HF 271 — A bill for an act relating to investments of funds by life insurers, and including applicability provisions.

Foreign“Foreign investment” means an investment shallin nota includeforeign anyjurisdiction, ofor thean following:investment in an entity, real estate, or asset domiciled in a foreign jurisdiction.

“Foreign investment” shall not include any of the following:

(2) An asset for which the issuing person is domiciled in a foreign jurisdiction that has a sovereign debt rating of SVO 11, , and the issuing person is a fund or other investment vehicle that invests, directly or indirectly, substantially all of its assets in investments which are not foreign investments.

Hedging“Hedging transactiontransaction” -meansmeans a derivative transaction entered into and maintained by an insurer to reduce any of the following:

k,k. Income generation transaction -means a derivative transaction that involves writing a covered call option, covered put option, covered cap, or covered floor, and that is intended to generate income or enhance return.

1.“Income generation transaction” means a derivative transaction that involves writing a covered call option, covered put option, covered cap, or covered floor, and that is intended to generate income or enhance return.

-Insurer-l. means a company organized as a life insurance company under chapter 508.

M.“Insurer” means a company organized as a life insurance company under chapter 508.

Investmentm. company -means an investment company as defined in section 3(a) of the federal Investment Company Act House File 271, p .

“Investment company” means an investment company as defined in section 3(a) of the federal Investment Company Act House File 271, p.

§§80a-3 eet t seq., and a person described in section 3(c) of the federal Investment Company Act.

Investment“Investment subsidiarysubsidiary” -meansmeans a subsidiary of an insurer that is engaged oor r organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer.

~Lower“Lower grade investmentinvestment” -meansmeans a rated credit instrument that is designated 44, , 5, or 6 by the SVO.

P.p.

Medium“Medium grade investmentinvestment” -meansmeans a rated credit instrument that is designated 3 by the SVO.

Mortgage“Mortgage loanloan” -meansmeans an obligation secured by a mortgage, deed of trust, trust deed, or other consensual lien on real estate.

Mortgage“Mortgage loanloan” - includes a leasehold estate in real property iif f fifty years or more of the term, including renewals, is unexpired.

-NAIC"“NAIC” means the national association of insurance commissioners.

S.s.

'Nonguaranteed“Nonguaranteed separate account"account” means a separate account for which the insurer'sinsurer’s general account bears no risk related to performance of the separate account assets.

Other“Other debt security`"security” means an investment in the form of a debt security that does not qualify as a bond, however, the investment does qualify aas s an admissible asset under the accounting practices and procedures manual.

-Person-“Person” means an individual, a business entity, a multilateral development bank, or a governmental or quasi-governmental body such as a political subdivision or a government-sponsored enterprise.

V.v.

Rated“Rated credit instrumentinstrument” -meansmeans an investment that is qualified as a bond under the accounting practices and procedures manual, such as evidence of indebtedness of a governmental unit or the instrumentality of the governmental unit, or of a private business entity.

Rated“Rated credit instrument-instrument” includes asset-backed securities, bank loans, and SVO-listed funds that have a SVO designation, and that qualify as a bond under the manual.

-Real“Real estateestate” -meansmeans any of the following:

(4) The buyer'sbuyer’s equity in a contract providing for a sale of real estate.

X.x.

-Replication“Replication transactiontransaction” - means a derivative transaction entered into in conjunction with other investments in order to reproduce the investment characteristics of otherwise permissible investments.

Replication“Replication transactiontransaction” - does not include a derivative transaction that is entered into as a hedging transaction.

Securities“Securities valuation officeoffice” - or ­SVO-“SVO” means the securities valuation office of the NAIC, or a successor entity.

Z.z.

Short-term“Short-term investment"investment” means a highly liquid investment or security that has a remaining term of maturity between ninety days and three hundred sixty-five days, and that is qualified as a short-term investment under the accounting practices and procedures manual.

For all investments under this section, an insurer shall perform the insurer'sinsurer’s duties in good faith and with the degree of care that persons of reasonable prudence in a similar position exercise in a similar circumstance.

The following factors shall be evaluated by the insurer and considered along with the insurer'sinsurer’s business to determine if an investment portfolio or an investment policy is prudent:

(3) The fairness and reasonableness of the terms of an investment in relation to the investment'sinvestment’s risk and reward characteristics.

(4) The effect of an investment on the characteristics of the insurer'sinsurer’s investment portfolio as a whole.

(5) The extent of the diversification of the insurer'sinsurer’s House File 271, p.

(7) The investment exposure to each of the following risks, consistent with the insurer'sinsurer’s acceptable risk level identified under subsection 33: :

(8) The amount of the insurer'sinsurer’s assets, premium writings and insurance in force, level of capitalization, and other appropriate characteristics.

(9) The amount and adequacy of the insurer'sinsurer’s reported liabilities.

(10) The relationship, and the risk of adverse changes, of the expected cash flows of the insurer'sinsurer’s assets and liabilities.

(11) The relationship, and the risk of adverse changes, of the valuation of the insurer'sinsurer’s assets and liabilities.

(12) The insurer'sinsurer’s level of expertise with various types of investments.

(14) The overall maturity of the insurer'sinsurer’s enterprise risk management and investment risk management frameworks.

(15) The adequacy of the insurer'sinsurer’s capital and surplus to secure the liabilities of the insurer in consideration of the risk and potential magnitude of adverse experience or economic conditions.

House File 271, pp. .

The commissioner shall consider each of the factors in paragraph a“a”, -, subparagraphs (1) through (17), prior to making a determination that an insurer'sinsurer’s investment portfolio or investment policy is not prudent.

In acquiring, investing, exchanging, holding, selling, and managing investments, an insurer shall establish and follow one or more written investment policies that shall be annually reviewed and approved by the insurer'sinsurer’s board of directors or the board of directors'directors’ designee.

The content and format of an insurer'sinsurer’s investment policies are at the insurer'sinsurer’s discretion;

however, the investment policies must include written guidelines and controls appropriate to the insurer'sinsurer’s business.

Periodic evaluation of the investment portfolio as to the portfolio'sportfolio’s risk and reward characteristics.

The relationship of investments to the insurer'sinsurer’s insurance products and liabilities.

Except as provided in subsection 55, , invest in an obligation or security, or make a guarantee for the benefit of or in favor of an officer or director of the insurer.

Engage on the insurer'sinsurer’s own behalf, or through one or more affiliates, in a transaction or series of transactions intended to evade the prohibited investments under this subsection.

(b) Completing specific projects or activities of the partnership in which the insurer was a general partner before July 1, 2023, and that had been undertaken before July 11, , 2023.

(c) Making capital improvements to property owned by the partnership before July 11, , 2023, if the insurer was a general partner before July 11, , 2023.

Notwithstanding paragraphs “c” and "d-,“d”, a subsidiary or an affiliate of an insurer shall not be prohibited from acting or investing as a general partner.

((1) 1) Invest in or lend the insurersinsurer’s funds upon the security of shares of the insurer'sinsurer’s own stock, except that an insurer may acquire shares of its own stock for any of the following purposes:

(b) Issuance to the insurer'sinsurer’s officers, employees, or agents in connection with a plan for converting a publicly held insurer into a privately held insurer, as approved by the commissioner under section 508B.7, or in connection with other stock option and employee benefit plans.

(2) Stocks acquired by an insurer under subparagraph (1(1) ) shall not be admitted assets of the insurer.

11 valuation and categorization of, or the amount of, an insurer'sinsurer’s investment acquired or held under subsections 6 through 20, shall be the classification and value at which the assets of an insurer are required to be reported for statutory accounting purposes, as determined in accordance with the accounting and valuation standards of the NAIC including all of the following:

Upon approval of the commissioner, an insurer'sinsurer’s investment in the equity interests of a business entity whose primary purpose is to directly or indirectly invest in and maintain assets and investments on behalf of the insurer and the insurer'sinsurer’s affiliates, or on behalf of the insurer or the insurer'sinsurer’s affiliates, may be deemed to be the insurer itself investing in such assets and investments of the business entity based on the insurer'sinsurer’s pro-rata equity interest in the business entity.

General fivepercentfive-percent diversification.

Except as otherwise specified in this section, an insurer shall not directly or indirectly acquire an investment under this section if, as a result of and after giving effect to the investment, the insurer will hold more than five percent of the insurer'sinsurer’s admitted assets in investments of all kinds issued, assumed, accepted, insured, or guaranteed by a single person.

Notwithstanding paragraph -a-,“a”, an insurer shall not acquire an asset-backed security if, as a result of and after giving effect to the investment, the aggregate amount of House File 271, p.

12 asset-backed securities secured by or evidencing an interest in a single asset or single pool of assets held by a trust or other business entity then held by the insurer will exceed five percent of the insurer'sinsurer’s admitted assets.

Notwithstanding paragraph -a“a”, , an insurer shall not acquire a mortgage loan under subsection 12 if, as a result of and after giving effect to the investment, the aggregate amount of mortgage loans covering any one secured location will exceed five percent of the insurer'sinsurer’s admitted assets.

(1) The aggregate amount of medium and lower grade investments then held by the insurer will exceed twenty percent of the insurer'sinsurer’s admitted assets.

(2) The aggregate amount of lower grade investments then held by the insurer will exceed ten percent of the insurer'sinsurer’s admitted assets.

(3) The aggregate amount of investments designated 5 or 6 by the SVO then held by the insurer will exceed three percent of the insurer'sinsurer’s admitted assets.

(4) The aggregate amount of investments designated 6 by the SVO then held by the insurer will exceed one percent of the insurer'sinsurer’s admitted assets.

(1) The aggregate amount of medium and lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer will exceed one percent of the insurer'sinsurer’s admitted assets.

(2) The aggregate amount of lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person or, as to asset-backed securities secured by or evidencing an House File 271, pp. .

13 interest in a single asset or pool of assets, then held by the insurer will exceed one-half of one percent of the insurer'sinsurer’s admitted assets.

The following credit instruments acquired under this subsection shall be subject to subsection 66, , paragraphs -b-“b” and NCH,“c”, and to subsection 7:

(2) Credit instruments issued, assumed, guaranteed, or insured by a government-sponsored enterprise of the United States or Canada, iif f the credit instruments are assumed, guaranteed, or insured by the United States or Canada, or are otherwise backed or supported by the full faith and credit of the United States oor r Canada.

(b) Issued, assumed, guaranteed, or insured by a state, iif f the instruments are general obligations of the state.

Short-term investments acquired under this subsection shall be subject to subsection 66. .

All other rated credit instruments acquired under this subsection shall be subject to subsections 6 and 77. .

Foreign investments acquired under this subsection shall be subject to subsection 115. 5.

An insurer shall not acquire an investment under this subsection, if, as a result of and after giving effect to the investment the aggregate amount of investments then held by the insurer will exceed ten percent of the insurer'sinsurer’s admitted assets.

Foreign investments acquired under tthis his subsection shall be subject to subsection 115. 5.

Equity interests iin n subsidiary corporations, as authorized by section 5508.33, 08.33, shall be eligible investments if the total investment does not exceed five percent of the insurer'sinsurer’s admitted assets.

Upon application to and approval of the commissioner, an insurer may acquire additional equity interests in direct or indirect subsidiary insurance companies that are domiciled in the United States, not to exceed an additional two percent of the insurer'sinsurer’s admitted assets.

In addition to the investments authorized in paragraphs â“a”, •.“b”, and “c”, an insurer may acquire equity interests in subsidiary entities as permitted by, and as subject to the limitations of, section 521A.2.

-b-, and -c-, an insurer may acquire equity interests i n subsidiary entities a s permitted by, and as subject to t he limitations of, section 521A.2.

An insurer shall not acquire an obligation under paragraph a“a”, -, if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this subsection will exceed either of the following:

(1) Two percent of the insurer'sinsurer’s admitted assets.

(2) One-half of one percent of the insurer'sinsurer’s admitted assets as to any single item of tangible personal property.

(3) A mezzanine loan acquired under this subsection shall not exceed four percent of an insurer'sinsurer’s admitted assets.

This subsection shall not be construed to prevent any amount invested under this subsection that exceeds ninety percent of the appraised value of the real estate from being an authorized asset under subsection 10, paragraph -a-,“a”, or subsection 20, subject to the limitations of subsection 10, paragraph a“a”, -, and subsection 20.

An insurer may acquire real estate required for the insurer'sinsurer’s home offices, or to be otherwise occupied by the insurer or the insurer'sinsurer’s employees in transacting the insurer'sinsurer’s business, and the insurer may lease any unused space to other occupants.

The value of an insurer'sinsurer’s investments under this paragraph shall not exceed ten percent of the insurer'sinsurer’s admitted assets.

Excluding investments under paragraph -a-,“a”, an insurer'sinsurer’s investments under this subsection shall not exceed fifteen percent of the insurer'sinsurer’s admitted assets.

An insurer'sinsurer’s aggregate investments under this subsection and subsection 12 shall not exceed forty-five percent of the insurer'sinsurer’s admitted assets.

An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, provided that the insurer'sinsurer’s board of directors, or the board of directors'directors’ designee, adopts a written plan that is consistent with the insurer'sinsurer’s investment policies under subsection 33, , and that specifies guidelines and objectives including all of the following:

A description of how any cash received will either be invested or used for the insurer'sinsurer’s general corporate purposes.

The aggregate amount of foreign investments then held by the insurer under this subsection does not exceed twenty percent of the insurer'sinsurer’s admitted assets.

The aggregate amount of foreign investments under this subsection then held by the insurer in a single foreign jurisdiction that has a sovereign debt rating of SVO 1 does not exceed ten percent of the insurer'sinsurer’s admitted assets, or does not exceed three percent of the insurer'sinsurer’s admitted assets as to any other foreign jurisdiction.

Derivative transactions.

Thea. insurer shall include all counterparty exposure amounts, net of collateral held, in determining compliance with the limitations of subsections 6 and 7 .

The insurer shall include all counterparty exposure amounts, net of collateral held, in determining compliance with the limitations of subsections 6 and 7.

The insurer shall have sufficient experience with derivatives such that the insurer'sinsurer’s performance and procedures reflect all of the following:

18 short-term liquidity to purchase the underlying assets on exercise of the option, the insurer has the ability to hold the underlying assets in the insurer'sinsurer’s portfolio, and the total market value of the put options sold by the insurer does not exceed two percent of the insurer'sinsurer’s admitted assets.

(c) A sale of a covered cap or floor, if the insurer holds in the insurer'sinsurer’s portfolio the investments generating the cash flow necessary to make the required payments under the cap or floor during the complete term that cap or floor is outstanding.

An insurer may make a loan on any of the insurer'sinsurer’s policies in an amount not to exceed the reserve that the insurer is required to maintain on the policy on which a loan is made.

An insurer may acquire preferred stock, if, as a result of and after giving effect to the investment, the aggregate amount of preferred stock held by the insurer does not exceed twenty-five percent of the insurer'sinsurer’s admitted assets, and the aggregate amount of preferred stocks held by the insurer that are not designated P1 or P2 by the SVO does not exceed ten percent of the insurer'sinsurer’s admitted assets.

For the purpose of determining compliance with the quantitative limits in this subsection, the collateral pledged to the insurer shall be aggregated with the insurer'sinsurer’s direct investments.

An insurer may acquire investments not otherwise authorized under this section, or that exceed the limitation of this section in an amount in the aggregate not exceeding ten percent of the insurer'sinsurer’s admitted assets.

Investments authorized under this subsection shall not include investments prohibited under subsection 44. .

An investment qualified, in whole or in part, for acquisition or holding as an admitted asset may be qualified or requalified, in whole or in part, by the insurer at either the time of acquisition or a later date under any subsection of this section if the relevant conditions contained in the applicable subsection are satisfied at the time of the insurer'sinsurer’s qualification or requalification.

The commissioner may take any enforcement action under the commissioner'scommissioner’s authority to enforce compliance with this section.

Agricultural land, as defined in section 9H.1, acquired as providcdprovided in scctionsection 511.8, subscctionsubsection 10, paragraph -b-,“b”, a result of foreclosure or in settlement or in satisfaction of any indebtedness by a life insurance company or association incorporated by or organized under the laws of this or any other state, shall be sold or otherwise disposed of by the company or association within five years after title is vested in the company or association.

A society shall invest its the society'ssociety’s funds only as authorized by the laws of this state for the investment of assets of life insurers and subject to the same limitations.

A foreign or alien society permitted or seeking to do business in this state which invests its funds in accordance with the laws of the state or nation in which -it-it the foreign or alien society is incorporated, shall be held to meet the requirements of this section for the investment of funds.

A society organized under the laws of thi3this 3tatcstate shall dcpo3itdeposit sccuriticssecurities as rcquircdrequired of liftlife insuranccinsurance companic3companies pursuant to scctionsection 511.8, subsection Sec.16.

Sec.

With the exception of investments made in accordance with section 514B.6, the investable funds of a health maintenance organization shall be invested only in securities or other investments permitted by section 511.8 for the investment of assets constituting the lcgallegal rescrvC3reserves of life insurance companies or such other securities or investments as the commissioner may permit.

Section 521A.2, subsection 1, paragraph cc, , Code 2023, is amended to read as follows:

Investing, reinvesting, or trading in securities and financial instrumcntsinstruments as dcfincddefined in derivative transactions pursuant to section 511.8, subsection -2-a22 16, for 1taits the domestic insurersinsurer’s own account, that of its parent, any subsidiary of its parent, or any affiliate or subsidiary.

Section 521A.2, subsection 33, , paragraph d, Code 2023, is amended to read as follows:

Invest, reinvest, and trade in financial instrumcntsinstruments a3as dcfincddefined in derivative transactions pursuant to section 511.8, House File 271, p.

21 subsection 2-222 16, for --sits the domestic insurer'sinsurer’s own account, that of its parent, any subsidiary of its parent, or any affiliate or subsidiary.

______________________________ ______________________________ PAT GRASSLEY AMY SINCjSINCLAIR IR Speaker of théthe House PresidenPresident of the Senate I hereby certify that this bill originated in the House and is known as House File 271, Ninetieth General Assembly.

h______________________________ nMEGHAN t - MEGUAN NELSON ChiChief Clerk of the House Approved ,_______________, 2023 ______________________________ KIM REYNOLDS Governor