Kentucky Statutes 304.7-014 – Application — Investments that may be acquired and held as admitted assets — Computation of limitations based on admitted assets — Documentation — Agreements to purchase securities in advance of their issuance — Ord…
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(1) (a) Insurers may acquire, hold, or invest investments or engage in investment practices as set forth in this subtitle. Investments not conforming to this subtitle or otherwise expressly allowed in this chapter shall not be admitted assets.
(b) This subtitle shall apply to investments and investment practices of domestic insurers and United States branches of alien insurers entered through this state. This subtitle shall not apply to separate accounts of an insurer except to the extent that the provisions of KRS § 304.7-240 so provide.
(2) Subject to subsection (3) of this section, an insurer shall not acquire or hold an investment as an admitted asset unless at the time of acquisition it is:
(a) Eligible for the payment or accrual of interest or discount, whether in cash or other securities, eligible to receive dividends or other distributions, or is otherwise income producing; or
(b) Acquired under KRS § 304.7-413(3), 304.7-415, 304.7-419, 304.7-423, 304.7-
465(3), 304.7-467, 304.7-471, or 304.7-473, or under the authority of sections of the code other than in this subtitle.
(3) An insurer may acquire or hold as admitted assets investments that do not otherwise qualify under this subtitle if the insurer has not acquired them for the purpose of circumventing any limitations contained in this subtitle, if the insurer acquires the investments in the following circumstances and the insurer complies with the provisions of KRS § 304.7-363 as to the investments:
(a) As payment on account of existing indebtedness or in connection with the refinancing, restructuring, or workout of existing indebtedness, if taken to protect the insurer’s interest in that investment;
(b) As realization on collateral for an obligation;
(c) In connection with an otherwise qualified investment or investment practice, as interest on a dividend, other distribution related to the investment, investment practice, or in connection with the refinancing of the investment, in each case for no additional or only nominal consideration;
(d) Under a lawful and bona fide agreement of recapitalization, voluntary, or involuntary reorganization in connection with an investment held by the insurer; or
(e) Under a bulk reinsurance, merger, or consolidation transaction approved by the commissioner if the assets constitute admissible investments for the ceding, merged, or consolidated companies.
(4) A foreign insurer that becomes a domestic insurer in accordance with KRS § 304.24-
500 may hold as admitted assets investments that do not otherwise qualify under this subtitle if the investments were qualified as admitted assets in the insurer’s former state of domicile immediately prior to the insurer’s becoming a Kentucky
domestic insurer, if the insurer has not acquired the investments for the purpose of circumventing any limitations contained in this subtitle and if the insurer complies with the provisions of KRS § 304.7-363 as to the investments.
(5) An investment or portion of an investment acquired by an insurer under subsections (3) or (4) of this section shall become a nonadmitted asset three (3) years, or five (5) years in the case of mortgage loans and real estate, from the date of its acquisition, unless within that period the investment has become a qualified investment under this subtitle other than subsections (3) or (4) of this section, but an investment acquired under an agreement of bulk reinsurance, merger, or consolidation may be qualified for a longer period if so provided in the plan for reinsurance, merger, or consolidation as approved by the commissioner. Upon application by the insurer and a showing that the nonadmission of an asset held under subsections (3) or (4) of this section would materially injure the interests of the insurer, the commissioner may extend the period for admissibility for an additional reasonable period of time.
(6) Except as provided in subsections (7) and (9) of this section, an investment shall qualify under this subtitle if, on the date the insurer committed to acquire the investment or on the date of its acquisition, it would have qualified under this subtitle. For the purposes of determining limitations contained in this subtitle, an insurer shall give appropriate recognition to any commitments to acquire investments.
(7) (a) An investment held as an admitted asset by an insurer on July 14, 2000 that qualified under this subtitle shall remain qualified as an admitted asset under this subtitle.
(b) Each specific transaction constituting an investment practice of the type described in this subtitle that was lawfully entered into by an insurer and was in effect on July 14, 2000 shall continue to be permitted under this subtitle until its expiration or termination under its terms.
(8) Unless otherwise specified, an investment limitation computed on the basis of an insurer’s admitted assets or capital and surplus shall 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. For purposes of computing any limitation based upon admitted assets, the insurer shall deduct from the amount of its admitted assets the amount of the liability recorded on its statutory balance sheet for:
(a) The return of acceptable collateral received in a reverse repurchase transaction or a securities lending transaction;
(b) Cash received in a dollar roll transaction; and
(c) The amount reported as borrowed money in the most recently filed financial statement to the extent not included in paragraphs (a) and (b) of this subsection.
(9) An investment qualified, in whole or in part, for acquisition or holding as an admitted asset may be qualified or requalified at the time of acquisition or a later date, in whole or in part, under any other section of this subtitle, if the relevant conditions contained in the other section of this subtitle are satisfied at the time of
qualification or requalification.
(10) An insurer shall maintain documentation demonstrating that investments were acquired in accordance with this subtitle, and specifying the section of this subtitle under which they were acquired.
(11) An insurer shall not enter into an agreement to purchase securities in advance of their issuance for resale to the public as part of a distribution of the securities by the issuer, or otherwise guarantee the distribution, except that an insurer may acquire privately placed securities with registration rights.
(12) Notwithstanding the provisions of this subtitle, the commissioner, for good cause, may order under the state’s administrative regulations, an insurer to nonadmit, limit, dispose of, withdraw from or discontinue an investment or investment practice. The authority of the commissioner under this subsection is in addition to any other authority of the commissioner.
(13) Insurance futures and insurance futures options are not considered investments or investment practices for the purposes of this subtitle.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1009, effective July 15, 2010. — Created
2000 Ky. Acts ch. 388, sec. 2, effective July 14, 2000.
(b) This subtitle shall apply to investments and investment practices of domestic insurers and United States branches of alien insurers entered through this state. This subtitle shall not apply to separate accounts of an insurer except to the extent that the provisions of KRS § 304.7-240 so provide.
Terms Used In Kentucky Statutes 304.7-014
- Acceptable collateral: means :
(a) As to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letter of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States, any agency of the United States, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation, and as to lending foreign securities, sovereign debt rated 1 by the SVO. See Kentucky Statutes 304.7-012 - Admitted assets: means assets permitted to be reported as admitted assets in accordance with Subtitle 6 of KRS Chapter 304 on the statutory financial statement of the insurer most recently required to be filed with the commissioner, but excluding assets of separate accounts. See Kentucky Statutes 304.7-012
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Code: means KRS Chapter 304 and all administrative regulations promulgated as authorized. See Kentucky Statutes 304.7-012
- Dollar roll transaction: means two (2) simultaneous transactions with different settlement dates no more than ninety-six (96) days apart, so that in the transaction with the earlier settlement date, an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:
(a) Asset-backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or their respective successors. See Kentucky Statutes 304.7-012 - Domestic: when applied to a corporation, partnership, business trust, or limited liability company, means all those incorporated or formed by authority of this state. See Kentucky Statutes 446.010
- Foreign: when applied to a corporation, partnership, limited partnership, business trust, statutory trust, or limited liability company, includes all those incorporated or formed by authority of any other state. See Kentucky Statutes 446.010
- Income: means , as to a security, interest, accrual of discount, dividends, or other
distributions, such as rights, tax or assessment, or assessment credits, warrants, and
distributions in kind. See Kentucky Statutes 304.7-012 - Investment practices: means transactions of the types described in KRS §. See Kentucky Statutes 304.7-012
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Real estate: means :
(a) 1. See Kentucky Statutes 304.7-012 - Reverse repurchase transaction: means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or upon demand. See Kentucky Statutes 304.7-012
- Securities lending transaction: means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or upon
demand. See Kentucky Statutes 304.7-012 - State: means a state, territory, or possession of the United States, the District of
Columbia, or the Commonwealth of Puerto Rico. See Kentucky Statutes 304.7-012
(2) Subject to subsection (3) of this section, an insurer shall not acquire or hold an investment as an admitted asset unless at the time of acquisition it is:
(a) Eligible for the payment or accrual of interest or discount, whether in cash or other securities, eligible to receive dividends or other distributions, or is otherwise income producing; or
(b) Acquired under KRS § 304.7-413(3), 304.7-415, 304.7-419, 304.7-423, 304.7-
465(3), 304.7-467, 304.7-471, or 304.7-473, or under the authority of sections of the code other than in this subtitle.
(3) An insurer may acquire or hold as admitted assets investments that do not otherwise qualify under this subtitle if the insurer has not acquired them for the purpose of circumventing any limitations contained in this subtitle, if the insurer acquires the investments in the following circumstances and the insurer complies with the provisions of KRS § 304.7-363 as to the investments:
(a) As payment on account of existing indebtedness or in connection with the refinancing, restructuring, or workout of existing indebtedness, if taken to protect the insurer’s interest in that investment;
(b) As realization on collateral for an obligation;
(c) In connection with an otherwise qualified investment or investment practice, as interest on a dividend, other distribution related to the investment, investment practice, or in connection with the refinancing of the investment, in each case for no additional or only nominal consideration;
(d) Under a lawful and bona fide agreement of recapitalization, voluntary, or involuntary reorganization in connection with an investment held by the insurer; or
(e) Under a bulk reinsurance, merger, or consolidation transaction approved by the commissioner if the assets constitute admissible investments for the ceding, merged, or consolidated companies.
(4) A foreign insurer that becomes a domestic insurer in accordance with KRS § 304.24-
500 may hold as admitted assets investments that do not otherwise qualify under this subtitle if the investments were qualified as admitted assets in the insurer’s former state of domicile immediately prior to the insurer’s becoming a Kentucky
domestic insurer, if the insurer has not acquired the investments for the purpose of circumventing any limitations contained in this subtitle and if the insurer complies with the provisions of KRS § 304.7-363 as to the investments.
(5) An investment or portion of an investment acquired by an insurer under subsections (3) or (4) of this section shall become a nonadmitted asset three (3) years, or five (5) years in the case of mortgage loans and real estate, from the date of its acquisition, unless within that period the investment has become a qualified investment under this subtitle other than subsections (3) or (4) of this section, but an investment acquired under an agreement of bulk reinsurance, merger, or consolidation may be qualified for a longer period if so provided in the plan for reinsurance, merger, or consolidation as approved by the commissioner. Upon application by the insurer and a showing that the nonadmission of an asset held under subsections (3) or (4) of this section would materially injure the interests of the insurer, the commissioner may extend the period for admissibility for an additional reasonable period of time.
(6) Except as provided in subsections (7) and (9) of this section, an investment shall qualify under this subtitle if, on the date the insurer committed to acquire the investment or on the date of its acquisition, it would have qualified under this subtitle. For the purposes of determining limitations contained in this subtitle, an insurer shall give appropriate recognition to any commitments to acquire investments.
(7) (a) An investment held as an admitted asset by an insurer on July 14, 2000 that qualified under this subtitle shall remain qualified as an admitted asset under this subtitle.
(b) Each specific transaction constituting an investment practice of the type described in this subtitle that was lawfully entered into by an insurer and was in effect on July 14, 2000 shall continue to be permitted under this subtitle until its expiration or termination under its terms.
(8) Unless otherwise specified, an investment limitation computed on the basis of an insurer’s admitted assets or capital and surplus shall 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. For purposes of computing any limitation based upon admitted assets, the insurer shall deduct from the amount of its admitted assets the amount of the liability recorded on its statutory balance sheet for:
(a) The return of acceptable collateral received in a reverse repurchase transaction or a securities lending transaction;
(b) Cash received in a dollar roll transaction; and
(c) The amount reported as borrowed money in the most recently filed financial statement to the extent not included in paragraphs (a) and (b) of this subsection.
(9) An investment qualified, in whole or in part, for acquisition or holding as an admitted asset may be qualified or requalified at the time of acquisition or a later date, in whole or in part, under any other section of this subtitle, if the relevant conditions contained in the other section of this subtitle are satisfied at the time of
qualification or requalification.
(10) An insurer shall maintain documentation demonstrating that investments were acquired in accordance with this subtitle, and specifying the section of this subtitle under which they were acquired.
(11) An insurer shall not enter into an agreement to purchase securities in advance of their issuance for resale to the public as part of a distribution of the securities by the issuer, or otherwise guarantee the distribution, except that an insurer may acquire privately placed securities with registration rights.
(12) Notwithstanding the provisions of this subtitle, the commissioner, for good cause, may order under the state’s administrative regulations, an insurer to nonadmit, limit, dispose of, withdraw from or discontinue an investment or investment practice. The authority of the commissioner under this subsection is in addition to any other authority of the commissioner.
(13) Insurance futures and insurance futures options are not considered investments or investment practices for the purposes of this subtitle.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1009, effective July 15, 2010. — Created
2000 Ky. Acts ch. 388, sec. 2, effective July 14, 2000.