Report Title:
Insurance; Investments
Description:
Provides insurers with greater investment flexibility by updating the Insurance Code to reflect the investment strategies, such as stocks, bonds, and notes developed since the Code was last updated in 1987.
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THE SENATE |
S.B. NO. |
3019 |
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TWENTY-FOURTH LEGISLATURE, 2008 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
RELATING TO INSURANCE.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Section 431:6-101, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) For purposes of this article:
[(1) Obligation includes bonds, debentures,
notes, or other evidences of indebtedness.
(2) Institution includes corporations,
joint-stock associations, and business trusts.
(3) Net earnings available for fixed
charges means net income after deducting operating and maintenance expenses,
taxes other than federal and state income taxes, depreciation, and depletion,
but excluding extraordinary nonrecurring items of income or expense appearing
in the regular financial statements of such institution.
(4) Fixed charges includes] "Fixed
charges" means interest on funded and unfunded debt,
amortization of debt discount, and rentals for leased properties.
"Institution" means corporations, joint-stock associations, and business trusts.
"Net earnings available for fixed charges" means net income after deducting operating and maintenance expenses, taxes other than federal and state income taxes, depreciation, and depletion, but excluding extraordinary nonrecurring items of income or expense appearing in the regular financial statements of such institution.
"Obligation" means bonds, debentures, notes, or other evidence of indebtedness.
"Surplus as regards to policyholders" means the excess of the insurer's assets over its liabilities.
"SVO" means the Securities Valuation Office of the National Association of Insurance Commissioners.
[(5) Value]
"Value" means fair value. Market value is the best
evidence of fair value."
SECTION 2. Section 431:6-201, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
"(b) In addition to the investments
required by subsection (a), an insurer shall [invest
and keep invested its funds] maintain an amount aggregating
not less than one hundred per cent of its reserves and one hundred per cent
of its ceded reinsurance payable required
by this code, in the following assets as defined by section
431:5-201: cash [or], premiums in course of collection, reinsurance
recoverable on paid losses, or [in] investments eligible in
accordance with this article[.], including interest and
dividends receivable on the investments."
SECTION 3. Section 431:6-302, Hawaii Revised Statutes, is amended to read as follows:
"§431:6-302 Corporate obligations.
An insurer may invest any of its funds in obligations other than those eligible
for investment under section 431:6-306 if they are [issued;]:
(1) Issued, assumed, or guaranteed by
any solvent institution created or existing under the laws of the United States
or of any state, or district thereof[,];
and [are qualified under any of the
following:
(1) Obligations which are secured by
adequate collateral security and bear fixed interest, if during each of any
three, including the last two, of the five fiscal years next preceding the date
of acquisition by the insurer, the net earnings of the issuing, assuming, or
guaranteeing institution available for its fixed charges, as defined in section
431:6-101, have been not less than one and one-fourth times the total of its
fixed charges for such year. In determining the adequacy of collateral
security, not more than one-third of the total value of the required collateral
shall consist of stock other than stock meeting the requirements of section
431:6-303;
(2) Fixed interest-bearing obligations,
other than those described in item (1), if the net earnings of the issuing,
assuming, or guaranteeing institution available for its fixed charges for a
period of five fiscal years next preceding the date of acquisition by the
insurer, have averaged per year not less than one and one-half times its
average annual fixed charges applicable to the period, and if during the last
year of the period, the net earnings have been not less than one and one-half
times its fixed charges for the year; or
(3) Adjustment, income or other contingent interest
obligations, if the net earnings of the issuing, assuming, or guaranteeing
institution available for its fixed charges for a period of five fiscal years
next preceding the date of acquisition by the insurer have averaged per year
not less than one and one-half times the sum of its annual fixed charges and
its average maximum contingent interest applicable to the period, and if during
each of [the] last two years of the period, the net earnings have been not less
than one and one-half times the sum of its fixed charges and maximum contingent
interest for the year.]
(2) Filed with the SVO or are considered "filing exempt" by the Purposes and Procedures Manual of the SVO, or its successor publication."
SECTION 4. Section 431:6-303, Hawaii Revised Statutes, is amended to read as follows:
"§431:6-303 Preferred or guaranteed stocks or shares. An insurer may invest any of its funds, in an aggregate amount not exceeding fifteen per cent of its assets, in preferred or guaranteed stocks or shares, other than common stocks, of solvent institutions existing under the laws of the United States or of any state, district, or territory thereof, if
all of the prior obligations and prior preferred
stocks, if any, of [such] the
institution at the date of acquisition by the insurer are [eligible]:
(1) Eligible as investments under this
article; and [if qualified under either of
the following:
(1) Preferred stocks or shares shall be deemed qualified
if:
(A) The net earnings of the
institution available for its fixed charges for a period of five fiscal years
next preceding the date of acquisition by the insurer must have averaged per
year not less than one and one-half times the sum of its average annual fixed
charges, if any, its average annual maximum contingent interest, if any, and
its average annual preferred dividend requirements applicable to the period;
and
(B) During each of the last two
years of such period, the net earnings must have been not less than one and
one-half times the sum of its fixed charges, contingent interest, and preferred
dividend requirements for such year. The term preferred dividend requirements
shall be deemed to mean cumulative or noncumulative dividends whether paid or
not.
(2) Guaranteed stocks or shares shall be
deemed qualified if the assuming or guaranteeing institution meets the
requirements of section 431:6-302(1), construed so as to include as a fixed
charge the amount of guaranteed dividends of such issue or the rental covering
the guarantee of such dividends.]
(2) Filed with the SVO or are considered "filing exempt" by the Purposes and Procedures Manual of the SVO, or its successor publication."
SECTION 5. Section 431:6-317, Hawaii Revised Statutes, is amended to read as follows:
"§431:6-317 Common stocks. [After satisfying the requirements of section
431:6-201, an insurer may invest any of its funds in common shares of stock in
solvent United States corporations that qualify as a sound investment.]
(a) An insurer may invest any of its funds in common shares of stock that
are filed with the SVO or are considered "filing exempt"
by the Purposes and Procedures Manual of the SVO, or its successor
publication. In aggregate, an insurer's amount of investment in common stocks,
including investments made pursuant to section 431:6-322, shall not exceed the
greater of twenty-five per cent of its admitted assets or one hundred per cent
of its surplus as regards to policyholders as defined in section 431:6-101.
(b) An insurer may invest any of its funds in common shares of stock in solvent United States corporations that do not qualify under subsection (a) after satisfying the requirements of section 431:6-201."
SECTION 6. Section 431:6-322, Hawaii Revised Statutes, is amended to read as follows:
"§431:6-322 Common trust funds[,]; mutual funds. [An] (a) Subject to the limitations in
subsection (b), an insurer may invest in:
(1) A bank's common trust fund as defined in the United States Internal Revenue Code of 1986, Section 584; and
(2) The securities of any open-end management type investment company or investment trust registered with the federal Securities and Exchange Commission under the Investment Company Act of 1940, as amended, if the investment company or trust, other than one of which as a subsidiary of the insurer is investment adviser or principal underwriter, has a new value of not less than $25,000,000 as of the date of investment by the insurer.
(b) In aggregate, an insurer's amount of investment in common trust funds and mutual funds, including investments made pursuant to section 431:6-317, shall not exceed the greater of twenty-five per cent of its admitted assets or one hundred per cent of its surplus as regards to policyholders as defined in section 431:6-101. This limitation shall not apply to investments approved on the "Mutual Funds List" from the Purposes and Procedures Manual of the SVO, or its successor publication."
SECTION 7. Section 431:6-601, Hawaii Revised Statutes, is amended by:
(1) Amending subsection (a) to repeal the definition of "SVO".
[""SVO" means the Securities Valuation Office of the National
Association of Insurance Commissioners."]
(2) Amending subsection (b) to read as follows:
"(b) An insurer may acquire investments in investment pools that:
(1) Invest only in:
(A) Obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating) by a nationally-recognized statistical rating organization recognized by the SVO and have:
(i) A remaining maturity of three hundred ninety-seven days or less or a put that entitles the holder to receive the principal amount of the obligation which put may be exercised through maturity at specified intervals not exceeding three hundred ninety-seven days; or
(ii) A remaining maturity of three years or less
and a floating interest rate that resets no less frequently than quarterly on
the basis of a current short-term index (federal funds, prime rate, treasury
bills, London InterBank Offered Rate [("LIBOR")]
or commercial paper) and is subject to no maximum limit, if the obligations do
not have an interest rate that varies inversely to market interest rate
changes;
(B) Government money market mutual funds or class one money market mutual funds; or
(C) Securities lending, repurchase, and
reverse repurchase transactions that meet all the requirements of section [431:6-322;] 431:6-318; or
(2) Invest only in investments which an insurer may acquire under this article, if the insurer's proportionate interest in the amount invested in these investments does not exceed the applicable limits of this article."
SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 9. This Act shall take effect on January 1, 2009.
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INTRODUCED BY: |
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BY REQUEST |