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2006 Minnesota Statutes

This is a historical version of this statute section. Also view the most recent published version.

61A.28 DOMESTIC COMPANIES, INVESTMENTS.
    Subdivision 1. Investment guidelines and procedures. Each domestic life insurance
company must comply with section 60A.112.
No investment or loan, except policy loans, shall be made by a domestic life insurance
company unless authorized or approved by the board of directors or by a committee of directors,
officers, or employees of the company designated by the board and charged with the duty of
supervising the investment or loan. Accurate records of all authorizations and approvals must
be maintained.
The capital, surplus and other funds of every domestic life insurance company, whether
incorporated by special act or under the general law (in addition to investments in real estate as
otherwise permitted by law) may be invested only in one or more of the following kinds of
securities or property. An investment may not be made under this section if the required interest
obligation is in default.
Investments must be valued in accordance with the valuation procedures established by the
National Association of Insurance Commissioners, unless the commissioner requires or finds
another method of valuation reasonable under the circumstances. Other invested assets must
be valued according to the procedures promulgated by the National Association of Insurance
Commissioners, if not addressed in another section, unless the commissioner requires or finds
another method of valuation reasonable under the circumstances.
    Subd. 2. Government obligations. Bonds or other obligations of, or bonds or other
obligations insured or guaranteed by: (a) the United States or any state thereof; (b) the Dominion
of Canada or any province thereof; (c) any county, city, town, statutory city formerly a village,
organized school district, municipality, or other civil or political subdivision of this state, or of
any state of the United States or of any province of the Dominion of Canada; (d) any agency
or instrumentality of the foregoing, including but not limited to, debentures issued by the
federal housing administrator, obligations of the Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the Government National Mortgage Association; and
(e) obligations payable in United States dollars issued or fully guaranteed by the International
Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian
Development Bank, the African Development Bank, the Export-Import Bank, or any other
United States government sponsored organization of which the United States is a member. The
life insurance company may not invest in the obligations of these banks or organizations if the
investment causes the company's aggregate investments in the obligations of any one of these
banks or organizations to exceed five percent of its admitted assets or if the investment causes the
company's aggregate investments in the obligations of all banks or organizations described in
clause (e) to exceed 15 percent of its admitted assets.
    Subd. 3. Loans or obligations secured by mortgage. Loans or obligations (hereinafter
loans) secured by a first mortgage, or deed of trust (hereinafter mortgage), on improved real estate
in the United States, if the amount of the loan secured thereby is not in excess of 66-2/3 percent of
the market value of the real estate at the time of the loan, or, when the loan is to be fully amortized
by installment payments of principal, which may begin up to five years from the date of the loan
if the real estate is to be used for commercial purposes, and interest at least annually over a
period of not to exceed 40 years, the amount of the loan does not exceed (a) 80 percent of the
market value of the real estate at the time of the loan; (b) 90 percent of the market value of the
real estate at the time of the loan if the loan is secured by a purchase money mortgage made in
connection with the disposition of real estate acquired pursuant to section 61A.31, subdivision 1,
or, if (1) the real estate is used for commercial purposes, and (2) the loan is additionally secured
by an assignment of lease or leases, and (3) the lessee or lessees under the lease or leases, or a
guarantor or guarantors of the lessee's obligations, is a corporation whose obligations would
qualify as an investment under subdivision 6, paragraph (e), and (4) the rents payable during the
primary term of the lease or leases are sufficient to amortize at least 60 percent of the loan. In
calculating the ratio of the amount of the loan to the value of the property, no part of the amount
of any loan is to be included which the United States or any agency or instrumentality thereof or
other mortgage insurer as may be approved by the commissioner has insured or guaranteed or
made a commitment to insure or guarantee; provided, in no event may the loan exceed the market
value of the property. No improvement may be included in estimating the market value of the
real estate unless it is insured against fire by policies payable to the security holder or a trustee
for its benefit. This requirement may be met by a program of self-insurance established and
maintained by a corporation whose debt obligations would qualify for purchase under subdivision
6, paragraph (g), clause (4). Also loans secured by mortgage, upon leasehold estates in improved
real property where at the date of investment the lease has an unexpired term of at least five years
longer than the term of the loan secured thereby, and where the leasehold estate is unencumbered
except by the lien reserved in the lease for the payment of rentals and the observance of the other
covenants, terms and conditions of the lease and where the mortgagee, upon default, is entitled
to be subrogated to, or to exercise, all the rights and to perform all the covenants of the lessee,
provided that no loan on the leasehold estate may exceed (a) 66-2/3 percent of the market value
thereof at the time of the loan, or (b) 80 percent of the market value thereof at the time of the
loan if the loan is to be fully amortized by installment payments of principal which begin within
five years from the date of the loan if the leasehold estate is to be used for commercial purposes,
interest is payable at least annually over the period of the loan which may not exceed 40 years
and the market value of the leasehold estate is shown by the sworn certificate of a competent
appraiser, or (c) 90 percent of the market value of the leasehold estate at the time of the loan if
the loan is secured by a purchase money mortgage made in connection with the disposition of
real estate acquired pursuant to section 61A.31, subdivision 1. In calculating the ratio of the
amount of the loan to the value of the leasehold estate, no part of the amount of any loan is to
be included which the United States or any agency or instrumentality thereof or other mortgage
insurer approved by the commissioner has insured or guaranteed or made a commitment to insure
or guarantee; provided, in no event may the loan exceed the market value of the leasehold estate.
Also loans secured by mortgage, which the United States or any agency or instrumentality thereof
or other mortgage insurer approved by the commissioner has insured or guaranteed or made a
commitment to insure or guarantee. Also loans secured by mortgage, on improved real estate in
the Dominion of Canada if the amount of the loan is not in excess of 66-2/3 percent of the market
value of the real estate at the time of the loan, or, when the loan is to be fully amortized by
installment payments of principal, which may begin up to five years from the date of the loan if
the real estate is used for commercial purposes, and interest at least annually over a period of not
to exceed 40 years, the amount of the loan does not exceed (a) 80 percent of the market value of
the real estate at the time of the loan, or (b) 90 percent of the market value of the real estate at the
time of the loan if the loan is secured by a purchase money mortgage made in connection with the
disposition of real estate acquired pursuant to section 61A.31, subdivision 1. In calculating the
ratio of the amount of the loan to the value of the property, no part of the amount of any loan is to
be included which the Dominion of Canada or any agency or instrumentality thereof has insured
or guaranteed or made a commitment to insure or guarantee; provided in no event may the loan
exceed the market value of the property. Also loans secured by mortgage, on real estate in the
United States which may be unimproved provided there exists a definite plan for commencement
of development for commercial purposes within not more than five years where the amount of the
loan does not exceed 80 percent of the market value of the unimproved real estate at the time of
the loan and the loan is to be fully amortized by installment payments of principal, which may
begin up to five years from the date of the loan, and interest at least annually over a period of
not to exceed 40 years. Also loans secured by second mortgage on improved or unimproved real
estate used, or to be used, for commercial purposes; provided, that if unimproved real estate there
exists a definite plan for commencement of development within not more than five years, in the
United States or the Dominion of Canada under the following conditions: (a) the amount of the
loan secured by the second mortgage is equal to the sum of the amount disbursed by the company
and the then outstanding indebtedness under the first mortgage loan; and (b) the company has
control over the payments under the first mortgage indebtedness; and (c) the total amount of the
loan does not exceed 66-2/3 percent of the market value of the real estate at the date of the loan or,
when the note or bond is to be fully amortized by installment payments of principal, beginning
not more than five years from the date of the loan, and interest at least annually over a period
of not to exceed 40 years, the amount of the loan does not exceed 80 percent of the market
value of the real estate at the date of the loan.
A company may not invest in a mortgage loan authorized under this subdivision, if the
investment causes the company's aggregate investments in mortgages secured by a single property
to exceed one percent of its admitted assets.
For purposes of this subdivision, improved real estate includes real estate improved with
permanent buildings, used for agriculture or pasture, or income producing real estate, including
but not limited to, parking lots and leases, royalty or other mineral interests in properties producing
oil, gas, or other minerals and interests in properties for the harvesting of forest products.
A loan or obligation otherwise permitted under this subdivision must be permitted
notwithstanding the fact that it provides for a payment of the principal balance prior to the end of
the period of amortization of the loan.
The vendor's equity in a contract for deed qualifies as a loan secured by mortgage for the
purposes of this subdivision.
    Subd. 4.[Repealed, 1991 c 325 art 9 s 13]
    Subd. 5.[Repealed, 1991 c 325 art 9 s 13]
    Subd. 6. Stocks, obligations, and other investments. (a) Common stocks, common stock
equivalents, or securities convertible into common stock or common stock equivalents of a
business entity organized under the laws of the United States or any state thereof, or the Dominion
of Canada or any province thereof.
(b) Preferred stock of, or common or preferred stock guaranteed as to dividends by a
business entity organized under the laws of the United States or any state thereof, or the Dominion
of Canada or any province thereof, under the following conditions: (1) No investment may be
made under this paragraph in a stock upon which any dividend, current or cumulative, is in
arrears; (2) the company may not invest in stocks under this paragraph and in common stocks
under paragraph (a) if the investment causes the company's aggregate investments in the common
or preferred stocks to exceed 25 percent of the company's total admitted assets, provided that
no more than 20 percent of the company's admitted assets may be invested in common stocks
under paragraph (a); and (3) the company may not invest in any preferred stock or common
stock guaranteed as to dividends, which is rated in the four lowest categories established by
the Securities Valuation Office of the National Association of Insurance Commissioners, if the
investment causes the company's aggregate investment in the lower rated preferred or common
stock guaranteed as to dividends to exceed five percent of its total admitted assets.
(c) Warrants, options, and rights to purchase stock if the stock, at the time of the acquisition
of the warrant, option, or right to purchase, would qualify as an investment under paragraph (a) or
(b), whichever is applicable. A company shall not invest in a warrant, option, or right to purchase
stock if, upon purchase and immediate exercise thereof, the acquisition of the stock violates any
of the concentration limitations contained in paragraphs (a) and (b).
(d) In addition to amounts that may be invested under subdivision 8 and without regard to
the percentage limitation applicable to stocks, warrants, options, and rights to purchase, the
securities of any face amount certificate company, unit investment trust, or management type
investment company, registered or in the process of registration under the Investment Company
Act of 1940 as from time to time amended. In addition, the company may transfer assets into
one or more of its separate accounts for the purpose of establishing, or supporting its contractual
obligations under, the accounts in accordance with the provisions of sections 61A.13 to 61A.21.
A company may not invest in a security authorized under this paragraph if the investment
causes the company's aggregate investments in the securities to exceed ten percent of its total
admitted assets, except that for a health service plan corporation operating under chapter 62C,
and for a health maintenance organization operating under chapter 62D, the company's aggregate
investments may not exceed 20 percent of its total admitted assets. No more than five percent of
the allowed investment by health service plan corporations or health maintenance organizations
may be invested in funds that invest in assets not backed by the federal government. When
investing in money market mutual funds, nonprofit health service plans regulated under chapter
62C, and health maintenance organizations regulated under chapter 62D, shall establish a trustee
custodial account for the transfer of cash into the money market mutual fund.
(e) Investment grade obligations that are:
(1) bonds, obligations, notes, debentures, repurchase agreements, or other evidences of
indebtedness of a business entity, organized under the laws of the United States or any state
thereof, or the Dominion of Canada or any province thereof; and
(2) rated in one of the four highest rating categories by at least one nationally recognized
statistical rating organization, or are rated in one of the two highest categories established by the
Securities Valuation Office of the National Association of Insurance Commissioners.
(f) Noninvestment grade obligations: A company may acquire noninvestment grade
obligations as defined in subclause (i) (hereinafter noninvestment grade obligations) which
meet the earnings test set forth in subclause (ii). A company may not acquire a noninvestment
grade obligation if the acquisition will cause the company to exceed the limitations set forth in
subclause (iii).
(i) A noninvestment grade obligation is an obligation of a business entity, organized under the
laws of the United States or any state thereof, or the Dominion of Canada or any province thereof,
that is not rated in one of the four highest rating categories by at least one nationally recognized
statistical rating organization, or is not rated in one of the two highest categories established by
the Securities Valuation Office of the National Association of Insurance Commissioners.
(ii) Noninvestment grade obligations authorized by this subdivision may be acquired by a
company if the business entity issuing or assuming the obligation, or the business entity securing
or guaranteeing the obligation, has had net earnings after the elimination of extraordinary
nonrecurring items of income and expense and before income taxes and fixed charges over the five
immediately preceding completed fiscal years, or its period of existence of less than five years,
has averaged not less than 1-1/4 times its average annual fixed charges applicable to the period;
provided, however, that if a business entity issuing or assuming the obligation, or the business
entity securing or guaranteeing the obligation, has undergone an acquisition, recapitalization, or
reorganization within the immediately preceding 12 months, or will use the proceeds of the
obligation for an acquisition, recapitalization, or reorganization, then such business entity shall
also have, on a pro forma basis, for the next succeeding 12 months, net earnings averaging 1-1/4
times its average annual fixed charges applicable to such period after elimination of extraordinary
nonrecurring items of income and expense and before taxes and fixed charges; no investment may
be made under this section upon which any interest obligation is in default.
(iii) Limitation on aggregate interest in noninvestment grade obligations. A company
may not invest in a noninvestment grade obligation if the investment will cause the company's
aggregate investments in noninvestment grade obligations to exceed the applicable percentage of
admitted assets set forth in the following table:


Effective Date
Percentage of
Admitted Assets

January 1, 1992
20

January 1, 1993
17.5

January 1, 1994
15
Nothing in this paragraph limits the ability of a company to invest in noninvestment grade
obligations as provided under subdivision 12.
(g) Obligations for the payment of money under the following conditions: (1) The obligation
must be secured, either solely or in conjunction with other security, by an assignment of a lease or
leases on property, real or personal; (2) the lease or leases must be nonterminable by the lessee
or lessees upon foreclosure of any lien upon the leased property; (3) the rents payable under the
lease or leases must be sufficient to amortize at least 90 percent of the obligation during the
primary term of the lease; and (4) the lessee or lessees under the lease or leases, or a governmental
entity or business entity, organized under the laws of the United States or any state thereof, or
the Dominion of Canada, or any province thereof, that has assumed or guaranteed any lessee's
performance thereunder, must be a governmental entity or business entity whose obligations
would qualify as an investment under subdivision 2 or paragraph (e) or (f). A company may
acquire leases assumed or guaranteed by a noninvestment grade lessee unless the value of the
lease, when added to the other noninvestment grade obligations owned by the company, exceeds
15 percent of the company's admitted assets.
(h) A company may sell call options against stocks or other securities owned by the company
and may purchase call options in a closing transaction against a call option previously written by
the company. In addition to the authority granted by paragraph (c), to the extent and on the terms
and conditions the commissioner determines to be consistent with the purposes of this chapter,
a company may purchase or sell other exchange-traded call options, and may sell or purchase
exchange-traded put options.
(i) A company may not invest in a security or other obligation authorized under this
subdivision if the investment, valued at cost at the date of purchase, causes the company's
aggregate investment in any one business entity to exceed two percent of the company's admitted
assets.
(j) For nonprofit health service plan corporations regulated under chapter 62C, and for
health maintenance organizations regulated under chapter 62D, a company may invest in
commercial paper rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization, or rated in one of the two highest categories established
by the Securities Valuation Office of the National Association of Insurance Commissioners, if
the investment, valued at cost at the date of purchase, does not cause the company's aggregate
investment in any one business entity to exceed six percent of the company's admitted assets.
    Subd. 7. Transportation equipment obligations. Equipment trust obligations or certificates
which are adequately secured or other adequately secured instruments evidencing an interest
in transportation equipment purchased, leased, or under contract for purchase or lease by a
corporation incorporated in the United States or in Canada or by a receiver or trustee of such
corporation and a right to receive determined portions of rental, purchase or other fixed obligatory
payments for the use or purchase of such transportation equipment.
    Subd. 8. Asset backed arrangements. Investments in asset backed arrangements that meet
the definitions and credit criteria provided in this subdivision. For purposes of this subdivision,
"asset backed arrangement" means a loan participation or loan to or equity investment in a
business entity that has as its primary business activity the acquisition and holding of financial
assets for the benefit of its debt and equity holders.
In order to qualify for investment under this subdivision:
(a) the investment in the asset backed arrangement must be secured by or represent an
undivided interest in a single financial asset or a pool of financial assets; and
(b) either (1) at least 90 percent of the dollar value of the financial assets held under the
asset backed arrangement qualifies for direct investment under this section; (2) the investment
in the asset backed arrangement is rated in one of the four highest rating categories by at least
one nationally recognized statistical rating organization; or (3) the investment in the asset backed
arrangement is rated in one of the two highest categories established by the Securities Valuation
Office of the National Association of Insurance Commissioners.
Examples of asset backed arrangements authorized by this subdivision include, but are not
limited to: general and limited partnership interests; participations under unit investment trusts
such as collateralized mortgage obligations and collateralized bond obligations; shares in, or
obligations of, corporations formed for holding investment assets, and contractual participation
interests in a loan or group of loans.
A company may not invest in an asset backed arrangement if the investment causes the
company's aggregate investment in the financial assets held under the asset backed arrangement to
exceed any of the concentration limits contained in this section.
    Subd. 9. Obligations of trustees and receivers. Certificates, notes, or other obligations
issued by trustees or receivers of any institution created or existing under the laws of the
United States or of any state, district, or territory thereof, which, or the assets of which, are
being administered under the direction of any court having jurisdiction if such obligation is
adequately secured as to principal and interest; the amount invested in the securities mentioned in
this subdivision shall not, at any time, exceed 25 percent of the unassigned surplus and capital
of the company.
    Subd. 9a. Hedging. A domestic life insurance company may enter into financial transactions
solely for the purpose of reducing the risk associated with assets and liabilities that the company
has acquired or incurred or has legally contracted to acquire or incur, and not for speculative
or other purposes. For purposes of this subdivision, "financial transactions" include, but are
not limited to, futures, options to buy or sell fixed income securities, repurchase and reverse
repurchase agreements, and interest rate swaps, caps, and floors. This authority is in addition to
any other authority of the insurer.
    Subd. 10. Real estate sales contracts. Real estate sales contracts to which the company is
not an original party, involving unencumbered real property situated in the United States, having a
value of at least 50 percent more than the amount of the unpaid balance of the contract, same to be
assigned or otherwise transferred to the company or to a trustee or nominee of its choosing. No
improvement shall be included in estimating the value unless the same shall be insured against
fire by policies payable to and held by the company or a trustee or nominee for its benefit. The
foregoing provisions of this subdivision shall not apply to real estate sales contracts to which the
company is an original party and shall not prohibit the company from holding such contracts as
an investment.
    Subd. 11. Policy loans. Loans on the security of insurance policies issued by itself to an
amount not exceeding the loan value thereof; and loans on the pledge of any of the securities
eligible for investment under the provisions of subdivisions 2 to 10, with the exception of
noninvestment grade obligations as defined in subdivision 6, paragraph (f), but not exceeding 95
percent of the value of securities enumerated in subdivisions 2, 3, and 4 and 80 percent of the
value of stocks and other securities; in case of securities enumerated in subdivisions 3, 5, and
10 "value" means principal amount unpaid thereon and in case of other securities market value
thereof; in case of securities enumerated in subdivisions 3 and 10 the pledge agreement shall
require principal payments by the pledgor at least equal to and concurrent with principal payments
on the pledged security; in loans authorized by this subdivision, except as otherwise provided
by law in regard to policy loans, the company shall reserve the right at any time to declare the
indebtedness due and payable when in excess of such proportions of value or, in case of pledge of
securities other than those enumerated in subdivisions 3 and 10, upon depreciation of security.
In the case of securities enumerated in subdivision 8, the provision of this subdivision must be
applied in accordance with the type of security subject to the asset backed arrangement.
    Subd. 12. Additional investments. Investments of any kind, without regard to the
categories, conditions, standards, or other limitations set forth in the foregoing subdivisions and
section 61A.31, subdivision 3, except that the prohibitions in clause (d) of subdivision 3 remains
applicable, may be made by a domestic life insurance company in an amount not to exceed
the lesser of the following:
(1) five percent of the company's total admitted assets as of the end of the preceding calendar
year; or
(2) fifty percent of the amount by which its capital and surplus as of the end of the preceding
calendar year exceeds $675,000. Except as provided in section 61A.281, a company's total
investment under this section in the common stock of any corporation, other than the stock of the
types of corporations specified in section 61A.284, may not exceed ten percent of the common
stock of the corporation. No investment may be made under the authority of this clause or clause
(1) by a company that has not completed five years of actual operation since the date of its first
certificate of authority.
If, subsequent to being made under the provisions of this subdivision, an investment is
determined to have become qualified or eligible under any of the other provisions of this
chapter, the company may consider the investment as being held under the other provision and
the investment need no longer be considered as having been made under the provisions of this
subdivision.
In addition to the investments authorized by this subdivision, with the written order of the
commissioner, a domestic life insurance company may make qualified investments in any other
type of investment or exceed any limitations of quality, quantity, or percentage of admitted assets
contained in this section, section 61A.29 or 61A.31, or other provision governing the investments
of a domestic life insurance company. This approval is at the discretion of the commissioner,
provided that the additional investments allowed by the commissioner's written order may not
exceed five percent of the company's admitted assets.
    Subd. 13. Additional limitations. Under the standards and procedures in sections 60G.20
to 60G.22 for individual insurers, the commissioner may impose additional limitations on all
insurers on the types and percentages of investments as the commissioner determines necessary to
protect and ensure the safety of the general public.
    Subd. 14. Replication transactions. An insurer engaging in replication transactions shall
include all replicated investment positions in calculating compliance with the limitations on
investments applicable to the insurer. Replication transactions are permitted only under the
authority of subdivision 12. For these purposes, "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 applicable law. A derivative transaction that either is authorized by
subdivision 6, 8, or 9a or section 61A.29, subdivision 2, paragraph (d), or is entered into as
a hedging transaction shall not be considered a replication transaction. "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.
History: 1967 c 395 art 2 s 28; 1969 c 494 s 12-16; 1971 c 816 s 1,2; 1973 c 123 art 5 s
7; 1974 c 64 s 6; 1975 c 141 s 1; 1981 c 211 s 32-34; 1983 c 340 s 12-14; 1984 c 382 s 4;
1985 c 147 s 1; 1987 c 337 s 43; 1991 c 325 art 9 s 1-9; 1992 c 540 art 2 s 13; 1994 c 425 s
9,10; 1998 c 328 s 1-3; 2001 c 131 s 12,13

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