Download as PDF
304.7-413 Permitted acquisitions -- Loan-to-value ratio -- Exemption for
certain mortgage loans and credit lease transactions -- Real estate -Ratios relating to aggregate amount of investments.
(1)
(a)
(b)
(c)
Subject to the limitations of KRS 304.7-403, 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:
1.
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;
2.
Eighty percent (80%) of the fair market value of the real estate, if the
mortgage loan requires immediate scheduled payment 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 be no 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
3.
Seventy-five percent (75%) of the fair market value of the real estate
for mortgage loans that do not meet the requirements of
subparagraph 1. or 2. of this paragraph.
For purposes of paragraph (a) of this subsection, 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
requirements 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.
(d)
(2)
(a)
(b)
(3)
(a)
Subject to the limitations of KRS 304.7-403, credit lease transactions that
do not qualify for investment under KRS 304.7-405 with the following
characteristics shall be exempt from the provisions of paragraph (a) of
this subsection:
1.
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;
2.
The lease payments cover or exceed the total debt service over the
life of the loan;
3.
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;
4.
The insurer holds or is the beneficial holder of a first lien mortgage
on the real estate;
5.
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
6.
There is a perfected assignment of the rents due in accordance with
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
subsection (4)(b) and (c) 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:
1.
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 subsection
(2) of this section and is so qualified by the insurer;
2.
The real estate acquired under this subsection may be subject to
(4)
(a)
(b)
(c)
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 paragraph (d) of subsection (4) of this section; and
3.
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 accident and health insurer or its insured.
An insurer may acquire real estate used for these purposes under
subsection (2) of this section.
An insurer shall not acquire an investment under subsection (1) 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
subsection (1) of this section would exceed:
1.
One percent (1%) of its admitted assets in mortgage loans covering
any one (1) secured location;
2.
One-quarter of one percent (0.25%) of its admitted assets in
construction loans covering any one (1) secured location; or
3.
Two percent (2%) of its admitted assets in construction loans in the
aggregate.
An insurer shall not acquire an investment under subsection (2) of this
section if, as 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 subsection (2) of this section plus the guarantees then outstanding
would exceed:
1.
One percent (1%) of its admitted assets in 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 accident and health insurer for its
insureds, such as hospitals, medical clinics, medical professional
buildings, or other health facilities used for the purpose of providing
health services; or
2.
Fifteen percent (15%) of its admitted assets in the aggregate, but
not more than five percent (5%) of its admitted assets as to
properties that are to be improved or developed.
An insurer shall not acquire an investment under subsection (1) or (2) of
this section if, as a result of and after giving effect to the investment and
any guarantees made by the insurer in connection with the investment,
the aggregate amount of all investments then held by the insurer under
subsections (1) and (2) of this section plus the guarantees then
outstanding would exceed forty-five percent (45%) of its admitted assets.
However, an insurer may exceed this limitation by no more than thirty
percent (30%) of its admitted assets if:
1.
This increased amount is invested only in residential mortgage
(d)
loans;
2.
The insurer has no more than ten percent (10%) of its admitted
assets invested in mortgage loans other than residential mortgage
loans;
3.
The loan-to-value ratio of each residential mortgage loan does not
exceed sixty percent (60%) at the time the mortgage loan is qualified
under this increased authority, and the fair market value is
supported by an appraisal no more than two (2) years old, prepared
by an independent appraiser;
4.
A single mortgage loan qualified under this increased authority shall
not exceed one-half of one percent (0.5%) of its admitted assets;
5.
The insurer files with the commissioner, and receives approval from
the commissioner for, a plan that is designed to result in a portfolio
of residential mortgage loans that is sufficiently geographically
diversified; and
6.
The insurer agrees to file annually with the commissioner records
that demonstrate that its portfolio of residential mortgage loans is
geographically diversified in accordance with the plan.
The limitations of KRS 304.7-403 shall not apply to an insurer's
acquisition of real estate under subsection (3) of this section. An insurer
shall not acquire real estate under subsection (3) of this section if, as a
result of and after giving effect to the acquisition, the aggregate amount of
real estate then held by the insurer under subsection (3) 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 (3) of this section.
Effective:July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1017, effective July 15, 2010. -Created 2000 Ky. Acts ch. 388, sec. 13, effective July 14, 2000.
Disclaimer: These codes may not be the most recent version. Kentucky may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.