There is a newer version of the Iowa Code
2009 Iowa Code
Title 13 - Commerce
Subtitle 1 - Insurance and Related Regulation
CHAPTER 511 - PROVISIONS APPLICABLE TO LIFE INSURANCE COMPANIES AND ASSOCIATIONS
511.8 - INVESTMENT OF FUNDS.
511.8 INVESTMENT OF FUNDS.
A company organized under chapter 508 shall, at all times, have
invested in the securities provided in this section, funds equivalent
to its legal reserve. Legal reserve is the net present value of all
outstanding policies and contracts involving life contingencies.
This section does not prohibit a company or association from holding
a portion of its legal reserve in cash.
The investment programs developed by companies shall take into
account the safety of the company's principal, investment yield and
return, stability in the value of the investment, and liquidity
necessary to meet the company's expected business needs and
investment diversification.
1. United States government obligations.
a. Bonds or other evidences of indebtedness issued, assumed,
or guaranteed by the United States of America, or by any agency or
instrumentality of the United States of America.
b. Bonds or other evidences of indebtedness issued, assumed,
or guaranteed by the United States of America, or by any agency or
instrumentality of the United States of America include investments
in an open-end management investment company registered with the
federal securities and exchange commission under the federal
Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq., and
operated in accordance with 17 C.F.R. § 270.2a-7, the portfolio of
which is limited to the United States government obligations
described in paragraph "a", and which are included in the
national association of insurance commissioners' securities valuation
office's United States direct obligations--full faith and credit
exempt list.
2. State, District of Columbia, territorial and municipal
obligations. Bonds or other evidences of indebtedness issued,
assumed, or guaranteed by the District of Columbia, or by any state,
insular or territorial possession of the United States of America, or
by any county, city, town, school, road, drainage, or other district
located within any state, or insular or territorial possession of the
United States of America, or by any civil subdivision or governmental
authority of any such state, or insular or territorial possession, or
by any instrumentality of any such state, or insular or territorial
possession, civil subdivision, or governmental authority; provided
that the obligations are valid, legally authorized and issued.
3. Canadian government, provincial and municipal obligations.
Bonds or other evidences of indebtedness issued, assumed, or
guaranteed by the Dominion of Canada, or by any province thereof, or
by any municipality or district therein, provided that the
obligations are valid, legally authorized and issued.
4. International Bank bonds. Bonds or other evidence of
indebtedness issued, assumed or guaranteed by the International Bank
for reconstruction and development, in an amount not to exceed two
percent of its total assets as shown by the last annual report, or by
the Inter-American Development Bank in an amount not to exceed two
percent of its total assets as shown by the last annual report, by
the Asian Development Bank in an amount not to exceed two percent of
its total assets as shown by the last annual report or by the African
Development Bank in an amount not to exceed two percent of its total
assets as shown by the last annual report. However, the combined
investment in bonds or evidences of indebtedness permitted by this
subsection shall not exceed four percent of its total assets as shown
by the last annual report.
5. Corporate obligations. Subject to the restrictions
contained in subsection 8 hereof, bonds or other evidences of
indebtedness issued, assumed, or guaranteed by a corporation
incorporated under the laws of the United States of America, or of
any state, district, insular or territorial possession thereof; or of
the Dominion of Canada, or any province thereof; and which meet the
following qualifications:
a. If fixed interest-bearing obligations, the net earnings of
the issuing, assuming or guaranteeing corporation available for its
fixed charges for a period of five fiscal years next preceding the
date of acquisition of the obligations by such insurance company
shall have averaged per year not less than one and one-half times
such average annual fixed charges of the issuing, assuming or
guaranteeing corporation applicable to such period, and, during at
least one of the last two years of such period, its net earnings
shall have been not less than one and one-half times its fixed
charges for such year; or if, at the date of acquisition, the
obligations are adequately secured and have investment qualities and
characteristics wherein the speculative elements are not predominant.
However, with respect to fixed interest-bearing obligations which
are issued, assumed or guaranteed by a financial company, the net
earnings by the financial company available for its fixed charges for
the period of five fiscal years preceding the date of acquisition of
the obligations by the insurance company shall have averaged per year
not less than one and one-fourth times such average annual fixed
charges of the issuing, assuming or guaranteeing financial company
applicable to such period, and, during at least one of the last two
years of the period, its net earnings shall have been not less than
one and one-fourth times its fixed charges for such year; or if, at
the date of acquisition, the obligations are adequately secured and
speculative elements are not predominant in their investment
qualities and characteristics. As used in this paragraph,
"financial company" means a corporation which on the average over
its last five fiscal years preceding the date of acquisition of its
obligations by the insurer, has had at least fifty percent of its net
income, including income derived from subsidiaries, derived from the
business of wholesale, retail, installment, mortgage, commercial,
industrial or consumer financing, or from banking or factoring, or
from similar or related lines of business.
b. If adjustment, income or other contingent interest
obligations, the net earnings of the issuing, assuming or
guaranteeing corporation available for its fixed charges for a period
of five fiscal years next preceding the date of acquisition of the
obligations by such insurance company shall have averaged per year
not less than one and one-half times such average annual fixed
charges of the issuing, assuming or guaranteeing corporation and its
average annual maximum contingent interest applicable to such period
and, during at least one of the last two years of such period, its
net earnings shall have been not less than one and one-half times the
sum of its fixed charges and maximum contingent interest for such
year, or if, at the date of acquisition, the obligations are
adequately secure and have investment qualities and characteristics
and speculative elements are not predominant.
The term "net earnings available for fixed charges" as used
herein shall mean the net income after deducting all operating and
maintenance expenses, taxes other than any income taxes, depreciation
and depletion, but nonrecurring items of income or expense may be
excluded.
The term "fixed charges" as used herein shall include interest
on unfunded debt and funded debt on a parity with or having a
priority to the obligation under consideration.
The term "corporation" as used in this chapter includes a
joint stock association, a limited liability company, a partnership,
or a trust.
The securities, real estate, and mortgages described in this
section include participations, which means instruments evidencing
partial or undivided collective interests in such securities, real
estate, and mortgages.
6. Preferred and guaranteed stocks. Subject to the
restrictions contained in subsection 8 hereof, preferred stocks of,
or stocks guaranteed by, a corporation incorporated under the laws of
the United States of America, or of any state, district, insular or
territorial possession thereof; or of the Dominion of Canada, or any
province thereof; and which meet the following qualifications:
a. Preferred stocks.
(1) All of the obligations and preferred stocks of the issuing
corporation, if any, prior to the preferred stock acquired must be
eligible as investments under this section as of the date of
acquisition; and
(2) The net earnings available for fixed charges and preferred
dividends of the issuing corporation shall have been, for each of the
five fiscal years immediately preceding the date of acquisition, not
less than one and one-half times the sum of the annual fixed charges
and contingent interest, if any, and the annual preferred dividend
requirements as of the date of acquisition; or at the date of
acquisition the preferred stock has investment qualities and
characteristics wherein speculative elements are not predominant.
The term "preferred dividend requirements" shall mean
cumulative or noncumulative dividends whether paid or not.
The term "fixed charges" shall be construed in accordance with
subsection 5 above. The term "net earnings available for fixed
charges and preferred dividends" as used herein shall mean the net
income after deducting all operating and maintenance expenses, taxes,
including any income taxes, depreciation and depletion, but
nonrecurring items may be excluded.
b. Guaranteed stocks.
(1) All of the fixed interest-bearing obligations of the
guaranteeing corporation, if any, must be eligible under this section
as of the date of acquisition; and
(2) The net earnings available for fixed charges of the
guaranteeing corporation shall meet the requirements outlined in
paragraph "a" of subsection 5 above, except that all guaranteed
dividends shall be included in "fixed charges".
Any investments in preferred stocks or guaranteed stocks made
under the provisions of this subsection shall be considered as moneys
and credits for purposes of taxation and their assessment shall be
subject to deductions for indebtedness as provided by law in the case
of assessment of moneys and credits in general. This provision shall
be effective as to assessments made during the year 1947 and
thereafter.
7. Equipment trust obligations. Subject to the restrictions
contained in subsection 8, bonds, certificates, or other evidences of
indebtedness secured by any transportation equipment used wholly or
in part in the United States of America or Canada, that provide a
right to receive determined rental, purchase or other fixed
obligatory payments adequate to retire the obligations within twenty
years from date of issue, and also provide:
a. For vesting of title to such equipment free from
encumbrance in a corporate trustee, or
b. For creation of a first lien on such equipment.
8. Further restrictions. Securities included under
subsections 5, 6, and 7 shall not be eligible:
a. If the corporation is in default on fixed obligations as
of the date of acquisition. Securities provided in paragraph "a"
of subsection 6 shall not be eligible if the issuing corporation is
in arrears with respect to the payment of any preferred dividends as
of the date of acquisition.
b. The investments of any company or association in such
securities shall not be eligible in excess of the following
percentages of the legal reserve of such company or association:
(1) With the exception of public securities, two percent of the
legal reserve in the securities of any one corporation. Five percent
of the legal reserve in the securities of any one public utility
corporation.
(2) Seventy-five percent of the legal reserve in the securities
described in subsection 5 issued by other than public utility
corporations. Fifty percent of the legal reserve in the securities
described in subsection 5 issued by public utility corporations.
(3) Ten percent of the legal reserve in the securities described
in subsection 6.
(4) Ten percent of the legal reserve in the securities described
in subsection 7.
c. Statements adjusted to show the actual condition at the
time of acquisition or the effect of new financing, known
commercially as pro forma statements, may be used in determining
whether investments under subsections 5 and 6 are in compliance with
requirements. Statements so adjusted or consolidated statements may
be used in order to include the earnings of all predecessor, merged,
consolidated, or purchased companies.
9. Real estate bonds and mortgages.
a. (1) Bonds, notes, obligations, or other evidences of
indebtedness secured by mortgages or deeds of trust which are a first
or second lien upon otherwise unencumbered real property and
appurtenances thereto within the United States of America, or any
insular or territorial possession of the United States, or the
Dominion of Canada, and upon leasehold estates in real property where
fifty years or more of the term including renewals is unexpired,
provided that at the date of acquisition the total indebtedness
secured by the first or second lien shall not exceed ninety percent
of the value of the property upon which it is a lien. However, a
company or organization shall not acquire an indebtedness secured by
a first or second lien upon a single parcel of real property, or upon
a leasehold interest in a single parcel of real property, in excess
of two percent of its legal reserve. These limitations do not apply
to obligations described in paragraphs "b", "c", "d",
"e", "f", and "g" of this subsection.
(2) Improvements and appurtenances to real property shall not be
considered in estimating the value of the property unless the owner
contracts to keep the property adequately insured during the life of
the loan in some reliable fire insurance companies, or associations,
the insurance to be made payable in case of loss to the mortgagee,
trustee, or assignee as its interest appears at the time of the loss.
(3) For the purpose of this subsection a mortgage or deed of
trust is not other than a first or second lien upon property 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
or by reason of building restrictions or other like restrictive
covenants, or when the real estate is subject to lease in whole or in
part whereby rents or profits are reserved to the owner.
b. Bonds, notes, or other evidences of indebtedness
representing loans and advances of credit that have been issued,
guaranteed, or insured, in accordance with the terms and provisions
of an Act of Congress of the United States of America approved June
27, 1934, entitled the "National Housing Act", 48 Stat. 1246, 12
U.S.C. § 1701 et seq., as amended to and including January 1, 2008,
or of an Act of Congress of the United States of America approved
July 24, 1970, entitled the "Federal Home Loan Mortgage Corporation
Act", 84 Stat. 451, 12 U.S.C. § 1451 et seq., as amended to and
including January 1, 2008.
c. Bonds, notes, or other evidences of indebtedness
representing loans and advances of credit that have been issued or
guaranteed, in whole or in part, in accordance with the terms and
provisions of Tit. III of an Act of Congress of the United States of
America approved June 22, 1944, known as Public Law 346, Pub. L. No.
78-268, cited as the "Servicemen's Readjustment Act of 1944", 58
Stat. 284, recodified at 72 Stat. 1105, 1273, 38 U.S.C. § 3701 et
seq., as amended to and including January 1, 2008.
d. Contracts of sale, purchase money mortgages or deeds of
trust secured by property obtained through foreclosure, or in
settlement or satisfaction of any indebtedness, or in the acquisition
or disposition of real property acquired pursuant to subsection 14.
e. Bonds, notes, or other evidences of indebtedness
representing loans and advances of credit that have been issued or
guaranteed, in whole or in part, in accordance with Tit. I of the
Bankhead-Jones Farm Tenant Act, an Act of the Congress of the United
States, cited as the "Farmers Home Administration Act of 1946", 60
Stat. 1062, as amended to and including the effective date or dates
of its repeal as set forth in 76 Stat. 318, or with Tit. III of an
Act of Congress of the United States of America approved August 8,
1961, entitled the "Consolidated Farm and Rural Development Act", 75
Stat. 307, 7 U.S.C. § 1921 et seq., as amended to and including
January 1, 2008.
f. Bonds, notes, obligations or other evidences of
indebtedness secured by mortgages or deeds of trust which are a first
lien upon unencumbered personal or real property or both personal and
real property, including a leasehold of real estate, within the
United States of America, or any insular or territorial possession of
the United States of America, or the Dominion of Canada, under lease,
purchase contract, or lease purchase contract to any governmental
body or instrumentality whose obligations qualify under subsection 1,
2 or 3 of this section, or to a corporation whose obligations qualify
under paragraph "a" of subsection 5 of this section, if the terms
of the bond, note or other evidence of indebtedness provide for the
amortization during the initial, fixed period of the lease or
contract of one hundred percent of the indebtedness and there is
pledged or assigned, as additional security for the loan, sufficient
of the rentals payable under the lease, or of contract payments, to
provide the required payments on the loan necessary to permit such
amortization, including but not limited to payments of principal,
interest, ground rents and taxes other than the income taxes of the
borrower; provided, however, that where the security consists of a
first mortgage or deed of trust lien on a fee interest in real
property only, the bond, note or other evidence of indebtedness may
provide for the amortization during the initial, fixed period of the
lease or contract of less than one hundred percent of the
indebtedness if there is to be left unamortized at the end of such
period an amount not greater than the appraised value of the land
only, exclusive of all improvements, and if there is pledged or
assigned, as additional security for the loan, sufficient of the
rentals payable under the lease, or of contract payments, to provide
the required payments on the loan necessary to permit such
amortization, including but not limited to payments of principal,
interest, and taxes other than the income taxes of the borrower.
Investments made in accordance with the provisions of this paragraph
shall not be eligible in excess of twenty-five percent of the legal
reserve, nor shall any one such investment in excess of five percent
of the legal reserve be eligible.
g. Bonds, notes or other evidences of indebtedness
representing loans and advances of credit that have been issued,
guaranteed, or insured, in accordance with the terms and provisions
of an Act of the federal Parliament of the Dominion of Canada, cited
as the "National Housing Act", R.S.C. 1985, c. N-11 as amended to and
including January 1, 2008.
10. Real estate.
a. Real estate in this state which is necessary for the
accommodation of the company or association as a home office or in
the transaction of its business. In the erection of buildings for
such purposes, there may be added rooms for rent. Before the company
or association invests any of its funds in accordance with this
paragraph it shall first obtain the consent of the commissioner. The
maximum amount which a company or association shall be permitted to
invest in accordance with these provisions shall not exceed ten
percent of the legal reserve. However, a stock company may invest
such portion of its paid-up capital, in addition to ten percent of
the legal reserve, as is not held to constitute a part of its legal
reserve, under section 508.36, and the total legal reserve of the
company shall be equal to or exceed the amount of its paid-up capital
stock.
b. Any real estate acquired through foreclosure, or in
settlement or satisfaction of any indebtedness. Any company or
association may improve real estate so acquired or remodel existing
improvements and exchange such real estate for other real estate or
securities, and real estate acquired by such exchange may be improved
or the improvements remodeled.
11. Certificates of sale. Certificates of sale obtained
through foreclosure of liens on real estate.
12. Policy loans. Loans upon the security of the policies of
the company or association and constituting a lien thereon in an
amount not exceeding the legal reserve thereon.
13. Collateral loans. Loans secured by collateral consisting
of any securities qualified in this section, provided the amount of
the loan is not in excess of ninety percent of the value of the
securities.
Provided further that subsection 8 of this section shall apply to
the collateral securities pledged to the payment of loans authorized
in this subsection.
14. Urban real estate and personal property. Personal or
real property or both located within the United States or the
Dominion of Canada, other than real property used or to be used
primarily for agricultural, horticultural, ranching or mining
purposes, which produces income or which by suitable improvement will
produce income. However, personal property acquired under this
subsection shall be acquired for the purpose of entering into a
contract for the sale or for a use under which the contractual
payments may reasonably be expected to result in the recovery of the
investment and an investment return within the anticipated useful
life of the property. Legal title to the real property may be
acquired subject to a contract of sale. "Real property" as used
in this subsection includes a leasehold of real estate, an undivided
interest in a leasehold of real estate, and an undivided interest in
the fee title of real estate. Investments under this subsection are
not eligible in excess of ten percent of the legal reserve.
15. Railroad obligations. Bonds or other evidences of
indebtedness which carry a fixed rate of interest and are issued,
assumed or guaranteed by any railroad company incorporated under the
laws of the United States of America, or of any state, district,
insular or territorial possessions thereof, not in reorganization or
receivership at the time of such investment, provided that the
railroad company:
a. Shall have had for the three-year period immediately
preceding investment, for which the necessary data for the railroad
company shall have been published, a balance of income available for
fixed charges which shall have averaged per year not less than one
and one-quarter times the fixed charges for the latest year of the
period; and
b. Shall have had for the three-year period immediately
preceding investment, for which the necessary data for both the
railroad company and all class I railroads shall have been published:
(1) A balance of income available for the payment of fixed
charges at least as many times greater than the fixed charges for the
latest year of the period as the balance of income available for the
payment of fixed charges of all class I railroads for the same
three-year period is times greater than the amount of all fixed
charges for such class I railroads for the latest year of the period;
and
(2) An amount of railway operating revenues remaining after
deduction of three times the fixed charges for the latest year of the
period from the balance of income available for the payment of fixed
charges for the three-year period, which amount is as great a
proportion of its railway operating revenues for the same three-year
period as is the proportion of railway operating revenues remaining
for all class I railroads, determined in the same manner and for the
same period as for the railroad.
The terms "class I railroads", "balance of income available
for the payment of fixed charges", "fixed charges" and
"railway operating revenues" when used in this subsection, are to
be given the same meaning as in the accounting reports filed by a
railroad company in accordance with the regulations for common
carriers by rail of the Interstate Commerce Act, 24 Stat. 379,
codified at 49 U.S.C. § 1--40, 1001--1100, provided that the
"balance of income available for the payment of fixed charges"
and "railway operating revenues remaining", as the terms are used
in this subsection, shall be computed before deduction of federal
income or excess profits taxes; and that in computing "fixed
charges" there shall be excluded interest and amortization charges
applicable to debt called for redemption or which will otherwise
mature within six months from the time of investment and for the
payment of which funds have been or currently are being specifically
set aside.
The eligibility of railroad obligations described in the first
sentence of this subsection shall be determined exclusively as
provided herein, without regard to the provisions for qualification
contained in subsections 5 and 8 of this section. Provisions for
qualification contained in this section shall not be construed as
applying to equipment trust obligations, guaranteed stocks, or
contingent interest bonds of railroad companies. Investments made in
accordance with the provisions of this subsection shall not be
eligible in excess of ten percent of the legal reserve.
16. Deposit of securities. Securities in an amount not less
than the legal reserve as defined in this section shall be deposited
and the deposit maintained with the commissioner of insurance or at
such places as the commissioner may designate as will properly
safeguard them. There may be included in the deposit an amount of
cash on hand not in excess of five percent of the deposit required,
that deposit to be evidenced by a certified check, certificate of
deposit, or other evidence satisfactory to the commissioner of
insurance. Deposits of securities may be made in excess of the
amounts required by this section. A stock company organized under
the laws of this state shall not be required to make a deposit until
the legal reserve, as ascertained by the commissioner, exceeds the
amount deposited by it as capital. Real estate may be made a part of
the deposit by furnishing evidence of ownership satisfactory to the
commissioner and by conveying the real estate to the commissioner or
the commissioner's successors in office by warranty deed. The
commissioner and the successors in office shall hold the real estate
in trust for the benefit of the policyholders of the company or
members of the association. Real estate mortgage loans and policy
loans may be made a part of the deposit by filing a verified
statement of the loans with the commissioner, which statement is
subject to check at the discretion of the commissioner.
The securities comprising the deposit of a company or association
against which proceedings are pending under section 508.18 shall vest
in the state for the benefit of all policyholders of the company or
association.
Securities or title to real estate on deposit may be withdrawn at
any time and other eligible securities may be substituted, provided
the amount maintained on deposit is equal to the sum of the legal
reserve and twenty-five thousand dollars. In the case of real estate
the commissioner shall execute and deliver to the company or
association a quitclaim deed to the real estate. Any company or
association shall, if requested by the commissioner, at the time of
withdrawing any securities on deposit, designate for what purpose the
same are being withdrawn.
Companies or associations having securities or title to real
estate on deposit with the commissioner of insurance shall have the
right to collect all dividends, interest, rent, or other income from
the deposit unless proceedings against the company or association are
pending under section 508.18, in which event the commissioner shall
collect such interest, dividends, rent, or other income and add the
same to the deposit.
Any company or association receiving payments or partial payments
of principal on any securities deposited with the commissioner of
insurance shall notify the commissioner of such fact at such times
and in such manner as the commissioner may prescribe, giving the
amount and date of payment.
The commissioner of insurance may receive on deposit securities or
title to real estate of alien companies authorized to do business in
the state of Iowa, for the purpose of securing its policyholders in
the state of Iowa and the United States. The provisions hereof not
inconsistent with the deposit agreement shall apply to the deposits
of such alien companies.
17. Rules of valuation.
a. All bonds or other evidences of debt having a fixed term
and rate of interest, if amply secured and not in default as to
principal or interest, may be valued as follows:
(1) If purchased at par, at the par value.
(2) If purchased above or below par, on the basis of the purchase
price adjusted so as to bring the value to par at maturity and so as
to yield in the meantime the effective rate of interest at which the
purchase was made.
In applying the above rule, the purchase price shall in no case be
taken at a higher figure than the actual market value at the time of
purchase.
b. Certificates of sale obtained by foreclosure of liens on
real estate shall be valued in an amount not greater than the unpaid
principal of the defaulted indebtedness plus any amounts actually
expended for taxes and acquisition costs.
c. All investments, except those for which a specific rule is
provided in this subsection, shall be valued at their market value,
or at their appraised value, or at prices determined by the
commissioner of insurance as representing their fair market value, or
at a value as determined under rules adopted by the national
association of insurance commissioners.
The commissioner of insurance shall have full discretion in
determining the method of calculating values according to the
foregoing rules, but no company or association shall be prevented
from valuing any asset at an amount less than that provided by this
subsection.
18. Common stocks or shares.
a. Common stocks or shares issued by solvent corporations or
institutions are eligible if the total investment in stocks or shares
in the corporations or institutions does not exceed ten percent of
legal reserve, provided not more than one-half percent of the legal
reserve is invested in stocks or shares of any one corporation.
However, the stocks or shares shall be listed or admitted to trading
on an established foreign securities exchange or a securities
exchange in the United States or shall be publicly held and traded in
the "over-the-counter market" and market quotations shall be readily
available, and further, the investment shall not create a conflict of
interest for an officer or director of the company between the
insurance company and the corporation whose stocks or shares are
purchased.
b. Common stocks or shares in a subsidiary corporation, the
acquisition or purchase of which is authorized by section 508.33 are
eligible if the total investment in these stocks or shares does not
exceed five percent of the legal reserve; provided, however, that
common stocks or shares of stock in a direct or indirect subsidiary
insurance company which is domiciled in the United States are
eligible up to an additional two percent of the legal reserve upon
application by the insurer to and upon approval by the commissioner.
Stocks or shares of the insurer's subsidiary corporations are not
eligible in total in excess of seven percent of the legal reserve and
the stock or shares of any one subsidiary corporation are not
eligible in excess of five percent of the legal reserve. These
stocks or shares are eligible even if the stocks or shares are not
listed or admitted to trading on a securities exchange in the United
States and are not publicly held and have not been traded in the
"over-the-counter market". The stocks or shares shall be valued at
their book value; provided, however, that stocks or shares of a
direct or indirect subsidiary insurance company held in the legal
reserve of up to an additional two percent of the legal reserve shall
be valued at their statutory book value, excluding approved permitted
practices.
c. Common stocks or shares issued by any federal home loan
bank under the Federal Home Loan Bank Act, 12 U.S.C. § 1421 et seq.,
and the Acts amendatory thereof, are eligible if the total investment
in those stocks or shares does not exceed one-half of one percent of
the legal reserve.
19. Other foreign government or corporate obligations. Bonds
or other evidences of indebtedness, not to include currency, issued,
assumed, or guaranteed by a foreign government other than Canada, or
by a corporation incorporated under the laws of a foreign government
other than Canada. Such governmental obligations must be valid,
legally authorized and issued, and on the date of acquisition have
predominantly investment qualities and characteristics as provided by
rule. Such corporate obligations must meet the qualifications
established in subsection 5 for bonds and other evidences of
indebtedness issued, assumed, or guaranteed by a corporation
incorporated under the laws of the United States or Canada. Foreign
investments authorized by this subsection are not eligible in excess
of twenty percent of the legal reserve of the life insurance company
or association. Investments in obligations of a foreign government,
other than Canada and the United Kingdom, are not eligible in excess
of two percent of the legal reserve in the securities of foreign
governments of any one foreign nation. Investments in obligations of
the United Kingdom are not eligible in excess of four percent of the
legal reserve. Investments in a corporation incorporated under the
laws of a foreign government other than Canada are not eligible in
excess of two percent of the legal reserve in the securities of any
one foreign corporation.
Eligible investments in foreign obligations under this subsection
are limited to the types of obligations specifically referred to in
this subsection. This subsection in no way limits or restricts
investments in Canadian obligations and securities specifically
authorized in other subsections of this section.
This subsection shall not authorize investment in evidences of
indebtedness issued, assumed, or guaranteed by a foreign government
which engages in a consistent pattern of gross violations of human
rights.
20. Venture capital funds. Shares or equity interests in
venture capital funds which agree to invest an amount equal to at
least fifty percent of the funds in small businesses having their
principal offices within this state and having either more than one
half of their assets within this state or more than one half of their
employees employed within this state. A company shall not invest
more than five percent of its legal reserve under this subsection.
For purposes of this subsection, "venture capital fund" means a
corporation, partnership, proprietorship, or other entity formed
under the laws of the United States, or a state, district, or
territory of the United States, whose principal business is or will
be the making of investments in, and the provision of significant
managerial assistance to, small businesses which meet the small
business administration definition of small business. "Equity
interests" means limited partnership interests and other equity
interests in which liability is limited to the amount of the
investment, but does not mean general partnership interests or other
interests involving general liability.
"Venture capital fund" includes an equity interest in the Iowa
fund of funds as defined in section 15E.62.
21. Use of custodian banks, clearing corporations, and the
federal reserve book-entry system.
a. As used in this subsection:
(1) "Clearing corporation" means a corporation as defined in
section 554.8102.
(2) "Custodian bank" means a federal or state bank or trust
company regulated under the Iowa banking laws or the federal reserve
system, which maintains an account in its name in a clearing
corporation and acts as custodian of securities owned by a domestic
insurer.
(3) "Federal reserve book-entry system" means the
computerized system sponsored by the United States department of the
treasury and certain agencies and instrumentalities of the United
States for holding and transferring securities of the United States
government and its agencies and instrumentalities, in the federal
reserve banks through national banks, state banks, or trust
companies, which either are members of the federal reserve system or
otherwise have access to the computerized systems.
b. Securities deposited by a domestic insurance company with
a custodian bank, or redeposited by a custodian bank with a clearing
corporation, or held in the federal reserve book-entry system may be
used to meet the deposit requirements of subsection 16. The
commissioner shall adopt rules necessary to implement this section
which:
(1) Establish guidelines on which the commissioner determines
whether a custodian bank qualifies as a bank in which securities
owned by an insurer may be deposited for the purpose of satisfying
the requirements of subsection 16.
(2) Designate those clearing corporations in which securities
owned by insurers may be deposited.
(3) Set forth provisions that custodian agreements executed
between custodian banks and insurers shall contain. These shall
include provisions stating that minimum deposit levels shall be
maintained and that the parties agree securities in deposits with
custodian banks shall vest in the state in accordance with section
508.18 whenever proceedings under that section are instituted.
(4) Establish other safeguards applicable to the use of custodian
banks and clearing corporations by insurers which the commissioner
believes necessary to protect the policyholders of the insurers.
c. A security owned by a domestic insurer and deposited in a
custodian bank or clearing corporation does not qualify for purposes
of its legal reserve deposit unless the custodian bank and clearing
corporation are approved by the commissioner for that purpose.
22. Financial instruments used in hedging transactions.
a. As used in this subsection, unless the context otherwise
requires:
(1) "Financial instrument" means an agreement, option,
instrument, or any series or combination agreement, option, or
instrument that provides for either of the following:
(a) To make or take delivery of, or assume or relinquish, a
specified amount of one or more underlying interests, or to make a
cash settlement in lieu of such delivery or relinquishment.
(b) Which has a price, performance, value, or cash flow based
primarily upon the actual or expected price, level, performance,
value, or cash flow of one or more underlying interests.
(2) "Financial instrument transaction" means a transaction
involving the use of one or more financial instruments.
(3) "Hedging transaction" means a financial instrument
transaction which is entered into and maintained to reduce either of
the following:
(a) The risk of a change in the value, yield, price, cash flow,
or quality of assets or liabilities which the domestic insurer has
acquired and maintains as qualified assets in its legal reserve
deposit or which liabilities the domestic insurer has incurred and
form the basis for calculation of its legal reserve.
(b) The currency exchange-rate risk or the degree of exposure as
to assets or liabilities which the domestic insurer has acquired or
incurred.
(4) "United States government-sponsored enterprise" means the
federal national mortgage corporation under 12 U.S.C. § 1716--23i of
the National Housing Act and the federal home loan marketing
association under the Federal Home Loan Mortgage Act, 12 U.S.C. §
1451--59.
b. To be eligible as investments, financial instruments used
in hedging transactions shall be either of the following:
(1) Be between an insurer and a counterparty that meets the
qualifications established in subsection 5 for an issuer, obligor, or
guarantor of bonds or other evidences of indebtedness issued,
assumed, or guaranteed by a corporation incorporated under the laws
of the United States or of any state, district, or insular or
territorial possession thereof, or Canada, or that meets the
qualifications established in subsection 19 for an issuer, obligor,
or guarantor of bonds or other evidences of indebtedness issued,
assumed, or guaranteed by a corporation incorporated under the laws
of a foreign government other than Canada.
(2) Be between an insurer and a conduit and be collateralized by
cash or obligations which are eligible under subsection 1, 2, 3, 5,
19, or 24, are deposited with a custodian bank as defined in
subsection 21, and are held under a written agreement with the
custodian bank that complies with subsection 21 and provides for the
proceeds of the collateral, subject to the terms and conditions of
the applicable collateral or other credit support agreement, to be
remitted to the legal reserve deposit of the company or association
and to vest in the state in accordance with section 508.18 whenever
proceedings under that section are instituted. Paragraphs "c",
"d", and "e" of this subsection are not applicable to
investments in financial instruments used in hedging transactions
eligible pursuant to this subparagraph. As used in this
subparagraph, "conduit" means a person within an insurer's
insurance holding company system, as defined in section 521A.1,
subsection 5, which aggregates hedging transactions by other persons
within the insurance holding company system and replicates them with
counterparties.
(a) Financial instruments used in hedging transactions between an
insurer and a conduit which are collateralized by obligations
eligible under subsection 5, 19, or 24 are eligible only to the
extent that such securities deposited as collateral are not in excess
of two percent of the legal reserve in the securities of any one
corporation, less any securities of that corporation owned by the
insurer or which are the subject of hedging transactions by the
insurer, that are included in the insurer's legal reserve.
(b) Financial instruments used in hedging transactions between an
insurer and a conduit which are collateralized by obligations
eligible under subsection 5 or by cash equivalents eligible under
subsection 24, other than a class one money market fund, are eligible
only to the extent that such securities deposited as collateral are
not in excess of ten percent of the legal reserve, less any
obligations eligible under subsection 5 or cash equivalents eligible
under subsection 24, other than a class one money market fund, owned
by the insurer or which are the subject of hedging transactions by
the insurer, that are included in the insurer's legal reserve.
(c) Financial instruments used in hedging transactions between an
insurer and a conduit which are collateralized by obligations
eligible under subsection 19 are eligible only to the extent that
such securities deposited as collateral are not in excess of twenty
percent of the legal reserve, less any securities eligible under
subsection 19 owned by the insurer or which are the subject of
hedging transactions by the insurer, that are included in the
insurer's legal reserve.
(3) Financial instruments used in hedging transactions shall be
eligible only as provided by this paragraph "b" and rules adopted
by the commission pursuant to chapter 17A setting standards for
hedging transactions between an insurer and a conduit as authorized
under section 521A.5, subsection 1, paragraph "b".
c. Investments in financial instruments used in hedging
transactions are not eligible in excess of two percent of the legal
reserve in the financial instruments of any one corporation, less any
securities of that corporation owned by the company or association
and in which its legal reserve is invested, except insofar as the
financial instruments are collateralized by cash, United States
government obligations as authorized by subsection 1, or obligations
of or guaranteed by a United States government-sponsored enterprise
which on the date they are pledged as collateral are adequately
secured and have investment qualities and characteristics wherein the
speculative elements are not predominant, which are deposited with a
custodian bank as defined in subsection 21, and held under a written
agreement with the custodian bank that complies with subsection 21
and provides for the proceeds of the collateral, subject to the terms
and conditions of the applicable collateral or other credit support
agreement, to be remitted to the legal reserve deposit of the company
or association and to vest in the state in accordance with section
508.18 whenever proceedings under that section are instituted.
d. Investments in financial instruments used in hedging
transactions are not eligible in excess of ten percent of the legal
reserve, except insofar as the financial instruments are
collateralized by cash, United States government obligations as
authorized by subsection 1, or obligations of or guaranteed by a
United States government-sponsored enterprise which on the date they
are pledged as collateral are adequately secured and have investment
qualities and characteristics wherein the speculative elements are
not predominant, which are deposited with a custodian bank as defined
in subsection 21, and held under a written agreement with the
custodian bank that complies with subsection 21 and provides for the
proceeds of the collateral, subject to the terms and conditions of
the applicable collateral or other credit support agreement, to be
remitted to the legal reserve deposit of the company or association
and to vest in the state in accordance with section 508.18 whenever
proceedings under that section are instituted.
e. (1) Investments in financial instruments of foreign
governments or foreign corporate obligations, other than Canada, used
in hedging transactions shall be included in the limitation contained
in subsection 19 that allows only twenty percent of the legal reserve
of the company or association to be invested in such foreign
investments, except insofar as the financial instruments are
collateralized by cash, United States government obligations as
authorized by subsection 1, or obligations of or guaranteed by a
United States government-sponsored enterprise which on the date they
are pledged as collateral are adequately secured and have investment
qualities and characteristics wherein the speculative elements are
not predominant, which are deposited with a custodian bank as defined
in subsection 21, and held under a written agreement with the
custodian bank that complies with subsection 21 and provides for the
proceeds of the collateral, subject to the terms and conditions of
the applicable collateral or other credit support agreement, to be
remitted to the legal reserve deposit of the company or association
and to vest in the state in accordance with section 508.18 whenever
proceedings under that section are instituted.
(2) This paragraph "e" does not authorize the inclusion of
financial instruments used in hedging transactions in an insurer's
legal reserve that are in excess of the eligibility limitation
provided in paragraph "d" unless the financial instruments are
collateralized as provided in this paragraph "e".
f. Prior to engaging in hedging transactions under this
subsection, a domestic insurer shall develop and adequately document
policies and procedures regarding hedging transaction strategies and
objectives. Such policies and procedures shall address authorized
hedging transactions, limitations, internal controls, documentation,
and authorization and approval procedures. Such policies and
procedures shall also provide for review of hedging transactions by
the domestic insurer's board of directors or the board of directors'
designee.
g. A domestic insurer shall be able to demonstrate to the
commissioner the intended hedging characteristics of hedging
transactions under this subsection and the ongoing effectiveness of
each hedging transaction or combination of hedging transactions.
h. Financial instruments used in hedging transactions shall
only be eligible in accordance with this subsection after the
commissioner has adopted rules pursuant to chapter 17A regulating
hedging transactions under this subsection.
23. Security loans.
a. A life insurance company or association may loan
securities held by it in its legal reserve to a broker-dealer
registered under the Securities Exchange Act of 1934, a national
bank, or a state bank, foreign bank, or trust company that is a
member of the United States federal reserve system, and the loaned
securities shall continue to be eligible for inclusion in the legal
reserve of the life insurance company or association.
b. The loan shall be fully collateralized by cash, cash
equivalents, or obligations issued or guaranteed by the United States
or an agency or instrumentality of the United States. The life
insurance company or association shall take delivery of the
collateral either directly or through an authorized custodian.
c. If the loan is collateralized by cash or cash equivalents,
the cash or cash equivalent collateral may be reinvested by the life
insurance company or association in either individual securities
which are eligible for inclusion in the legal reserve of the life
insurance company or association or in repurchase agreements fully
collateralized by such securities if the life insurance company or
association takes delivery of the collateral either directly or
through an authorized custodian or pooled fund comprised of
individual securities which are eligible for inclusion in the legal
reserve of the life insurance company or association. If such
reinvestment is made in individual securities or in repurchase
agreements, the individual securities or the securities which
collateralize the repurchase agreements shall mature in less than two
hundred seventy days. If such reinvestment is made in a pooled fund,
the average maturity of the securities comprising such pooled fund
must be less than two hundred seventy days. Individual securities
and securities comprising the pooled fund shall be investment grade.
d. The loan shall be evidenced by a written agreement which
provides all of the following:
(1) That the loan will be fully collateralized at all times
during the term of the loan, and that the collateral will be adjusted
as necessary each business day during the term of the loan to
maintain the required collateralization in the event of market value
changes in the loaned securities or collateral.
(2) If the loan is fully collateralized by cash or cash
equivalents, the cash or cash equivalent may be reinvested by the
life insurance company or association as provided in paragraph
"c".
(3) That the loan may be terminated by the life insurance company
or association at any time, and that the borrower shall return the
loaned stocks or obligations or equivalent stocks or obligations
within five business days after termination.
(4) That the life insurance company or association has the right
to retain the collateral or use the collateral to purchase
investments equivalent to the loaned securities if the borrower
defaults under the terms of the agreement, and that the borrower
remains liable for any losses and expenses incurred by the life
insurance company or association due to default that are not covered
by the collateral.
e. Securities loaned pursuant to this subsection are not
eligible for inclusion in the legal reserve of the life insurance
company or association in excess of twenty percent of the legal
reserve.
24. Cash equivalents.
a. As used in this subsection, unless the context otherwise
requires:
(1) "Cash equivalents" means highly liquid investments with
an original term to maturity of ninety days or less that are all of
the following:
(a) Readily convertible to a known amount of cash without
penalty.
(b) So near maturity that the investment presents an
insignificant risk of change in value.
(c) Rated any of the following:
(i) "P-1" by Moody's investors services, inc.
(ii) "A-1" by Standard and Poor's division of McGraw-Hill
companies, inc., or by the national association of insurance
commissioners' securities valuation office.
(iii) Equivalent by a nationally recognized statistical rating
organization that is recognized by the national association of
insurance commissioners' securities valuation office.
(2) "Class one money market fund" means investments in an
open-end management investment company registered with the federal
securities and exchange commission under the federal Investment
Company Act of 1940, 15 U.S.C. § 80a-1 et seq., and operated in
accordance with 17 C.F.R. § 270.2a-7, that qualifies for investment
using the bond class one reserve factor under the purposes and
procedures of the national association of insurance commissioners'
securities valuation office.
b. Cash equivalents include a class one money market fund.
c. Cash equivalents, other than a class one money market
fund, are not eligible in excess of two percent of the legal reserve
in the obligations of any one corporation, and are not eligible in
excess of ten percent of the legal reserve. Section History: Early Form
[C73, § 1179--1181; C97, § 1791--1793, 1803, 1804, 1806, 1807;
SS15, § 1806; C24, 27, 31, 35, 39, § 8698--8701, 8735--8739, 8741,
8742, 8744, 8747; C46, 50, 54, 58, 62, 66, 71, 73, 75, 77, 79, 81,
§ 511.8; 81 Acts, ch 168, § 1; 82 Acts, ch 1095, § 2--5] Section History: Recent Form
84 Acts, ch 1067, § 40; 85 Acts, ch 136, § 1; 85 Acts, ch 228, §
4; 85 Acts, ch 252, § 31; 87 Acts, ch 64, § 1--4; 88 Acts, ch 1112, §
205; 89 Acts, ch 83, § 69; 89 Acts, ch 311, § 29; 91 Acts, ch 26,
§38, 59, 60; 96 Acts, ch 1013, § 1; 96 Acts, ch 1138, § 1, 84; 98
Acts, ch 1014, § 1; 2000 Acts, ch 1023, §15--18, 60; 2002 Acts, ch
1119, §179; 2003 Acts, ch 91, §20; 2004 Acts, ch 1110, § 28--31; 2006
Acts, ch 1010, §136, 137; 2006 Acts, ch 1117, §50--54; 2008 Acts, ch
1123, § 20--23; 2009 Acts, ch 145, §8
Referred to in § 508.13, 508.14, 508.29, 508C.8, 511.8A, 511.9,
512B.21, 514B.15, 521A.2, 521G.6
Similar provisions, § 515.35
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