HB 419 -- Insurance Company Investments

Sponsor:  Yates

This bill changes the laws regarding insurance company
investments.

POLICE AND FIREMEN'S RETIREMENT SYSTEMS

Currently, the board of trustees of police and firemen's pension
systems are not subject to the investment limitations established
in Section 376.305, RSMo.  The bill makes these systems subject
to the limitations.

INVESTMENT PRACTICES OF DOMESTIC INSURERS

The bill:

(1)  Exempts insurers organized under Chapter 376 from several
requirements in Chapter 375 including the following:

(a)  Insurance companies cannot deal or trade in goods, wares,
merchandise, commodities, or certain real estate purchases,
sales, or trades;

(b)  Domestic insurers must invest in stocks or shares having at
least the second highest designation or quality rating conferred
by the Securities Valuation Office of the National Association of
Insurance Commissioners;

(c)  Investments in foreign governments or corporations are
permitted if the investments are allowed in United States
companies; and

(d)  Insurance companies must follow the provisions of Sections
375.1070 - 375.1075, Investments in Medium and Lower Quality
Obligations Law;

(2)  Allows insurers organized under Chapter 376 to engage in
derivative transactions through an investment subsidiary;

(3)  Establishes provisions which apply to investments and
investment practices of domestic insurers organized under
Chapter 376.  Terms relative to these provisions are defined;

(4)  Requires an insurer's board of directors to adopt a plan for
acquiring investments and for engaging in investment practices
appropriate for the business conducted by the insurer, its
liquidity needs, and its capital and surplus needs.  Prohibited
investments are also specified;

(5)  Prohibits insurers, without prior approval of the Director
of the Department of Insurance, Financial Institutions, and
Professional Registration from:

(a)  Making a loan to or investment in an officer of the insurer
or a person in which the officer has any financial interest;

(b)  Making a guarantee for the benefit of or in favor of an
officer of the insurer or a person in which the officer has a
financial interest; and

(c)  Entering into an agreement for the purchase or sale of
property from or to an officer of the insurer or a person in
which the officer has any financial interest;

(6)  Allows an insurer, without prior approval of the director,
to:

(a)  Make policy loans in accordance with the terms of the
contract;

(b)  Advance reasonable expenses expected in the course of
business to directors or officers;

(c)  Make loans secured by the principal residence of an existing
officer in connection with the officer's relocation at the
insurer's request; and

(d)  Make loans or advances to officers or directors which comply
with state and federal laws pertaining to loans made to a
regulated noninsurance subsidiary or affiliate of the insurer in
the normal course of business;

(7)  Requires investments to be valued based on published
accounting and valuation standards of the National Association of
Insurance Commissioners;

(8)  Prohibits insurers from investing more than 3% of its
admitted assets in investments issued by a single person or 5% in
investments in the voting securities of an institution.  This
limitation will not apply to amounts insured by a single
financial guaranty insurer having the highest generic rating
issued by a nationally recognized statistical rating organization
or to asset-backed securities.  Requirements are established for
medium-grade, low-grade, and Canadian investments;

(9)  Allows an insurer, subject to certain limitations, to
acquire rated credit instruments assumed, guaranteed, or issued
by the United States, Canada, government-sponsored enterprises of
the United States or Canada, a government or class one money
market mutual fund, a class one bond mutual fund, or general
obligation instruments of the state;

(10)  Allows an insurer to invest in tangible personal property
if the resulting ownership of the property returns to the insurer
the cost of the investment plus a return deemed adequate by the
insurer.  Investments in tangible property cannot exceed 2% of
admitted assets or .5% on any single item;

(11)  Allows insurers to acquire obligations secured by mortgages
on real estate situated within a domestic jurisdiction.  A
mortgage loan secured by other than a first lien cannot be
acquired unless the insurer is the holder of the first lien and
it meets certain requirements.  The real estate must be income
producing or intended for improvement or development to produce
income;

(12)  Allows insurers to enter into securities lending,
repurchase, reverse repurchase, and dollar roll transactions
subject to the board of directors adopting a written plan
detailing how cash received will be invested or used, operational
procedures used to manage investments risk, and the extent an
insurer may engage in these transactions; and

(13)  Establishes conditions and requirements for insurers to
invest in foreign markets.

Missouri House of Representatives
94th General Assembly, 1st Regular Session
Last Updated July 25, 2007 at 11:19 am