§ 27-1-13-3 — Investment of capital and funds above capital; real estate interests

Indiana § 27-1-13-3

• Jurisdiction: Indiana
• Title 27: INSURANCE
• Art. 1: DEPARTMENT OF INSURANCE
• Ch. 13: Casualty, Fire, and Marine Insurance Company Powers

Text

(a) The following definitions apply throughout
this section:
(1) "Acceptable collateral" means the following:
(A) As to securities lending transactions and for the purpose of
calculating counterparty exposure:
(i) cash;
(ii) cash equivalents;
(iii) letters of credit; and
(iv) direct obligations of, or securities that are fully
guaranteed as to principal and interest by, the government of
the United States or any agency of the United States,
including the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
(B) As to lending foreign securities, sovereign debt rated 1 by
the Securities Valuation Office.
(C) As to repurchase transactions:
(i) cash;
(ii) cash equivalents; and
(iii) direct obligations of, or securities that are fully
guaranteed as to principal and interest by, the government of
the United States or any agency of the United States,
including the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation.
(D) As to reverse repurchase transactions:
(i) cash; and
(ii) cash equivalents.
(2) "Admitted assets" means assets permitted to be reported as
admitted assets on the statutory financial statement of the insurer
most recently required to be filed with the commissioner.
(3) "Business entity" means any of the following:
(A) A sole proprietorship.
(B) A corporation.
(C) A limited liability company.
(D) An association.
(E) A general partnership.
(F) A limited partnership.
(G) A limited liability partnership.
(H) A joint stock company.
(I) A joint venture.
(J) A trust.
(K) A joint tenancy.
(L) Any other similar form of business organization, whether
for profit or nonprofit.
(4) "Cash" means any of the following:
(A) United States denominated paper currency and coins.
(B) Negotiable money orders and checks.
(C) Funds held in any time or demand deposit in any depository
institution, the deposits of which are insured by the Federal
Deposit Insurance Corporation.
(5) "Cash equivalent" means any of the following:
(A) A certificate of deposit issued by a depository institution,
the deposits of which are insured by the Federal Deposit
Insurance Corporation.
(B) A banker's acceptance issued by a depository institution, the
deposits of which are insured by the Federal Deposit Insurance
Corporation.
(C) A government money market mutual fund.
(D) A class one (1) money market mutual fund.
(6) "Class one (1) money market mutual fund" means a money
market mutual fund that at all times qualifies for investment using
the bond class one (1) reserve factor pursuant to the Purposes and
Procedures Manual of the NAIC Investment Analysis Office.
(7) "Derivative transaction" has the meaning set forth in IC 27-1-12-2.2(a)(14).
(8) "Government money market mutual fund" means a money
market mutual fund that at all times:
(A) invests only in obligations issued, guaranteed, or insured by
the United States or collateralized repurchase agreements
composed of these obligations; and
(B) qualifies for investment without a reserve pursuant to the
Purposes and Procedures Manual of the NAIC Investment
Analysis Office.
(9) "Money market mutual fund" means a mutual fund that meets
the conditions of 17 CFR 270.2a-7, under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.).
(10) "Mutual fund" means:
(A) an investment company; or
(B) in the case of an investment company that is organized as
a series company, an investment company series;
that is registered with the United States Securities and Exchange
Commission under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.).
(11) "Obligation" means any of the following:
(A) A bond.
(B) A note.
(C) A debenture.
(D) Any other form of evidence of debt.
(12) "Qualified business entity" means a business entity that is:
(A) an issuer of obligations or preferred stock that is rated one
(1) or two (2) or is rated the equivalent of one (1) or two (2) by
the Securities Valuation Office or by a nationally recognized
statistical rating organization recognized by the Securities
Valuation Office; or
(B) a primary dealer in United States government securities,
recognized by the Federal Reserve Bank of New York.
(13) "Securities Valuation Office" refers to the Securities
Valuation Office of the NAIC.
(b) Any company, other than one organized as a life insurance
company, organized under the provisions of IC 27-1 or any other law
of this state and authorized to make any or all kinds of insurance
described in class 2 or class 3 of IC 27-1-5-1 shall invest its capital or
guaranty fund as follows and not otherwise:
(1) In cash.
(2) In:
(A) direct obligations of the United States; or
(B) obligations secured or guaranteed as to principal and
interest by the United States.
(3) In:
(A) direct obligations; or
(B) obligations secured by the full faith and credit;
of any state of the United States or the District of Columbia.
(4) In obligations of any county, township, city, town, village,
school district, or other municipal district within the United States
which are a direct obligation of the county, township, city, town,
village, or district issuing the same.
(5) In obligations secured by mortgages or deeds of trust or
unencumbered real estate or perpetual leases thereon in the
United States not exceeding eighty percent (80%) of the fair value
of the security determined in a manner satisfactory to the
department, except that the percentage stated may be exceeded if
and to the extent such excess is guaranteed or insured by the
United States, any state, territory, or possession of the United
States, the District of Columbia, Canada, any province of Canada,
or by an administration, agency, authority, or instrumentality of
any such governmental units. Where improvements on the land
constitute a part of the value on which the loan is made, the
improvements shall be insured against fire and tornado for the
benefit of the mortgagee. For the purposes of this section, real
estate may not be deemed to be encumbered by reason of the
existence of taxes or assessments that are not delinquent,
instruments creating or reserving mineral, oil, or timber rights,
rights-of-way, joint driveways, sewer rights, rights-in-walls, nor
by reason of building restrictions, or other restrictive covenants,
nor when such real estate is subject to lease in whole or in part
whereby rents or profits are reserved to the owner. The
restrictions contained in this subdivision do not apply to loans or
investments made under section 5 of this chapter.
(c) Any company organized under the provisions of this article or
any other law of this state and authorized to make any or all of the
kinds of insurance described in class 2 or class 3 of IC 27-1-5-1 shall
invest its funds over and above its required capital stock or required
guaranty fund as follows, and not otherwise:
(1) In cash or cash equivalents. However, not more than ten
percent (10%) of admitted assets may be invested in any single
government money market mutual fund or class one (1) money
market mutual fund.
(2) In direct obligations of the United States or obligations
secured or guaranteed as to principal and interest by the United
States.
(3) In obligations issued, guaranteed, or insured as to principal
and interest by a city, county, drainage district, road district,
school district, tax district, town, township, village or other civil
administration, agency, authority, instrumentality or subdivision
of a state, territory, or possession of the United States, the District
of Columbia, Canada, or any province of Canada, providing such
obligations are authorized by law and are either:
(A) direct and general obligations of the issuing, guaranteeing,
or insuring governmental unit, administration, agency,
authority, district, subdivision, or instrumentality;
(B) payable from designated revenues pledged to the payment
of the principal and interest of the obligations; or
(C) improvement bonds or other obligations constituting a first
lien, except for tax liens, against all of the real estate within the
improvement district or on that part of such real estate not
discharged from such lien through payment of the assessment.
The area to which the improvement bonds or other obligations
under clause (C) relate must be situated within the limits of a
town or city and at least fifty percent (50%) of the properties
within that area must be improved with business buildings or
residences.
(4) In:
(A) direct obligations; or
(B) obligations secured by the full faith and credit;
of any state of the United States, the District of Columbia, or
Canada or any province thereof.
(5) In obligations guaranteed, supported, or insured as to principal
and interest by the United States, any state, territory, or
possession of the United States, the District of Columbia, Canada,
any province of Canada, or by an administration, agency,
authority, or instrumentality of any of the political units listed in
this subdivision. An obligation is "supported" for the purposes of
this subdivision when repayment of the obligation is secured by
real or personal property of value at least equal to the principal
amount of the indebtedness by means of mortgage, assignment of
vendor's interest in one (1) or more conditional sales contracts,
other title retention device, or by means of other security interest
in the property for the benefit of the holder of the obligation, and
one (1) of the political units listed in this subdivision, or an
administration, agency, authority, or instrumentality listed in this
subdivision, has entered into a firm agreement to rent or use the
property pursuant to which entity is obligated to pay money as
rental or for the use of the property in amounts and at times that
are sufficient, after provision for taxes upon and for other
expenses of the use of the property, to repay in full the
indebtedness, both principal and interest, and when the firm
agreement and the money obligated to be paid under the
agreement are assigned, pledged, or secured for the benefit of the
holder of the obligation. However, where the security consists of
a first mortgage lien or deed of trust on a fee interest in real
property, the obligation may provide for the amortization, during
the initial fixed period of the lease or contract of less than one
hundred percent (100%) of the indebtedness if there is pledged or
assigned, as additional security for the obligation, sufficient
rentals payable under the lease, or of contract payments, to secure
the amortized obligation payments required during the initial,
fixed period of the lease or contract, including but not limited to
payments of principal, interest, and taxes other than the income
taxes of the borrower, and if there is to be left unamortized at the
end of the period an amount not greater than the original
appraised value of the land only, exclusive of all improvements,
as prescribed by law.
(6) In obligations secured by mortgages or deeds of trust or
unencumbered real estate or perpetual leases thereon, in any state
in the United States, the District of Columbia, Canada, or any
province of Canada, not exceeding eighty percent (80%) of the
fair value of the security determined in a manner satisfactory to
the department, except that the percentage stated may be
exceeded if and to the extent that the excess is guaranteed or
insured by the United States, any state, territory, or possession of
the United States, the District of Columbia, Canada, any province
of Canada, or by an administration, agency, authority, or
instrumentality of any of such governmental units. The value of
the real estate must be determined by a method and in a manner
satisfactory to the department. The restrictions contained in this
subdivision do not apply to loans or investments made under
section 5 of this chapter.
(7) In obligations issued under or pursuant to the Farm Credit Act
of 1971 (12 U.S.C. 2001 through 2279aa-14) as in effect on
December 31, 1990, or the Federal Home Loan Bank Act (12
U.S.C. 1421 through 1449) as in effect on December 31, 1990,
interest bearing obligations of the FSLIC Resolution Fund and
shares of any institution that is insured by the Federal Deposit
Insurance Corporation to the extent that the shares are insured,
obligations issued or guaranteed by the International Bank for
Reconstruction and Development, obligations issued or
guaranteed by the Inter-American Development Bank, and
obligations issued or guaranteed by the African Development
Bank.
(8) In any mutual fund that:
(A) has been registered with the Securities and Exchange
Commission for a period of at least five (5) years immediately
preceding the date of purchase;
(B) has net assets of at least twenty-five million dollars
($25,000,000) on the date of purchase; and
(C) invests substantially all of its assets in investments
permitted under this subsection.
The amount invested in any single mutual fund shall not exceed
ten percent (10%) of admitted assets. The aggregate amount of
investments under this subdivision may be limited by the
commissioner if the commissioner finds that investments under
this subdivision may render the operation of the company
hazardous to the company's policyholders, to the company's
creditors, or to the general public. This subdivision in no way
limits or restricts investments that are otherwise specifically
permitted under this section.
(9) In obligations payable in United States dollars and issued,
guaranteed, assumed, insured, or accepted by a foreign
government or by a solvent business entity existing under the laws
of a foreign government, if the obligations of the foreign
government or business entity meet at least one (1) of the
following criteria:
(A) The obligations carry a rating of at least A3 conferred by
Moody's Investor Services, Inc.
(B) The obligations carry a rating of at least A- conferred by
Standard & Poor's Corporation.
(C) The earnings available for fixed charges of the business
entity for a period of five (5) fiscal years preceding the date of
purchase have averaged at least three (3) times the average
fixed charges of the business entity applicable to the period,
and if during either of the last two (2) years of the period, the
earnings available for fixed charges were at least three (3) times
the fixed charges of the business entity for the year. As used in
this subdivision, the terms "earnings available for fixed
charges" and "fixed charges" have the meanings set forth in IC 27-1-12-2(a).
Foreign investments authorized by this subdivision shall not
exceed twenty percent (20%) of the company's admitted assets.
This subdivision in no way limits or restricts investments that are
otherwise specifically permitted under this section. Canada is not
a foreign government for purposes of this subdivision.
(10) In the obligations of any solvent business entity existing
under the laws of the United States, any state of the United States,
the District of Columbia, Canada, or any province of Canada,
provided that interest on the obligations is not in default.
(11) In the preferred or guaranteed shares of any solvent business
entity, so long as the business entity is not and has not been for
the preceding five (5) years in default in the payment of interest
due and payable on its outstanding debt or in arrears in the
payment of dividends on any issue of its outstanding preferred or
guaranteed stock.
(12) In the shares, other than those specified in subdivision (7), of
any solvent business entity existing under the laws of any state of
the United States, the District of Columbia, Canada, or any
province of Canada, and in the shares of any institution wherever
located which has the insurance protection provided by the
Federal Deposit Insurance Corporation. Except for the purpose of
mutualization or for the purpose of retirement of outstanding
shares of capital stock pursuant to amendment of its articles of
incorporation, or in connection with a plan approved by the
commissioner for purchase of such shares by the insurance
company's officers, employees, or agents, or for the elimination
of fractional shares, no company subject to the provisions of this
section may invest in its own stock.
(13) In loans upon the pledge of any mortgage, stocks, bonds, or
other evidences of indebtedness, acceptable as investments under
the terms of this chapter, if the current value of the mortgage,
stock, bond, or other evidences of indebtedness is at least
twenty-five percent (25%) more than the amount loaned on it.
(14) In real estate, subject to subsections (d) and (e).
(15) In securities lending, repurchase, and reverse repurchase
transactions with business entities, subject to the following
requirements:
(A) The company's board of directors shall adopt a written plan
that specifies guidelines and objectives to be followed, such as:
(i) a description of how cash received will be invested or used
for general corporate purposes of the company;
(ii) operational procedures to manage interest rate risk,
counterparty default risk, and the use of acceptable collateral
in a manner that reflects the liquidity needs of the transaction;
and
(iii) the extent to which the company may engage in these
transactions.
(B) The company shall enter into a written agreement for all
transactions authorized in this subdivision. The written
agreement shall require the termination of each transaction not
more than one (1) year from its inception or upon the earlier
demand of the company. The agreement shall be with the
counterparty business entity but, for securities lending
transactions, the agreement may be with an agent acting on
behalf of the company if the agent is a qualified business entity
and if the agreement:
(i) requires the agent to enter into separate agreements with
each counterparty that are consistent with the requirements of
this section; and
(ii) prohibits securities lending transactions under the
agreement with the agent or its affiliates.
(C) Cash received in a transaction under this section shall be
invested in accordance with this section and in a manner that
recognizes the liquidity needs of the transaction or used by the
company for its general corporate purposes. For as long as the
transaction remains outstanding, the company or its agent or
custodian shall maintain, as to acceptable collateral received in
a transaction under this section, either physically or through
book entry systems of the Federal Reserve, Depository Trust
Company, Participants Trust Company, or other securities
depositories approved by the commissioner:
(i) possession of the acceptable collateral;
(ii) a perfected security interest in the acceptable collateral;
or
(iii) in the case of a jurisdiction outside the United States,
title to, or rights of a secured creditor to, the acceptable
collateral.
(D) For purposes of calculations made to determine compliance
with this subdivision, no effect may be given to the company's
future obligation to resell securities in the case of a repurchase
transaction, or to repurchase securities in the case of a reverse
repurchase transaction. A company shall not enter into a
transaction under this subdivision if, as a result of and after
giving effect to the transaction:
(i) the aggregate amount of securities then loaned, sold to, or
purchased from any one (1) business entity pursuant to this
subdivision would exceed five percent (5%) of its admitted
assets (but, in calculating the amount sold to or purchased
from a business entity pursuant to repurchase or reverse
repurchase transactions, effect may be given to netting
provisions under a master written agreement); or
(ii) the aggregate amount of all securities then loaned, sold to,
or purchased from all business entities under this subdivision
would exceed forty percent (40%) of its admitted assets.
(E) In a securities lending transaction, the company shall
receive acceptable collateral having a market value as of the
transaction date at least equal to one hundred two percent
(102%) of the market value of the securities loaned by the
company in the transaction as of that date. If at any time the
market value of the acceptable collateral is less than the market
value of the loaned securities, the business entity shall be
obligated to deliver additional acceptable collateral, the market
value of which, together with the market value of all acceptable
collateral then held in connection with the transaction, at least
equals one hundred two percent (102%) of the market value of
the loaned securities.
(F) In a reverse repurchase transaction, the company shall
receive acceptable collateral having a market value as of the
transaction date at least equal to ninety-five percent (95%) of
the market value of the securities transferred by the company in
the transaction as of that date. If at any time the market value of
the acceptable collateral is less than ninety-five percent (95%)
of the market value of the securities so transferred, the business
entity shall be obligated to deliver additional acceptable
collateral, the market value of which, together with the market
value of all acceptable collateral then held in connection with
the transaction, equals at least ninety-five percent (95%) of the
market value of the transferred securities.
(G) In a repurchase transaction, the company shall receive as
acceptable collateral transferred securities having a market
value equal to at least one hundred two percent (102%) of the
purchase price paid by the company for the securities. If at any
time the market value of the acceptable collateral is less than
one hundred percent (100%) of the purchase price paid by the
company, the business entity shall be obligated to provide
additional acceptable collateral, the market value of which,
together with the market value of all acceptable collateral then
held in connection with the transaction, equals at least one
hundred two percent (102%) of the purchase price. Securities
acquired by a company in a repurchase transaction shall not be
sold in a reverse repurchase transaction, loaned in a securities
lending transaction, or otherwise pledged.
(16) In mortgage backed securities, including collateralized
mortgage obligations, mortgage pass through securities, mortgage
backed bonds, and real estate mortgage investment conduits,
adequately secured by a pool of mortgages, which mortgages are
fully guaranteed or insured by the government of the United
States or any agency of the United States, including the Federal
National Mortgage Association or the Federal Home Loan
Mortgage Corporation.
(17) In mortgage backed securities, including collateralized
mortgage obligations, mortgage pass through securities, mortgage
backed bonds, and real estate mortgage investment conduits,
adequately secured by a pool of mortgages, if the securities carry
a rating of at least:
(A) Baa3 conferred by Moody's Investor Services, Inc.; or
(B) BBB- conferred by Standard & Poor's Corporation.
The amount invested in any one (1) obligation or pool of
obligations described in this subdivision shall not exceed five
percent (5%) of admitted assets. The aggregate amount of all
investments under this subdivision shall not exceed ten percent
(10%) of admitted assets.
(18) Any other investment acquired in good faith as payment on
account of existing indebtedness or in connection with the
refinancing, restructuring, or workout of existing indebtedness, if
taken to protect the interests of the company in that investment.
(19) In obligations or interests in trusts or partnerships in which
a life insurance company may invest as described in paragraph 31
of IC 27-1-12-2(b). Investments authorized by this paragraph may
not exceed twenty percent (20%) of the company's admitted
assets.
(20) In any other investment. The total of all investments under
this subdivision, except for investments in subsidiary companies
under IC 27-1-23-2.6, may not exceed the greater of ten percent
(10%) of the insurer's admitted assets or fifty percent (50%) of the
insurer's capital and surplus. Investments are not permitted under
this subdivision:
(A) if expressly prohibited by statute; or
(B) in an insolvent organization or an organization in default
with respect to the payment of principal or interest on its
obligations.
(d) Any company subject to the provisions of this section shall have
power to acquire, hold, or convey real estate, or an interest therein, as
described below, and no other:
(1) Leaseholds, provided the mortgage term shall not exceed
four-fifths (4/5) of the unexpired lease term, including
enforceable renewable options, remaining at the time of the loan,
such real estate or leaseholds to be located in the United States,
any territory or possession of the United States, or Canada, the
value of such leasehold for statement purposes shall be
determined in a manner and form satisfactory to the department.
At the time the leasehold is acquired and approved by the
department, a schedule of annual depreciation shall be set up by
the department in which the value of said leasehold is to be
depreciated, and said depreciation is to be averaged out over not
exceeding a period of fifty (50) years.
(2) The building in which it has its principal office and the land
on which it stands.
(3) Such as shall be necessary for the convenient transaction of its
business.
(4) Such as shall have been acquired for the accommodation of its
business.
(5) Such as shall have been mortgaged to it in good faith by way
of security for loans previously contracted or for money due.
(6) Such as shall have been conveyed to it in connection with its
investments in real estate contracts or its investments in real
estate under lease or for the purpose of leasing or such as shall
have been acquired for the purpose of investment under any law,
order, or regulation authorizing such investment, for statement
purposes, the value of such real estate shall be determined in a
manner satisfactory to the department.
(7) Such as shall have been conveyed to it in satisfaction of debts
previously contracted in the course of its dealings, or in exchange
for real estate so conveyed to it.
(8) Such as it shall have purchased at sales on judgments, decrees,
or mortgages obtained or made for such debts.
(e) All real estate described in subsection (d)(4) through (d)(8)
which is not necessary for the convenient transaction of its business
shall be sold by said company and disposed of within ten (10) years
after it acquired title to the same, or within five (5) years after the same
has ceased to be necessary for the accommodation of its business,
unless the company procures the certificate of the commissioner that
its interests will suffer materially by a forced sale of the real estate, in
which event the time for the sale may be extended to such time as the
commissioner directs in the certificate.
(f) The board of directors of a company, other than a company
organized as a life insurance company, shall do all the following:
(1) Before engaging in derivatives transactions, approve a written
plan that specifies guidelines, systems, and objectives to be
followed, such as:
(A) investment of or, if applicable, underwriting objectives and
risk constraints, such as credit risk limits;
(B) permissible transactions and the relationship of those
transactions to the insurer's operations;
(C) internal control procedures;
(D) a system for determining whether a derivative instrument
used for hedging has been effective;
(E) a credit risk management system for over-the-counter
derivatives transactions that measures credit risk exposure
using the counterparty exposure amount; and
(F) a mechanism for reviewing and auditing compliance with
the guidelines, systems, and objectives specified in the written
plan.
(2) Before engaging in derivatives transactions, make a
determination that the insurer's investment managers have
adequate professional personnel, technical expertise, and systems
to implement the insurer's intended investment practices
involving derivative instruments.
(3) Review whether derivatives transactions have been made in
accordance with the approved guidelines and are consistent with
stated objectives.
(4) Take action to correct any deficiencies in internal controls
relating to derivatives transactions.
Formerly: Acts 1935, c.162, s.172; Acts 1937, c.288, s.3; Acts
1939, c.63, s.4; Acts 1949, c.206, s.1; Acts 1971, P.L.384, SEC.1; Acts
1973, P.L.277, SEC.1. As amended by Acts 1981, P.L.241, SEC.1;
P.L.159-1986, SEC.3; P.L.161-1986, SEC.1; P.L.121-1990, SEC.2;
P.L.8-1991, SEC.9; P.L.184-1996, SEC.2; P.L.186-1997, SEC.7;
P.L.1-2002, SEC.104; P.L.40-2004, SEC.2; P.L.89-2011, SEC.30;
P.L.81-2012, SEC.3; P.L.124-2018, SEC.30; P.L.130-2020,
SEC.4.