2011 Kentucky Revised Statutes Subtitle 7. Investments 304.7.465 Permitted acquisitions -- Loan-to-value ratio -- Exemptions for certain mortgage loans and credit release transactions -- Real estate -- Ratios relating to aggregate amount of investments.
KY Rev Stat § 304.7.465 (1996 through Reg Sess) What's This?
304.7-465 Permitted acquisitions -- Loan-to-value ratio -- Exemptions for certain
mortgage loans and credit release transactions -- Real estate -- Ratios relating
to aggregate amount of investments.
(1)
(2)
(3)
Subject to the limitations of KRS 304.7-455, an insurer may acquire, either directly
or indirectly through limited partnership interests and general partnership interests
not otherwise prohibited by KRS 304.7-363(4), joint ventures, stock of an
investment subsidiary or membership interests in a limited liability company, trust
certificates, or other similar instruments, obligations secured by mortgages on real
estate situated within a domestic jurisdiction, but a mortgage loan that is secured by
other than a first lien shall not be acquired unless the insurer is the holder of the first
lien. The obligations held by the insurer and any obligations with an equal lien
priority, shall not, at the time of acquisition of the obligation, exceed:
(a) Ninety percent (90%) of the fair market value of the real estate, if the
mortgage loan is secured by a purchase money mortgage or like security
received by the insurer upon disposition of the real estate;
(b) Eighty percent (80%) of the fair market value of the real estate, if the
mortgage loan requires immediate scheduled payments in periodic
installments of principal and interest, has an amortization period of thirty (30)
years or less, and periodic payments made no less frequently than annually.
Each periodic payment shall be sufficient to assure that at all times the
outstanding principal balance of the mortgage loan shall not be greater than
the outstanding principal balance that would be outstanding under a mortgage
loan with the same original principal balance, with the same interest rate, and
requiring equal payments of principal and interest with the same frequency
over the same amortization period. Mortgage loans permitted under this
subsection are permitted notwithstanding the fact that they provide for a
payment of the principal balance prior to the end of the period of amortization
of the loan. For residential mortgage loans, the eighty percent (80%) limitation
may be increased to ninety-seven percent (97%) if acceptable private
mortgage insurance has been obtained; or
(c) Seventy-five percent (75%) of the fair market value of the real estate for
mortgage loans that do not meet the requirements of paragraph (a) or (b) of
this subsection.
For purposes of subsection (1) of this section, the amount of an obligation required
to be included in the calculation of the loan-to-value ratio may be reduced to the
extent the obligation is insured by the Federal Housing Administration, guaranteed
by the Administrator of Veteran Affairs, or their successors.
A mortgage loan that is held by an insurer under KRS 304.7-014(7) or acquired
under this section and is restructured in a manner that meets the requirement of a
restructured mortgage loan in accordance with the NAIC Accounting Practices and
Procedures Manual or successor publication shall continue to qualify as a mortgage
loan under this subtitle.
(4)
(5)
(6)
(7)
Subject to the limitations of KRS 304.7-455, credit lease transactions that do not
qualify for investment under KRS 304.7-457 with the following characteristics shall
be exempt from the provisions of subsection (1) of this section:
(a) The loan amortizes over the initial fixed lease term at least in an amount
sufficient so that the loan balance at the end of the lease term does not exceed
the original appraised value of the real estate;
(b) The lease payments cover or exceed the total debt service over the life of the
loan;
(c) A tenant or its affiliated entity whose rated credit instruments have a SVO 1 or
2 designation or a comparable rating from a nationally recognized statistical
rating organization recognized by the SVO has a full faith and credit
obligation to make the lease payments;
(d) The insurer holds or is the beneficial holder of a first lien mortgage on the real
estate;
(e) The expenses of the real estate are passed through to the tenant excluding
exterior, structural, parking, and heating, ventilation and air conditioning
replacement expenses, unless annual escrow contributions, from cash flows
derived from the lease payments, cover the expense shortfall; and
(f) There is a perfected assignment of the rents due under the lease to or for the
benefit of the insurer.
An insurer may acquire, manage, and dispose of real estate situated in a domestic
jurisdiction either directly or indirectly through limited partnership interests and
general partnership interests not otherwise prohibited by KRS 304.7-363(4), joint
ventures, stock of an investment subsidiary or membership interests in a limited
liability company, trust certificates, or other similar instruments. The real estate
shall be income producing or intended for improvement or development for
investment purposes under an existing program, in which case the real estate shall
be deemed to be income producing.
The real estate may be subject to mortgages, liens, or other encumbrances, the
amount of which shall, to the extent that the obligations secured by the mortgages,
liens, or encumbrances are without recourse to the insurer, be deducted from the
amount of the investment of the insurer in the real estate for purposes of
determining compliance with subsections (9) and (10) of this section.
An insurer may acquire, manage, and dispose of real estate for the convenient
accommodation of the insurer's, which may include its affiliates, business
operations, including home office, branch office, and field office operations.
(a) Real estate acquired under this subsection may include excess space for rent to
others if the excess space, valued at its fair market value, would otherwise be
a permitted investment under subsections (5) and (6) of this section and is so
qualified by the insurer;
(b) The real estate acquired under this subsection may be subject to one (1) or
more mortgages, liens, or other encumbrances, the amount of which shall, to
the extent that the obligations secured by the mortgages, liens, or
encumbrances are without recourse to the insurer, be deducted from the
amount of the investment of the insurer in the real estate for purposes of
determining compliance with subsection (11) of this section; and
(c) For purposes of this subsection, "business operations" shall not include that
portion of real estate used for the direct provision of health care services by an
insurer whose insurance premiums and required statutory reserves for accident
and health insurance constitute at least ninety-five percent (95%) of total
premium considerations or total statutory required reserves, respectively. An
insurer may acquire real estate used for these purposes under subsections (5)
and (6) of this section.
(8) An insurer shall not acquire an investment under subsections (1) to (4) of this
section if, as a result of and after giving effect to the investment, the aggregate
amount of all investments then held by the insurer under subsections (1) to (4) of
this section would exceed:
(a) One percent (1%) of its admitted assets in mortgage loans covering any one
(1) secured location;
(b) One-quarter of one percent (0.25%) of its admitted assets in construction loans
covering any one (1) secured location; or
(c) One percent (1%) of its admitted assets in construction loans in the aggregate.
(9) An insurer shall not acquire an investment under subsections (5) and (6) of this
section if, a result of and after giving effect to the investment and any outstanding
guarantees made by the insurer in connection with the investment, the aggregate
amount of investments then held by the insurer under subsections (5) and (6) of this
section plus the guarantees then outstanding would exceed:
(a) One percent (1%) of its admitted assets in any one (1) parcel or group of
contiguous parcels of real estate, except that this limitation shall not apply to
that portion of real estate used for the direct provision of health care services
by an insurer whose insurance premiums and required statutory reserves for
accident and health insurance constitute at least ninety-five percent (95%) of
total premium considerations or total statutory required reserves, respectively,
such as hospitals, medical clinics, medical professional buildings, or other
health facilities used for the purpose of providing health services; or
(b) The lesser of ten percent (10%) of its admitted assets or forty percent (40%) of
its surplus as regards policyholders in the aggregate, except for an insurer
whose insurance premiums and required statutory reserves for accident and
health insurance constitute at least ninety-five percent (95%) of total premium
considerations or total statutory required reserves, respectively, this limitation
shall be increased to fifteen percent (15%) of its admitted assets in the
aggregate.
(10) An insurer shall not acquire an investment under subsections (1) to (6) of this
section if, as a result of and after giving effect to the investment and any guarantees
it has made in connection with the investment, the aggregate amount of all
investments then held by the insurer under subsections (1) to (6) of this section plus
the guarantees then outstanding would exceed twenty-five percent (25%) of its
admitted assets.
(11) The limitations of KRS 304.7-455 shall not apply to an insurer's acquisition of real
estate under subsection (7) of this section. An insurer shall not acquire real estate
under subsection (7) of this section if, as a result of and after giving effect to the
acquisition, the aggregate amount of all real estate then held by the insurer under
subsection (7) of this section would exceed ten percent (10%) of its admitted assets.
With the permission of the commissioner, additional amounts of real estate may be
acquired under subsection (7) of this section.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1023, effective July 15, 2010. -- Created
2000 Ky. Acts ch. 388, sec. 26, effective July 14, 2000.
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