Perfected

EXEMPTING INSURANCE COMPANIES FORMED UNDER CHAPTER 376 FROM CERTAIN INVESTMENT RESTRICTION STATUTORY PROVISIONS - The act provides that the provision of law that forbids insurance companies from trading in goods and other merchandise does not apply to insurance companies formed under chapter 376 (section 375.320).

The act provides that certain real estate ownership and restrictions shall not apply to insurance companies formed under chapter 376 (Section 375.330 and Section 375.340)). The act explicitly provides that insurance companies formed under chapter 376 may engage in derivative transactions under certain conditions (Section 375.345).

Under current law, capital, reserve and surplus of a domestic insurer may be invested in bonds, notes or other evidences of indebtedness, or preferred or guaranteed stocks if such bonds, notes or other evidences of indebtedness, or preferred or guaranteed stocks or shares, carry at least the second highest designation or quality rating conferred by the Securities Valuation Office of the National Association of Insurance Commissioners. Under this act, this provision shall not apply to insurance companies organized under Chapter 376, RSMo (Section 375.532).

Under this act, certain foreign government and foreign company investment restrictions shall not apply to insurance companies organized under Chapter 376, RSMo (Section 375.534).

This act provides that the "Investments I Medium and Lower Quality Obligations Law" shall not apply to insurance companies organized under Chapter 376, RSMo.

INVESTMENTS BY HEALTH AND ACCIDENT INSURERS UNDER CHAPTER 376 - After making the above-mentioned statutory exemptions for insurers organized under Chapter 376, RSMo, the act institutes a new investment statutory scheme (Sections 376.291 to 376.307). The act defines the terms applicable to the new investment provisions.

The act sets forth what insurers may acquire, hold, or invest in investments or engage in investment practices. Investments not conforming to the provisions of the act may not be admitted assets (Section 376.293). The act provides that an insurer shall not directly or indirectly invest in obligations or securities or make guarantees for the benefit of officers or directors except as provided by law (Section 376.294).

LOANS TO OFFICERS AND DIRECTORS - Under the act, an insurer may not, except under specified circumstances, directly or indirectly, without the prior written approval of the director: 1) make a loan to an officer or director of the insurer or make another investment in a person in which the officer or director has any direct or indirect financial interest; 2) make a guarantee for the benefit of or in favor of an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest; or 3) enter into an agreement for the purchase or sale of property from or to an officer or director of the insurer or a person in which the officer or director has any direct or indirect financial interest. An insurer may, without the prior written approval of the director, make any of the following:

(1) Policy loans in accordance with the terms of the policy or contract;

(2) Advances to officers or directors for expenses reasonably expected to be incurred in the ordinary course of the insurer's business or guarantees associated with credit or charge cards issued or credit extended for the purpose of financing these expenses;

(3) Loans secured by the principal residence of an existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request if the loans comply with the requirements of law and the terms and conditions are the same as those generally available from unaffiliated third parties;

(4) Loans and advances to officers or directors made in compliance with state or federal law specifically related to the loans and advances by a regulated noninsurance subsidiary or affiliate of the insurer in the ordinary course of business and on terms no more favorable than available to other customers of the entity; and

(5) Secured loans to an existing or new officer of the insurer made in connection with the officer's relocation at the insurer's request, if the loans meet certain criteria (Section 376.295).

VALUATION OF INVESTMENTS - The act requires investments to be valued based on published accounting and valuation standards of the National Association of Insurance Commissioners (NAIC)(Section 376.296).

GENERAL THREE PERCENT DIVERSIFICATION -- MEDIUM-GRADE AND LOWER-GRADE INVESTMENTS -- CANADIAN INVESTMENTS - Under this act, an insurer is prohibited from investing more than 3% of its admitted assets in investments issued by a single person. The 3% limitation does not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization. The act sets forth the conditions for medium and lower grade investments. The act also establishes the conditions for Canadian investments (Section 376.297).

RATED CREDIT INSTRUMENTS - Under the act, an insurer, subject to certain limitations, is allowed to acquire rated credit instruments issued, assumed, insured, or guaranteed by certain governments, government agencies, or government-sponsored enterprises (if their instruments are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States) (Section 376.298).

TANGIBLE PERSONAL PROPERTY - An insurer may acquire and invest in tangible personal property if the resulting ownership of the property returns to the insurer the cost of the investment plus a return deemed adequate by the insurer. Investments under this portion of the act cannot exceed 2% of its admitted assets or 0.5% of its admitted assets as to any single item of tangible personal property (Section 376.301).

OBLIGATIONS SECURED BY MORTGAGES - An insurer may acquire obligations secured by mortgages on real estate situated within a domestic jurisdiction, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by law, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments or obligations secured by mortgages on real estate. However, a mortgage loan that is secured by other than a first lien may not be acquired unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority may not, at the time of acquisition of the obligation, exceed certain limitations imposed by the act.

An insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction, either directly or indirectly through limited partnership interests and general partnership interests not otherwise prohibited by law, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate must be income-producing or intended for improvement or development for investment purposes under an existing program. An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the insurer's or the insurer's affiliates' business operations, Including home office, branch office, and field office operations (Section 376.302).

SECURITIES LENDING - An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the insurer's board of directors adopting a written plan that specifies how cash received will be invested or used, operational procedures to manage certain investment risks, and the extent to which an insurer may engage in these transactions. The act sets forth the various conditions the insurer must meet in order to engage in these types of investment transactions (Section 376.303).

FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS- The act sets forth the conditions in which an insurer may invest in foreign investments or engage in investment practices with persons in foreign jurisdictions. The act also authorizes insurers to acquire investments in foreign currencies if certain conditions are met (Section 376.304).

This act is substantially similar to HB 1926 and SB 1135 (2006).

STEPHEN WITTE