as of the December 31 immediately preceding the date the 
  2.4   company acquires the investment; 
  2.5      (d) "Clearing corporation" means The Depository Trust 
  2.6   Company or any other clearing agency registered with the 
  2.7   securities and exchange commission pursuant to the Securities 
  2.8   Exchange Act of 1934, section 17A, Euro-clear Clearance System 
  2.9   Limited and CEDEL S.A., and, with the approval of the 
  2.10  commissioner, any other clearing corporation as defined in 
  2.11  section 336.8-102; 
  2.12     (e) "Control" has the meaning assigned to that term in, and 
  2.13  must be determined in accordance with, section 60D.15, 
  2.14  subdivision 4; 
  2.15     (f) "Custodian bank" means a bank or trust company or a 
  2.16  branch of a bank or trust company that is acting as custodian 
  2.17  and is supervised and examined by state or federal authority 
  2.18  having supervision over the bank or trust company or with 
  2.19  respect to a company's foreign investments only by the 
  2.20  regulatory authority having supervision over banks or trust 
  2.21  companies in the jurisdiction in which the bank, trust company, 
  2.22  or branch is located, and any banking institutions qualifying as 
  2.23  an "Eligible Foreign Custodian" under the Code of Federal 
  2.24  Regulations, section 270.17f-5, adopted under section 17(f) of 
  2.25  the Investment Company Act of 1940, and specifically including 
  2.26  Euro-clear Clearance System Limited and CEDEL S.A., acting as 
  2.27  custodians; 
  2.28     (g) "Evergreen clause" means a provision that automatically 
  2.29  renews a letter of credit for a time certain if the issuer of 
  2.30  the letter of credit fails to affirmatively signify its 
  2.31  intention to nonrenew upon expiration; 
  2.32     (h) "Government obligations" means direct obligations for 
  2.33  the payment of money, or obligations for the payment of money to 
  2.34  the extent guaranteed as to the payment of principal and 
  2.35  interest by any governmental issuer where the obligations are 
  2.36  payable from ad valorem taxes or guaranteed by the full faith, 
  3.1   credit, and taxing power of the issuer and are not secured 
  3.2   solely by special assessments for local improvements; 
  3.3      (i) "Noninvestment grade obligations" means obligations 
  3.4   which, at the time of acquisition, were rated below Baa/BBB or 
  3.5   the equivalent by a securities rating agency or which, at the 
  3.6   time of acquisition, were not in one of the two highest 
  3.7   categories established by the securities valuation office of the 
  3.8   National Association of Insurance Commissioners; 
  3.9      (j) "Issuer" means the corporation, business trust, 
  3.10  governmental unit, partnership, association, individual, or 
  3.11  other entity which issues or on behalf of which is issued any 
  3.12  form of obligation; 
  3.13     (k) "Licensed real estate appraiser" means a person who 
  3.14  develops and communicates real estate appraisals and who holds a 
  3.15  current, valid license under chapter 82B or a substantially 
  3.16  similar licensing requirement in another jurisdiction; 
  3.17     (l) "Member bank" means a national bank, state bank or 
  3.18  trust company which is a member of the Federal Reserve System; 
  3.19     (m) "National securities exchange" means an exchange 
  3.20  registered under section 6 of the Securities Exchange Act of 
  3.21  1934 or an exchange regulated under the laws of the Dominion of 
  3.22  Canada; 
  3.23     (n) "NASDAQ" means the reporting system for securities 
  3.24  meeting the definition of National Market System security as 
  3.25  provided under Part I to Schedule D of the National Association 
  3.26  of Securities Dealers Incorporated bylaws; 
  3.27     (o) "Obligations" include bonds, notes, debentures, 
  3.28  transportation equipment certificates, repurchase agreements, 
  3.29  bank certificates of deposit, time deposits, bankers' 
  3.30  acceptances, and other obligations for the payment of money not 
  3.31  in default as to payments of principal and interest on the date 
  3.32  of investment, whether constituting general obligations of the 
  3.33  issuer or payable only out of certain revenues or certain funds 
  3.34  pledged or otherwise dedicated for payment.  Leases are 
  3.35  considered obligations if the lease is assigned for the benefit 
  3.36  of the company and is nonterminable by the lessee or lessees 
  4.1   thereunder upon foreclosure of any lien upon the leased 
  4.2   property, and rental payments are sufficient to amortize the 
  4.3   investment over the primary lease term; 
  4.4      (p) "Qualified assets" means the sum of (1) all investments 
  4.5   qualified in accordance with this section other than investments 
  4.6   in affiliates and subsidiaries, (2) investments in obligations 
  4.7   of affiliates as defined in section 60D.15, subdivision 2, 
  4.8   secured by real or personal property sufficient to qualify the 
  4.9   investment under subdivision 19 or 23, (3) qualified investments 
  4.10  in subsidiaries, as defined in section 60D.15, subdivision 9, on 
  4.11  a consolidated basis with the insurance company without 
  4.12  allowance for goodwill or other intangible value, and (4) cash 
  4.13  on hand and on deposit, agent's balances or uncollected premiums 
  4.14  not due more than 90 days, assets held pursuant to section 
  4.15  60A.12, subdivision 2, investment income due and accrued, funds 
  4.16  due or on deposit or recoverable on loss payments under 
  4.17  contracts of reinsurance entered into pursuant to section 
  4.18  60A.09, premium bills and notes receivable, federal income taxes 
  4.19  recoverable, and equities and deposits in pools and 
  4.20  associations; 
  4.21     (q) "Qualified net earnings" means that the net earnings of 
  4.22  the issuer after elimination of extraordinary nonrecurring items 
  4.23  of income and expense and before income taxes and fixed charges 
  4.24  over the five immediately preceding completed fiscal years, or 
  4.25  its period of existence if less than five years, has averaged 
  4.26  not less than 1-1/4 times its average annual fixed charges 
  4.27  applicable to the period; 
  4.28     (r) "Replicated investment position" means the statement 
  4.29  value of the position reported under the heading "Replicated 
  4.30  (Synthetic) Asset" on Schedule DB, Part F, of the annual 
  4.31  statement of the insurer, or any successor provision; 
  4.32     (s) "Replication transaction" means a derivative 
  4.33  transaction that is intended to replicate the performance of one 
  4.34  or more assets that an insurer is authorized to acquire under 
  4.35  this section.  A derivative transaction that either is 
  4.36  authorized by subdivision 18, clause (5), or by subdivision 24, 
  5.1   or is entered into as a hedging transaction shall not be 
  5.2   considered a replication transaction; 
  5.3      (t) "Required liabilities" means the sum of (1) total 
  5.4   liabilities as required to be reported in the company's most 
  5.5   recent annual report to the commissioner of commerce of this 
  5.6   state, (2) for companies operating under the stock plan, the 
  5.7   minimum paid-up capital and surplus required to be maintained 
  5.8   pursuant to section 60A.07, subdivision 5a, (3) for companies 
  5.9   operating under the mutual or reciprocal plan, the minimum 
  5.10  amount of surplus required to be maintained pursuant to section 
  5.11  60A.07, subdivision 5b, and (4) the amount, if any, by which the 
  5.12  company's loss and loss adjustment expense reserves exceed 350 
  5.13  percent of its surplus as it pertains to policyholders as of the 
  5.14  same date.  The commissioner may waive the requirement in clause 
  5.15  (4) unless the company's written premiums exceed 300 percent of 
  5.16  its surplus as it pertains to policyholders as of the same 
  5.17  date.  In addition to the required amounts pursuant to clauses 
  5.18  (1) to (4), the commissioner may require that the amount of any 
  5.19  apparent reserve deficiency that may be revealed by one to five 
  5.20  year loss and loss adjustment expense development analysis for 
  5.21  the five years reported in the company's most recent annual 
  5.22  statement to the commissioner be added to required liabilities; 
  5.23     ~~(s)~~ (u) "Revenue obligations" means obligations for the 
  5.24  payment of money by a governmental issuer where the obligations 
  5.25  are payable from revenues, earnings, or special assessments on 
  5.26  properties benefited by local improvements of the issuer which 
  5.27  are specifically pledged therefor; 
  5.28     ~~(t)~~ (v) "Security" has the meaning given in section 5 of 
  5.29  the Security Act of 1933 and specifically includes, but is not 
  5.30  limited to, stocks, stock equivalents, warrants, rights, 
  5.31  options, obligations, American Depository Receipts (ADR's), 
  5.32  repurchase agreements, and reverse repurchase agreements; and 
  5.33     ~~(u)~~ (w) "Unrestricted surplus" means the amount by which 
  5.34  qualified assets exceed 110 percent of required liabilities. 
  5.35     Sec. 2.  Minnesota Statutes 2000, section 60A.11, is 
  5.36  amended by adding a subdivision to read: 
  6.1      Subd. 25a.  [REPLICATION TRANSACTIONS.] An insurer engaging 
  6.2   in replication transactions shall include all replicated 
  6.3   investment positions in calculating compliance with the 
  6.4   limitations on investments applicable to the insurer.  
  6.5   Replication transactions are permitted only under the authority 
  6.6   of subdivision 25.  An insurer may invest its unrestricted 
  6.7   surplus in a replication transaction only to the extent that the 
  6.8   replicated investment position does not cause the total 
  6.9   positions represented by the unrestricted surplus to be greater 
  6.10  than the total positions represented by the unrestricted surplus 
  6.11  as would be permitted in the absence of the replicated 
  6.12  investment position. 
  6.13     Sec. 3.  Minnesota Statutes 2000, section 60A.129, 
  6.14  subdivision 5, is amended to read: 
  6.15     Subd. 5.  [CONSOLIDATED FILING.] (a) The commissioner may 
  6.16  allow an insurer to file a consolidated loss reserve 
  6.17  certification required by subdivision 2, in lieu of separate 
  6.18  loss certifications and may allow an insurer to file 
  6.19  consolidated or combined audited financial statements required 
  6.20  by subdivision 3, paragraph (a), in lieu of separate annual 
  6.21  audited financial statements, where it can be demonstrated that 
  6.22  an insurer is part of a group of insurance companies that has a 
  6.23  pooling or 100 percent reinsurance agreement which substantially 
  6.24  affects the solvency and integrity of the reserves of the 
  6.25  insurer and the insurer cedes all of its direct and assumed 
  6.26  business to the pool.  An affiliated insurance company not 
  6.27  meeting these requirements may be included in the consolidated 
  6.28  or combined audited financial statements, if the company's total 
  6.29  admitted assets are less than five percent of the consolidated 
  6.30  group's total admitted assets.  If these circumstances exist, 
  6.31  then the company may file a written application to file a 
  6.32  consolidated loss reserve certification and/or consolidated or 
  6.33  combined audited financial statements.  This application shall 
  6.34  be for a specified period. 
  6.35     (b) Upon written application by a domestic insurer, the 
  6.36  commissioner may authorize the domestic insurer to include 
  7.1   additional affiliated insurance companies in the consolidated or 
  7.2   combined audited financial statements.  Foreign insurers must 
  7.3   obtain the prior written authorization of the commissioner of 
  7.4   their state of domicile in order to submit an application for 
  7.5   authority to file consolidated or combined audited financial 
  7.6   statements.  This application shall be for a specified period. 
  7.7      (c) A consolidated annual audit filing shall include a 
  7.8   columnar consolidated or combining worksheet.  Amounts shown on 
  7.9   the audited consolidated or combined financial statement shall 
  7.10  be shown on the worksheet.  Amounts for each insurer shall be 
  7.11  stated separately.  Noninsurance operations may be shown on the 
  7.12  worksheet on a combined or individual basis.  Explanations of 
  7.13  consolidating or eliminating entries shall be shown on the 
  7.14  worksheet.  A reconciliation of any differences between the 
  7.15  amounts shown in the individual insurer columns of the worksheet 
  7.16  and comparable amounts shown on the annual statement of the 
  7.17  insurers shall be included on the worksheet. 
  7.18     Sec. 4.  [60A.975] [DEFINITIONS.] 
  7.19     Subdivision 1.  [APPLICATION.] For purposes of sections 
  7.20  60A.975 and 60A.976, the definitions in this section have the 
  7.21  meanings given them. 
  7.22     Subd. 2.  [ANNUITY ISSUER.] "Annuity issuer" means an 
  7.23  insurer that issues an insurance contract used to fund periodic 
  7.24  payments under a structured settlement agreement. 
  7.25     Subd. 3.  [STRUCTURED SETTLEMENT.] "Structured settlement" 
  7.26  means an arrangement for periodic payment of damages entered on 
  7.27  behalf of a minor or incompetent person for personal injuries 
  7.28  established by settlement or judgment. 
  7.29     Subd. 4.  [STRUCTURED SETTLEMENT AGREEMENT.] "Structured 
  7.30  settlement agreement" means the agreement, judgment, 
  7.31  stipulation, or release embodying the terms of a structured 
  7.32  settlement. 
  7.33     Sec. 5.  [60A.976] [ANNUITY ISSUERS FINANCIAL 
  7.34  REQUIREMENTS.] 
  7.35     An annuity purchased to finance a structured settlement 
  7.36  agreement may be purchased only from an annuity issuer with a 
  8.1   financial rating equivalent to A.M. Best Company A+ Class 8 or 
  8.2   better; or a Standard & Poor's AA or better. 
  8.3      Sec. 6.  Minnesota Statutes 2000, section 60B.44, 
  8.4   subdivision 4, is amended to read: 
  8.5      Subd. 4.  [LOSS CLAIMS; INCLUDING CLAIMS NOT COVERED BY A 
  8.6   GUARANTY ASSOCIATION.] All claims under policies or contracts of 
  8.7   coverage for losses incurred including third party claims, and 
  8.8   all claims against the insurer for liability for bodily injury 
  8.9   or for injury to or destruction of tangible property which are 
  8.10  not under policies or contracts.  All claims under life 
  8.11  insurance and annuity policies, including funding agreements 
  8.12  issued pursuant to section 61A.276, whether for death proceeds, 
  8.13  annuity proceeds, or investment values, shall be treated as loss 
  8.14  claims.  That portion of any loss for which indemnification is 
  8.15  provided by other benefits or advantages recovered or 
  8.16  recoverable by the claimant shall not be included in this class, 
  8.17  other than benefits or advantages recovered or recoverable in 
  8.18  discharge of familial obligations of support or by way of 
  8.19  succession at death or as proceeds of life insurance, or as 
  8.20  gratuities.  No payment made by an employer to an employee shall 
  8.21  be treated as a gratuity.  Claims not covered by a guaranty 
  8.22  association are loss claims.  
  8.23     Sec. 7.  Minnesota Statutes 2000, section 60L.01, is 
  8.24  amended by adding a subdivision to read: 
  8.25     Subd. 13a.  [REPLICATED INVESTMENT POSITION.] "Replicated 
  8.26  investment position" means the statement value of the position 
  8.27  reported under the heading "Replicated (Synthetic) Asset" on 
  8.28  Schedule DB, Part F, of the annual statement of the insurer, or 
  8.29  any successor provision. 
  8.30     Sec. 8.  Minnesota Statutes 2000, section 60L.01, 
  8.31  subdivision 14, is amended to read: 
  8.32     Subd. 14.  [REPLICATION 
  8.33  TRANSACTION.] ~~"Replication"~~ "Replication transaction" means a 
  8.34  derivative transaction ~~involving one or more derivative~~ 
  8.35  ~~instruments being used to modify the cash flow characteristics~~ 
  8.36  ~~of one or more investments held by an insurer in a manner so~~ 
  9.1   ~~that the aggregate cash flows of the derivative instruments and~~ 
  9.2   ~~investments reproduce the cash flows of another investment~~ 
  9.3   ~~having a higher risk-based capital charge than the risk-based~~ 
  9.4   ~~capital charge of the original investments or investments~~ that 
  9.5   is intended to replicate the performance of one or more assets 
  9.6   that an insurer is authorized to acquire under sections 60L.01 
  9.7   to 60L.15.  A derivative transaction that is entered into as a 
  9.8   hedging transaction is not considered a replication transaction. 
  9.9      Sec. 9.  Minnesota Statutes 2000, section 60L.08, is 
  9.10  amended by adding a subdivision to read: 
  9.11     Subd. 7.  [REPLICATION TRANSACTIONS.] (a) An insurer 
  9.12  engaging in replication transactions shall include all 
  9.13  replicated investment positions in calculating compliance with 
  9.14  the limitations on investments contained in this section.  So 
  9.15  long as the insurer so complies with the limitations on 
  9.16  investments contained in this section, then the insurer may 
  9.17  count a replication transaction and any related investment of 
  9.18  the insurer for the purposes specified in section 60L.11, to the 
  9.19  extent the insurer has appropriately assigned the transaction or 
  9.20  other investment to an investment class authorized in section 
  9.21  60L.07.  An insurer shall not otherwise count replicated 
  9.22  investment positions for the purposes specified in section 
  9.23  60L.11. 
  9.24     (b) If an investment position of the insurer includes a 
  9.25  replicated investment position and exceeds an applicable 
  9.26  limitation contained in this section, then the insurer may 
  9.27  allocate part or all of the replicated investment position as 
  9.28  follows for the purposes of calculating compliance with the 
  9.29  limitations on investments and other requirements contained in 
  9.30  sections 60L.01 to 60L.15:  to the extent an insurer owns assets 
  9.31  in excess of its minimum asset requirement, the insurer may deem 
  9.32  a replicated investment position to be among such excess assets, 
  9.33  but only to the extent that the replicated investment position 
  9.34  does not cause the total positions represented by such excess 
  9.35  assets to be greater than the total positions represented by 
  9.36  such excess assets as would be permitted in the absence of the 
 10.1   replicated investment position. 
 10.2      Sec. 10.  Minnesota Statutes 2000, section 60L.10, 
 10.3   subdivision 1, is amended to read: 
 10.4      Subdivision 1.  [PROHIBITIONS.] An insurer may not invest 
 10.5   in investments that are prohibited for an insurer by law.  The 
 10.6   use of a derivative instrument for ~~replication, or for~~ any 
 10.7   purposes other than hedging ~~or~~, income generation, or 
 10.8   replication is prohibited. 
 10.9      Sec. 11.  Minnesota Statutes 2000, section 61A.276, 
 10.10  subdivision 2, is amended to read: 
 10.11     Subd. 2.  [ISSUANCE.] The funding agreements may be issued 
 10.12  to:  (1) individuals; or (2) persons authorized by a state or 
 10.13  foreign country to engage in an insurance business or 
 10.14  subsidiaries or affiliates of these persons; or (3) entities 
 10.15  other than individuals and other than persons authorized to 
 10.16  engage in an insurance business, and subsidiaries and affiliates 
 10.17  of these persons, for the following purposes:  (i) to fund 
 10.18  benefits under any employee benefit plan as defined in the 
 10.19  Employee Retirement Income Security Act of 1974, as now or 
 10.20  hereafter amended, maintained in the United States or in a 
 10.21  foreign country; (ii) to fund the activities of any organization 
 10.22  exempt from taxation under section 501(c) of the Internal 
 10.23  Revenue Code of 1986, as amended through December 31, 1992, or 
 10.24  of any similar organization in any foreign country; (iii) to 
 10.25  fund any program of any state, foreign country or political 
 10.26  subdivision thereof, or any agency or instrumentality thereof; 
 10.27  (iv) to fund any agreement providing for periodic payments in 
 10.28  satisfaction of a claim; or (v) to fund a program of ~~a financial~~ 
 10.29  an institution ~~limited to banks, thrifts, credit unions, and~~ 
 10.30  ~~investment companies registered under the Investment Company Act~~ 
 10.31  ~~of 1940.  No funding agreement shall be issued in an amount less~~ 
 10.32  ~~than $1,000,000~~ that has assets in excess of $25,000,000.  No 
 10.33  funding agreement shall be issued in an amount less than 
 10.34  $1,000,000.  
 10.35     Sec. 12.  Minnesota Statutes 2000, section 61A.28, 
 10.36  subdivision 6, is amended to read: 
 11.1      Subd. 6.  [STOCKS, OBLIGATIONS, AND OTHER INVESTMENTS.] (a) 
 11.2   Common stocks, common stock equivalents, or securities 
 11.3   convertible into common stock or common stock equivalents of a 
 11.4   business entity organized under the laws of the United States or 
 11.5   any state thereof, or the Dominion of Canada or any province 
 11.6   thereof~~, if the net earnings of the business entity after the~~ 
 11.7   ~~elimination of extraordinary nonrecurring items of income and~~ 
 11.8   ~~expense and before income taxes and fixed charges over the five~~ 
 11.9   ~~immediately preceding completed fiscal years, or its period of~~ 
 11.10  ~~existence if less than five years, has averaged not less than~~ 
 11.11  ~~1-1/4 times its average annual fixed charges applicable to the~~ 
 11.12  ~~period~~.  
 11.13     (b) Preferred stock of, or common or preferred stock 
 11.14  guaranteed as to dividends by a business entity organized under 
 11.15  the laws of the United States or any state thereof, or the 
 11.16  Dominion of Canada or any province thereof, under the following 
 11.17  conditions:  (1) No investment may be made under this paragraph 
 11.18  in a stock upon which any dividend, current or cumulative, is in 
 11.19  arrears; (2) the company may not invest in stocks under this 
 11.20  paragraph and in common stocks under paragraph (a) if the 
 11.21  investment causes the company's aggregate investments in the 
 11.22  common or preferred stocks to exceed 25 percent of the company's 
 11.23  total admitted assets, provided that no more than 20 percent of 
 11.24  the company's admitted assets may be invested in common stocks 
 11.25  under paragraph (a); and (3) the company may not invest in any 
 11.26  preferred stock or common stock guaranteed as to dividends, 
 11.27  which is rated in the four lowest categories established by the 
 11.28  securities valuation office of the National Association of 
 11.29  Insurance Commissioners, if the investment causes the company's 
 11.30  aggregate investment in the lower rated preferred or common 
 11.31  stock guaranteed as to dividends to exceed five percent of its 
 11.32  total admitted assets.  
 11.33     (c) Warrants, options, and rights to purchase stock if the 
 11.34  stock, at the time of the acquisition of the warrant, option, or 
 11.35  right to purchase, would qualify as an investment under 
 11.36  paragraph (a) or (b), whichever is applicable.  A company shall 
 12.1   not invest in a warrant, option, or right to purchase stock if, 
 12.2   upon purchase and immediate exercise thereof, the acquisition of 
 12.3   the stock violates any of the concentration limitations 
 12.4   contained in paragraphs (a) and (b).  
 12.5      (d) In addition to amounts that may be invested under 
 12.6   subdivision 8 and without regard to the percentage limitation 
 12.7   applicable to stocks, warrants, options, and rights to purchase, 
 12.8   the securities of any face amount certificate company, unit 
 12.9   investment trust, or management type investment company, 
 12.10  registered or in the process of registration under the 
 12.11  Investment Company Act of 1940 as from time to time amended.  In 
 12.12  addition, the company may transfer assets into one or more of 
 12.13  its separate accounts for the purpose of establishing, or 
 12.14  supporting its contractual obligations under, the accounts in 
 12.15  accordance with the provisions of sections 61A.13 to 61A.21.  A 
 12.16  company may not invest in a security authorized under this 
 12.17  paragraph if the investment causes the company's aggregate 
 12.18  investments in the securities to exceed ~~five~~ ten percent of its 
 12.19  total admitted assets, except that for a health service plan 
 12.20  corporation operating under chapter 62C, and for a health 
 12.21  maintenance organization operating under chapter 62D, the 
 12.22  company's aggregate investments may not exceed 20 percent of its 
 12.23  total admitted assets.  No more than five percent of the allowed 
 12.24  investment by health service plan corporations or health 
 12.25  maintenance organizations may be invested in funds that invest 
 12.26  in assets not backed by the federal government.  When investing 
 12.27  in money market mutual funds, nonprofit health service plans 
 12.28  regulated under chapter 62C, and health maintenance 
 12.29  organizations regulated under chapter 62D, shall establish a 
 12.30  trustee custodial account for the transfer of cash into the 
 12.31  money market mutual fund. 
 12.32     (e) Investment grade obligations that are:  
 12.33     (1) bonds, obligations, notes, debentures, repurchase 
 12.34  agreements, or other evidences of indebtedness of a business 
 12.35  entity, organized under the laws of the United States or any 
 12.36  state thereof, or the Dominion of Canada or any province 
 13.1   thereof; and 
 13.2      (2) rated in one of the four highest rating categories by 
 13.3   at least one nationally recognized statistical rating 
 13.4   organization, or are rated in one of the two highest categories 
 13.5   established by the securities valuation office of the National 
 13.6   Association of Insurance Commissioners. 
 13.7      (f) Noninvestment grade obligations:  A company may acquire 
 13.8   noninvestment grade obligations as defined in subclause (i) 
 13.9   (hereinafter noninvestment grade obligations) which meet the 
 13.10  earnings test set forth in subclause (ii).  A company may not 
 13.11  acquire a noninvestment grade obligation if the acquisition will 
 13.12  cause the company to exceed the limitations set forth in 
 13.13  subclause (iii). 
 13.14     (i) A noninvestment grade obligation is an obligation of a 
 13.15  business entity, organized under the laws of the United States 
 13.16  or any state thereof, or the Dominion of Canada or any province 
 13.17  thereof, that is not rated in one of the four highest rating 
 13.18  categories by at least one nationally recognized statistical 
 13.19  rating organization, or is not rated in one of the two highest 
 13.20  categories established by the securities valuation office of the 
 13.21  National Association of Insurance Commissioners. 
 13.22     (ii) Noninvestment grade obligations authorized by this 
 13.23  subdivision may be acquired by a company if the business entity 
 13.24  issuing or assuming the obligation, or the business entity 
 13.25  securing or guaranteeing the obligation, has had net earnings 
 13.26  after the elimination of extraordinary nonrecurring items of 
 13.27  income and expense and before income taxes and fixed charges 
 13.28  over the five immediately preceding completed fiscal years, or 
 13.29  its period of existence of less than five years, has averaged 
 13.30  not less than 1-1/4 times its average annual fixed charges 
 13.31  applicable to the period; provided, however, that if a business 
 13.32  entity issuing or assuming the obligation, or the business 
 13.33  entity securing or guaranteeing the obligation, has undergone an 
 13.34  acquisition, recapitalization, or reorganization within the 
 13.35  immediately preceding 12 months, or will use the proceeds of the 
 13.36  obligation for an acquisition, recapitalization, or 
 14.1   reorganization, then such business entity shall also have, on a 
 14.2   pro forma basis, for the next succeeding 12 months, net earnings 
 14.3   averaging 1-1/4 times its average annual fixed charges 
 14.4   applicable to such period after elimination of extraordinary 
 14.5   nonrecurring items of income and expense and before taxes and 
 14.6   fixed charges; no investment may be made under this section upon 
 14.7   which any interest obligation is in default. 
 14.8      (iii) Limitation on aggregate interest in noninvestment 
 14.9   grade obligations.  A company may not invest in a noninvestment 
 14.10  grade obligation if the investment will cause the company's 
 14.11  aggregate investments in noninvestment grade obligations to 
 14.12  exceed the applicable percentage of admitted assets set forth in 
 14.13  the following table:  
 14.14                                          Percentage of
 14.15              Effective Date              Admitted Assets
 14.16              January 1, 1992                  20
 14.17              January 1, 1993                  17.5
 14.18              January 1, 1994                  15
 14.19     Nothing in this paragraph limits the ability of a company 
 14.20  to invest in noninvestment grade obligations as provided under 
 14.21  subdivision 12. 
 14.22     (g) Obligations for the payment of money under the 
 14.23  following conditions:  (1) The obligation must be secured, 
 14.24  either solely or in conjunction with other security, by an 
 14.25  assignment of a lease or leases on property, real or personal; 
 14.26  (2) the lease or leases must be nonterminable by the lessee or 
 14.27  lessees upon foreclosure of any lien upon the leased property; 
 14.28  (3) the rents payable under the lease or leases must be 
 14.29  sufficient to amortize at least 90 percent of the obligation 
 14.30  during the primary term of the lease; and (4) the lessee or 
 14.31  lessees under the lease or leases, or a governmental entity or 
 14.32  business entity, organized under the laws of the United States 
 14.33  or any state thereof, or the Dominion of Canada, or any province 
 14.34  thereof, that has assumed or guaranteed any lessee's performance 
 14.35  thereunder, must be a governmental entity or business entity 
 14.36  whose obligations would qualify as an investment under 
 15.1   subdivision 2 or paragraph (e) or (f).  A company may acquire 
 15.2   leases assumed or guaranteed by a noninvestment grade lessee 
 15.3   unless the value of the lease, when added to the other 
 15.4   noninvestment grade obligations owned by the company, exceeds 15 
 15.5   percent of the company's admitted assets.  
 15.6      (h) A company may sell call options against stocks or other 
 15.7   securities owned by the company and may purchase call options in 
 15.8   a closing transaction against a call option previously written 
 15.9   by the company.  In addition to the authority granted by 
 15.10  paragraph (c), to the extent and on the terms and conditions the 
 15.11  commissioner determines to be consistent with the purposes of 
 15.12  this chapter, a company may purchase or sell other 
 15.13  exchange-traded call options, and may sell or purchase 
 15.14  exchange-traded put options.  
 15.15     (i) A company may not invest in a security or other 
 15.16  obligation authorized under this subdivision if the investment, 
 15.17  valued at cost at the date of purchase, causes the company's 
 15.18  aggregate investment in any one business entity to exceed two 
 15.19  percent of the company's admitted assets.  
 15.20     (j) For nonprofit health service plan corporations 
 15.21  regulated under chapter 62C, and for health maintenance 
 15.22  organizations regulated under chapter 62D, a company may invest 
 15.23  in commercial paper rated in one of the two highest rating 
 15.24  categories by at least one nationally recognized statistical 
 15.25  rating organization, or rated in one of the two highest 
 15.26  categories established by the securities valuation office of the 
 15.27  National Association of Insurance Commissioners, if the 
 15.28  investment, valued at cost at the date of purchase, does not 
 15.29  cause the company's aggregate investment in any one business 
 15.30  entity to exceed six percent of the company's admitted assets. 
 15.31     Sec. 13.  Minnesota Statutes 2000, section 61A.28, is 
 15.32  amended by adding a subdivision to read: 
 15.33     Subd. 14.  [REPLICATION TRANSACTIONS.] An insurer engaging 
 15.34  in replication transactions shall include all replicated 
 15.35  investment positions in calculating compliance with the 
 15.36  limitations on investments applicable to the insurer.  
 16.1   Replication transactions are permitted only under the authority 
 16.2   of subdivision 12.  For these purposes, "replication 
 16.3   transaction" means a derivative transaction that is intended to 
 16.4   replicate the performance of one or more assets that an insurer 
 16.5   is authorized to acquire under applicable law.  A derivative 
 16.6   transaction that either is authorized by subdivision 6, 8, or 9a 
 16.7   or section 61A.29, subdivision 2, paragraph (d), or is entered 
 16.8   into as a hedging transaction shall not be considered a 
 16.9   replication transaction.  "Replicated investment position" means 
 16.10  the statement value of the position reported under the heading 
 16.11  "Replicated (Synthetic) Asset" on Schedule DB, Part F, of the 
 16.12  annual statement of the insurer, or any successor provision. 
 16.13     Sec. 14.  Minnesota Statutes 2000, section 61A.29, 
 16.14  subdivision 2, is amended to read: 
 16.15     Subd. 2.  [AUTHORIZED INVESTMENTS.] A company may invest in 
 16.16  (i) foreign assets denominated in United States dollars; (ii) 
 16.17  foreign assets denominated in foreign currency; and (iii) United 
 16.18  States assets denominated in foreign currency.  The investments 
 16.19  may be made in any combination of the following: 
 16.20     (a) Obligations of sovereign governments and political 
 16.21  subdivisions thereof and obligations issued or fully guaranteed 
 16.22  by a supranational bank or organization, other than those 
 16.23  described in section 61A.28, subdivision 2, paragraph (e), 
 16.24  provided that the obligations are rated in one of the two 
 16.25  highest rating categories by at least one nationally recognized 
 16.26  statistical rating organization in the United States.  For 
 16.27  purposes of this section, "supranational bank" means a bank 
 16.28  owned by a number of sovereign nations and engaging in 
 16.29  international borrowing and lending.  
 16.30     (b) Obligations of a foreign business entity, provided that 
 16.31  the obligation (i) is rated in one of the four highest rating 
 16.32  categories by at least one nationally recognized statistical 
 16.33  rating organization in the United States or by a similarly 
 16.34  recognized statistical rating organization, as approved by the 
 16.35  commissioner, in the country where the investment is made; or 
 16.36  (ii) is rated in one of the two highest categories established 
 17.1   by the securities valuation office of the National Association 
 17.2   of Insurance Commissioners.  
 17.3      (c) Stock or stock equivalents issued by a foreign entity 
 17.4   if the stock or stock equivalents are regularly traded ~~on the~~ 
 17.5   ~~Frankfurt, London, Paris, or Tokyo stock exchange or any similar~~ 
 17.6   ~~securities exchange as may be approved from time to time by the~~ 
 17.7   ~~commissioner~~ and subject to oversight by the government of the 
 17.8   country in which the ~~exchange is located~~ regular trading occurs. 
 17.9      (d) Financial transactions for the sole purpose of managing 
 17.10  the foreign currency risk of investments made under this 
 17.11  subdivision, provided that the financial transactions are 
 17.12  entered into under a detailed plan maintained by the company.  
 17.13  For purposes of this paragraph, "financial transactions"  
 17.14  include, but are not limited to, the purchase or sale of 
 17.15  currency swaps, forward agreements, and currency futures. 
 17.16     Sec. 15.  [61A.321] [GUARANTY FUNDS.] 
 17.17     (a) A domestic mutual life insurance company may be formed 
 17.18  with, or an existing domestic mutual life insurance company may 
 17.19  establish, a guaranty fund divided into certificates of $10 
 17.20  each, or multiples thereof, and this guaranty fund shall be 
 17.21  invested in the same manner as is provided for the investment of 
 17.22  capital stock of insurance companies. 
 17.23     (b) The certificate holders of the guaranty fund are 
 17.24  entitled to an annual dividend of not more than ten percent on 
 17.25  their respective certificates, if the net profits or unused 
 17.26  premiums left after all losses, expenses, or liabilities then 
 17.27  incurred, with reserves for reinsurance, are provided for, are 
 17.28  sufficient to pay the annual dividend.  If the dividends in any 
 17.29  one year are less than ten percent, the difference may be made 
 17.30  up in any subsequent year or years from the net profits.  
 17.31  Approval of the commissioner must be obtained before accrual for 
 17.32  or payment of the dividend, or any repayment of principal.  
 17.33     (c) The guaranty fund must be applied to the payment of 
 17.34  losses and expenses when necessary, and, if the guaranty fund is 
 17.35  impaired, the directors may make good the whole or any part of 
 17.36  the impairment from future profits of the company, but no 
 18.1   dividend shall be paid on guaranty fund certificates while the 
 18.2   guaranty fund is impaired.  The holder of the guaranty fund 
 18.3   certificate is not liable for any more than the amount of the 
 18.4   certificate which has not been paid in, and this amount must be 
 18.5   plainly and legibly stated on the face of the certificate. 
 18.6      (d) Notwithstanding any other provision of law, each 
 18.7   certificate holder of record is entitled to one vote in person 
 18.8   or by proxy in any meeting of the members of the company for 
 18.9   each $10 investment in guaranty fund certificates. 
 18.10     (e) The guaranty fund may be reduced or retired by vote of 
 18.11  the policyholders of the company and the assent of the 
 18.12  commissioner, if the net assets of the company above its 
 18.13  reinsurance reserve and all other claims and obligations and the 
 18.14  amount of its guaranty fund certificates and interest on the 
 18.15  certificates for two years last preceding and including the date 
 18.16  of its last annual statement are not less than 50 percent of the 
 18.17  premiums in force.  Due notice of this proposed action on the 
 18.18  part of the company shall be mailed to each policyholder of the 
 18.19  company not less than 30 days before the meeting when the action 
 18.20  may be taken. 
 18.21     (f) In domestic mutual life insurance companies with a 
 18.22  guaranty fund, the certificate holders shall be entitled to 
 18.23  choose and elect from among their own number or from among the 
 18.24  policyholders at least one-half or more of the total number of 
 18.25  directors. 
 18.26     (g) If any domestic mutual life insurance company with a 
 18.27  guaranty fund ceases to do business, it shall not divide among 
 18.28  its certificate holders any part of its assets or guaranty fund 
 18.29  until all its debts and obligations have been paid or canceled. 
 18.30     (h) Foreign mutual life insurance companies having a 
 18.31  guaranty fund shall not be required to make their certificate of 
 18.32  guaranty fund conform to the provisions of this section, but 
 18.33  when the certificates do not conform with this section, the 
 18.34  amount of the guaranty fund shall be charged as a liability. 
 18.35     Sec. 16.  Minnesota Statutes 2000, section 79.56, 
 18.36  subdivision 3, is amended to read: 
 19.1      Subd. 3.  [PENALTIES.] (a) Any insurer using a rate or a 
 19.2   rating plan which has not been filed shall be subject to a fine 
 19.3   of up to $100 for each day the failure to file continues.  The 
 19.4   commissioner may, after a hearing on the record, find that the 
 19.5   failure is willful.  A willful failure to meet filing 
 19.6   requirements shall be punishable by a fine of up to $500 for 
 19.7   each day during which a willful failure continues.  These 
 19.8   penalties shall be in addition to any other penalties provided 
 19.9   by law.  
 19.10     (b) Notwithstanding this subdivision, an employer that 
 19.11  generates ~~$500,000~~ $250,000 in annual written workers' 
 19.12  compensation premium under the rates and rating plan of an 
 19.13  insurer before the application of any large deductible rating 
 19.14  plans, may be written by that insurer using rates or rating 
 19.15  plans that are not subject to disapproval but which have been 
 19.16  filed.  ~~The $500,000 threshold shall be increased on January 1,~~ 
 19.17  ~~1996, and on each January 1 thereafter by the percentage~~ 
 19.18  ~~increase in the statewide average weekly wage, to the nearest~~ 
 19.19  ~~$1,000.  The commissioner shall advise insurers licensed to~~ 
 19.20  ~~write workers' compensation insurance in this state of the~~ 
 19.21  ~~annual threshold adjustment.~~