Insurance Investment Regulation Modernization

The act amends the statutes that regulate the types and amounts of investments a domestic insurer may make, including investments in bonds and other evidences of indebtedness. Section 1 of the act clarifies the types of indebtedness that may be invested in and allows the domestic insurer to invest in the debts of an issuer that is in default in the payment of interest on the debt.

Preexisting law allows a domestic insurer to invest in first-priority mortgage loans in the United States and Canada. In connection with this, section 2:

• Authorizes investment in lower-priority loans if the holder of the lower-priority loan holds the first-priority loan;
• Repeals the requirement that the mortgaged land have a building, be used for agriculture or pasture, or be income-producing;
• Expands the requirement that improvements to the land have fire insurance to a requirement that these improvement have casualty insurance; and
• Authorizes domestic insurers to acquire mortgage loans for land located in other foreign jurisdictions that have a sovereign debt rating of "1" from the securities valuation office of the National Association of Insurance Commissioners if these assets do not exceed 10% of the domestic insurer's investments.

Preexisting law allows a domestic insurer to invest in real estate for income. In connection with this, section 3 broadens the current definition of "real estate", which covers fee simple ownership and leasehold estates, to include all interests in property, including mineral estates.

Preexisting law allows a domestic insurer to invest in preferred or common stock in businesses within the United States and Canada. In connection with this, section 4:

• Broadens current law to allow investment in equity interests of businesses other than preferred or common stock, but limits the aggregate value of all equity interests that may be admitted assets to 10% of the company's admitted assets;
• Repeals the requirement that the business not be in arrears as to dividends for the last 3 years;
• Repeals the requirement that any sinking fund for preferred stock must be current;
• Repeals the requirement that a corporation had net earnings available for dividends on its outstanding common stock in each of the 3 fiscal years immediately preceding the date of acquisition;
• Repeals the requirement that common stock must be registered on a national securities exchange or regularly traded on a national or regional basis;
• Exempts mutual funds, open-end index funds, or exchange-traded index funds from a prohibition on investing, in one company, more than 2% of the insurer's assets in common stock or 5% of these assets in any stock;
• Limits the amount of equity that is not listed on a nationally registered securities exchange or securities market to 5% of the domestic insurer's assets; and
• Authorizes a domestic insurer to invest in equity interests in businesses created in other foreign jurisdictions that have a sovereign debt rating of "1" from the securities valuation office of the National Association of Insurance Commissioners if these assets do not exceed 3% of the domestic insurer's investments.

Preexisting law allows a domestic insurer to invest in money market mutual funds. Section 9 requires the funds to comply with certain federal regulations and requires government-backed funds to meet certain standards of the National Association of Insurance Commissioners.

(Note: This summary applies to this bill as enacted.)