House File 271 - Enrolled
House File 271
AN ACT
RELATING TO INVESTMENTS OF FUNDS BY LIFE INSURERS, AND INCLUDING
APPLICABILITY PROVISIONS.
3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
1 Section 1. Section 508.13, subsection 1, Code 2023, is
2 amended to read as follows:
3 1. On receipt of an application for a certificate of
4 authority or renewal of a certificate of authority, the
5 appropriate fees, the deposit provided in section 511.8,
6 subsection 16, and the statement, and the statement and
7 evidence of investment of foreign companies, the commissioner
8 of insurance shall issue a certificate or a renewal of a
9 certificate setting forth the corporate name of the company,
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10 its home office, that it has fully complied with the laws of
11 the state and is authorized to transact the business of life
12 insurance for the ensuing year, which certificate shall expire
13 on the first day of June of the ensuing year, or sooner upon
14 thirty days’ notice given by the commissioner, of the next
15 annual valuation of its policies.
16 Sec. 2. Section 508.14, subsections 1 and 3, Code 2023, are
17 amended to read as follows:
18 1. Upon a failure of a company organized under the laws
19 of this state to make the deposit provided in section 511.8,
20 subsection 16, or file the statement in the time stated in
21 section 508.11, or to file in a timely manner any financial
22 statement required by rule of the commissioner of insurance,
23 the commissioner of insurance shall notify the attorney general
24 of the default, who and the attorney general shall at once
25 apply to the district court of the county where the home
26 office of the company is located for an order requiring the
27 company to show cause, upon reasonable notice to be fixed as
28 determined by the court, why its the company’s business shall
29 not be discontinued. If, upon the hearing, sufficient cause is
30 not shown, the court shall decree its the dissolution of the
31 company.
32 3. The commissioner may give notice to a company, which
33 that has failed to file evidence of deposit and all of the
34 company’s delinquent statements within the required time
35 fixed, that the company is in violation of this section. If
1 the company fails to file evidence of deposit and all of the
2 company’s delinquent statements within ten days of the date of
3 the notice, the company is shall be subject to an additional
4 administrative penalty of one hundred dollars for each day the
5 failure continues.
6 Sec. 3. Section 508.29, Code 2023, is amended to read as
7 follows:
8 508.29 Authority to write other insurance.
9 1. Any life insurance company organized on the stock or
10 mutual plan, and that is authorized by its the company’s
11 charter or articles of incorporation so to do, may in addition
12 to such life insurance, insure, either individually or on
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13 the group plan, the health of persons and against personal
14 injuries, disablement or death, resulting from traveling or
15 general accidents by land or water, and insure employers
16 against loss in consequence of accidents or casualties of any
17 kind to employees or other persons, or to property resulting
18 from any act of the employee or any accident or casualty to
19 persons or property, or both, occurring in or connected with
20 the transaction of their transacting the employer’s business,
21 or from the operation of any machinery connected therewith with
22 transacting the employer’s business, but nothing contained
23 in this section shall be construed to authorize any life
24 insurance company to insure against loss or injury to person,
25 or property, or both, growing out of explosion or rupture
26 of steam boilers. An insurer may contract with health care
27 service providers and offer different levels of benefits to
28 policyholders based upon the provider contracts.
29 2. A company insuring risks authorized by this section shall
30 invest or hold in cash, funds equal to seventy-five percent of
31 the aggregate reserves and policy and contract claims for such
32 risks. Investments required by this subsection shall only be
33 made in securities enumerated in section 511.8, and are subject
34 to the same limitations as provided for the investment of legal
35 reserve, and are subject to section 511.8, subsections 16, 17,
1 and 21.
2 Sec. 4. Section 508C.8, subsection 9, paragraph c, Code
3 2023, is amended to read as follows:
4 c. Borrow money to effect the purposes of this chapter. Any
5 notes or other evidence of indebtedness of the association held
6 by domestic insurers and not in default qualify as investments
7 eligible for deposit under section 511.8, subsection 16.
8 Sec. 5. Section 511.8, Code 2023, is amended by striking the
9 section and inserting in lieu thereof the following:
10 511.8 Investment of funds.
11 1. Definitions. As used in this section unless the context
12 otherwise requires:
13 a. “Accounting practices and procedures manual” means the
14 most recent edition of the national association of insurance
15 commissioner’s accounting practices and procedures manual.
16 b. “Admitted assets” means the assets permitted to be
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17 reported as admitted assets on an insurer’s most recent
18 statutory financial statement required to be filed with the
19 commissioner. “Admitted assets” shall include reinsurance funds
20 withheld. “Admitted assets” shall not include assets held in
21 nonguaranteed separate accounts.
22 c. “Affiliate of” means the same as defined in section
23 521A.1.
24 d. “Business entity” means a sole proprietorship,
25 corporation, limited liability company, association,
26 partnership, joint stock company, joint venture, mutual
27 fund, trust, joint tenancy or other similar form of business
28 organization, whether organized for-profit or not-for-profit.
29 e. “Capital and surplus” means the sum of capital and
30 surplus of an insurer that is required to be shown on an
31 insurer’s most recent statutory financial statement required to
32 be filed with the commissioner.
33 f. “Collateral loan” means an unconditional obligation
34 for the payment of money that is secured by the pledge of
35 any assets or investments permitted under this section. A
1 collateral loan cannot be a mortgage loan, rated credit
2 instrument, or other debt security as defined in this
3 subsection.
4 g. “Commissioner” means the commissioner of insurance.
5 h. “Equity interest” means any of the following:
6 (1) A common stock.
7 (2) A trust certificate.
8 (3) An equity investment in an investment company other than
9 an SVO-listed fixed income or preferred stock fund.
10 (4) An investment in a common trust fund with a bank that is
11 regulated by a federal or state agency as trustee.
12 (5) An ownership interest in minerals, oil, or gas, the
13 rights to which have been separated from the underlying fee
14 interest in the real estate where the minerals, oil, or gas are
15 located.
16 (6) An instrument that is mandatorily, or at the option of
17 the issuer, convertible to equity.
18 (7) A limited partnership interest or a general partnership
19 interest as authorized under subsection 4.
20 (8) An ownership interest in a limited liability company.
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21 (9) A warrant or other right to acquire an ownership
22 interest that is created by the person that either owns or will
23 issue the ownership interest to be acquired.
24 (10) An investment categorized as an equity interest under
25 subsection 5.
26 i. “Foreign investment” means an investment in a foreign
27 jurisdiction, or an investment in an entity, real estate, or
28 asset domiciled in a foreign jurisdiction. “Foreign investment”
29 shall not include any of the following:
30 (1) An asset for which the issuing person or guarantor is
31 the United States or Canada, or is domiciled in the United
32 States or Canada.
33 (2) An asset for which the issuing person is domiciled in a
34 foreign jurisdiction that has a sovereign debt rating of SVO 1,
35 and the issuing person is a fund or other investment vehicle
1 that invests, directly or indirectly, substantially all of
2 its assets in investments which are not foreign investments.
3 If an insurer invests in an asset under this subparagraph,
4 the commissioner may require the insurer to disclose to
5 the commissioner the investments held by the fund or other
6 investment vehicle.
7 j. “Hedging transaction” means a derivative transaction
8 entered into and maintained by an insurer to reduce any of the
9 following:
10 (1) The risk of a change in the value, yield, price,
11 cash flow, or quantity of assets or liabilities which the
12 insurer has acquired or incurred, or anticipates acquiring or
13 incurring.
14 (2) Currency exchange rate risk or the degree of exposure
15 as to assets or liabilities that the insurer has acquired or
16 incurred, or anticipates acquiring or incurring.
17 k. “Income generation transaction” means a derivative
18 transaction that involves writing a covered call option,
19 covered put option, covered cap, or covered floor, and that is
20 intended to generate income or enhance return.
21 l. “Insurer” means a company organized as a life insurance
22 company under chapter 508.
23 m. “Investment company” means an investment company as
24 defined in section 3(a) of the federal Investment Company Act
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25 of 1940, as amended, and as codified at 15 U.S.C. §§80a-3 et
26 seq., and a person described in section 3(c) of the federal
27 Investment Company Act.
28 n. “Investment subsidiary” means a subsidiary of an insurer
29 that is engaged or organized to engage exclusively in the
30 ownership and management of assets authorized as investments
31 for the insurer.
32 o. “Lower grade investment” means a rated credit instrument
33 that is designated 4, 5, or 6 by the SVO.
34 p. “Medium grade investment” means a rated credit instrument
35 that is designated 3 by the SVO.
1 q. “Mortgage loan” means an obligation secured by a
2 mortgage, deed of trust, trust deed, or other consensual lien
3 on real estate. “Mortgage loan” includes a leasehold estate
4 in real property if fifty years or more of the term, including
5 renewals, is unexpired.
6 r. “NAIC” means the national association of insurance
7 commissioners.
8 s. “Nonguaranteed separate account” means a separate account
9 for which the insurer’s general account bears no risk related
10 to performance of the separate account assets.
11 t. “Other debt security” means an investment in the form
12 of a debt security that does not qualify as a bond, however,
13 the investment does qualify as an admissible asset under the
14 accounting practices and procedures manual.
15 u. “Person” means an individual, a business entity,
16 a multilateral development bank, or a governmental or
17 quasi-governmental body such as a political subdivision or a
18 government-sponsored enterprise.
19 v. “Rated credit instrument” means an investment that
20 is qualified as a bond under the accounting practices and
21 procedures manual, such as evidence of indebtedness of a
22 governmental unit or the instrumentality of the governmental
23 unit, or of a private business entity. “Rated credit
24 instrument” includes asset-backed securities, bank loans, and
25 SVO-listed funds that have a SVO designation, and that qualify
26 as a bond under the manual.
27 w. “Real estate” means any of the following:
28 (1) Real property.
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29 (2) Interests in real property such as leaseholds, and
30 minerals, oil, and gas that have not been separated from the
31 underlying fee interest.
32 (3) Improvements and fixtures located on or in the real
33 property.
34 (4) The buyer’s equity in a contract providing for a sale
35 of real estate.
1 (5) An investment categorized as real estate under
2 subsection 5.
3 x. “Replication transaction” means a derivative transaction
4 entered into in conjunction with other investments in order
5 to reproduce the investment characteristics of otherwise
6 permissible investments. “Replication transaction” does not
7 include a derivative transaction that is entered into as a
8 hedging transaction.
9 y. “Securities valuation office” or “SVO” means the
10 securities valuation office of the NAIC, or a successor entity.
11 z. “Short-term investment” means a highly liquid investment
12 or security that has a remaining term of maturity between
13 ninety days and three hundred sixty-five days, and that is
14 qualified as a short-term investment under the accounting
15 practices and procedures manual.
16 2. Prudence evaluation criteria.
17 a. For all investments under this section, an insurer
18 shall perform the insurer’s duties in good faith and with the
19 degree of care that persons of reasonable prudence in a similar
20 position exercise in a similar circumstance. The following
21 factors shall be evaluated by the insurer and considered along
22 with the insurer’s business to determine if an investment
23 portfolio or an investment policy is prudent:
24 (1) General economic conditions.
25 (2) The expected tax consequences of an investment decision
26 or strategy.
27 (3) The fairness and reasonableness of the terms of an
28 investment in relation to the investment’s risk and reward
29 characteristics.
30 (4) The effect of an investment on the characteristics of
31 the insurer’s investment portfolio as a whole.
32 (5) The extent of the diversification of the insurer’s
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33 investments among all of the following:
34 (a) Individual investments.
35 (b) Classes of investments.
1 (c) Industry concentrations.
2 (d) Issuers.
3 (e) Geographic areas.
4 (6) The economic substance of investments in affiliates.
5 (7) The investment exposure to each of the following risks,
6 consistent with the insurer’s acceptable risk level identified
7 under subsection 3:
8 (a) Liquidity.
9 (b) Credit and default.
10 (c) Market.
11 (d) Interest rate, including duration and convexity.
12 (e) Currency.
13 (8) The amount of the insurer’s assets, premium writings
14 and insurance in force, level of capitalization, and other
15 appropriate characteristics.
16 (9) The amount and adequacy of the insurer’s reported
17 liabilities.
18 (10) The relationship, and the risk of adverse changes,
19 of the expected cash flows of the insurer’s assets and
20 liabilities.
21 (11) The relationship, and the risk of adverse changes, of
22 the valuation of the insurer’s assets and liabilities.
23 (12) The insurer’s level of expertise with various types of
24 investments.
25 (13) The ability of the insurer to model the underlying
26 risks of an investment, with the modeling commensurate with the
27 complexity of the investment.
28 (14) The overall maturity of the insurer’s enterprise risk
29 management and investment risk management frameworks.
30 (15) The adequacy of the insurer’s capital and surplus to
31 secure the liabilities of the insurer in consideration of the
32 risk and potential magnitude of adverse experience or economic
33 conditions.
34 (16) The professional standards required by the insurer for
35 the individuals who make day-to-day investment decisions on
1 behalf of the insurer.
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2 (17) Any other factors relevant to whether an investment is
3 prudent.
4 b. The commissioner shall consider each of the factors in
5 paragraph “a”, subparagraphs (1) through (17), prior to making
6 a determination that an insurer’s investment portfolio or
7 investment policy is not prudent.
8 3. Insurer investment policies. In acquiring, investing,
9 exchanging, holding, selling, and managing investments,
10 an insurer shall establish and follow one or more written
11 investment policies that shall be annually reviewed and
12 approved by the insurer’s board of directors or the board of
13 directors’ designee. The content and format of an insurer’s
14 investment policies are at the insurer’s discretion; however,
15 the investment policies must include written guidelines and
16 controls appropriate to the insurer’s business. An insurer
17 shall consider all of the following:
18 a. Permissible asset types, including maximum or minimum
19 internal limits regarding the composition of classes of
20 investments.
21 b. Periodic evaluation of the investment portfolio as to the
22 portfolio’s risk and reward characteristics.
23 c. The relationship of investments to the insurer’s
24 insurance products and liabilities.
25 d. The manner in which the insurer intends to implement
26 subsection 2.
27 e. The appropriate level of risk, based on quantitative<