2005 Minnesota Statutes

CHAPTER 60L. Investments of insurers

     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. 13a.    Replicated investment position.  
 "Replicated investment position" means the statement value of 
 the position reported under the heading "Replicated (Synthetic) 
 Asset" on Schedule DB, Part F, of the annual statement of the 
 insurer, or any successor provision. 

    Subd. 14.    Replication transaction.  "Replication 
 transaction" means a derivative transaction that is intended to 
 replicate the performance of one or more assets that an insurer 
 is authorized to acquire under sections 60L.01 to 60L.15.  A 
 derivative transaction that is entered into as a hedging 
 transaction is not considered a replication transaction. 

    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. 

    HIST: 1998 c 319 s 1; 2001 c 131 s 7,8 

     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 and subdivision 3 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 and subdivision 3. 

    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: 

    (i) subdivision 1, if the insurer is a life insurer; 

    (ii) subdivision 2, if the insurer is other than a life 
 insurer; or 

    (iii) subdivision 3 

 and the insurer has failed to bring itself back into compliance 
 with the requirements of the applicable subdivisions 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. 

    HIST: 1998 c 319 s 2; 1998 c 408 s 4,5 

     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. 

    HIST: 1998 c 319 s 3 

     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. 

    HIST: 1998 c 319 s 4 

     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. 

    HIST: 1998 c 319 s 5 

     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. 

    HIST: 1998 c 319 s 6 

     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. 

    HIST: 1998 c 319 s 7 

     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 
 (10), 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. 

    Subd. 7.    Replication transactions.  (a) An insurer 
 engaging in replication transactions shall include all 
 replicated investment positions in calculating compliance with 
 the limitations on investments contained in this section.  So 
 long as the insurer so complies with the limitations on 
 investments contained in this section, then the insurer may 
 count a replication transaction and any related investment of 
 the insurer for the purposes specified in section 60L.11, to the 
 extent the insurer has appropriately assigned the transaction or 
 other investment to an investment class authorized in section 
 60L.07.  An insurer shall not otherwise count replicated 
 investment positions for the purposes specified in section 
 60L.11. 

    (b) If an investment position of the insurer includes a 
 replicated investment position and exceeds an applicable 
 limitation contained in this section, then the insurer may 
 allocate part or all of the replicated investment position as 
 follows for the purposes of calculating compliance with the 
 limitations on investments and other requirements contained in 
 sections 60L.01 to 60L.15:  to the extent an insurer owns assets 
 in excess of its minimum asset requirement, the insurer may deem 
 a replicated investment position to be among such excess assets, 
 but only to the extent that the replicated investment position 
 does not cause the total positions represented by such excess 
 assets to be greater than the total positions represented by 
 such excess assets as would be permitted in the absence of the 
 replicated investment position. 

    HIST: 1998 c 319 s 8; 1999 c 86 art 1 s 15; 2001 c 131 s 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. 

    HIST: 1998 c 319 s 9 

     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 any purposes other 
 than hedging, income generation, or replication 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. 

    HIST: 1998 c 319 s 10; 2001 c 131 s 10 

     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.

    HIST: 1998 c 319 s 11 

     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. 

    HIST: 1998 c 319 s 12 

     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. 

    HIST: 1998 c 319 s 13 

     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. 

    HIST: 1998 c 319 s 14 

     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. 

    HIST: 1998 c 319 s 15