Bill Text: NC S509 | 2017-2018 | Regular Session | Amended

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Bill Title: Insurer Investment/Transaction Changes

Spectrum: Partisan Bill (Republican 2-0)

Status: (Introduced - Dead) 2017-03-30 - Ref To Com On Rules and Operations of the Senate [S509 Detail]

Download: North_Carolina-2017-S509-Amended.html

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GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 2017

S                                                                                                                                                     1

SENATE BILL 509

 

 

Short Title:      Insurer Investment/Transaction Changes.		(Public)
Sponsors:	Senators Meredith (Primary Sponsor);  and Rabin.
Referred to:	Rules and Operations of the Senate

March 30, 2017

A BILL TO BE ENTITLED

AN ACT to revise the laws governing Transaction requirements and prohibited investments for insurers.

The General Assembly of North Carolina enacts:

SECTION 1.  G.S. 58‑7‑185(a)(2) reads as rewritten:

"§ 58‑7‑185.  Prohibited investments and investment underwriting.

(a)        In addition to investments excluded under other provisions of this Chapter, except with prior approval by the Commissioner, an insurer shall not directly or indirectly invest in or lend its funds upon the security of:

…

(2)        Except with the Commissioner's consent, securities issued by any corporation or enterprise, the controlling interest of which is or will after acquisition by the insurer be held directly or indirectly by the insurer or any combination of the insurer and the insurer's directors, officers, parent corporation, subsidiaries, or controlling stockholders. This subdivision shall not apply to any of the following:

a.         Investments in subsidiaries under G.S. 58‑19‑10 are not subject to this provision.G.S. 58‑19‑10.

b.         Transactions involving an insurer within an insurance holding company system regulated under G.S. 58‑19‑30.

c.         Transactions described by G.S. 58‑7‑200(e)."

SECTION 2.  G.S. 58‑7‑200 reads as rewritten:

"§ 58‑7‑200.  Investment transactions.

(a)        The transactions specified in subsections (b) through (e) of this section are expressly allowed or prohibited as provided in this section and to the extent they are not in conflict with other provisions of this Chapter.

…

(e)        Nothing in this section prohibits:prohibits any of the following:

(1)        A director or officer of any insurer from receiving the usual salary, compensation, or emoluments for services rendered in the ordinary course of that person's duties as a director or officer, if the salary, compensation, or emolument is authorized by vote of the board of directors of the insurer;insurer.

(2)        Any insurer in connection with the relocation of the place of employment of an officer, including any relocation in connection with the initial employment of the officer, from (i) making, or the officer from accepting therefrom, a mortgage loan to the officer on real property owned by the officer that is to serve as the officer's residence or (ii) acquiring, or the officer from selling thereto, at not more than its fair market value, the officer's prior residence;residence.

(3)        The payment to a director or officer of any such insurer who is a licensed attorney‑at‑law of fees in connection with loans made by the insurer if and when the fees are paid by the borrower and do not constitute a charge against the insurer;insurer.

(4)        An insurer from making a loan upon a policy held therein by the borrower not in excess of the policy's net value; orvalue.

(5)        Subject to G.S. 58‑19‑30 and G.S. 58‑7‑163, an insurer from advancing funds to directors, officers, or controlling stockholders, for expenses reasonably expected to be incurred in the ordinary course of the insurer's business, as authorized or approved by the insurer's board of directors or by individuals authorized by the board and charged with the supervision or making of the advances.

(6)        Subject to G.S. 58‑19‑30 and G.S. 58‑7‑170, an insurer from investing in, or lending its funds to, an affiliate.

(7)        An insurer from directly or indirectly investing in, or lending its funds to a nonaffiliate in which an officer, director, or controlling stockholder directly or indirectly holds an interest, so long as the investment or loan transaction meets the standards set forth in G.S. 58‑7‑170 and G.S. 58‑19-30(a)(1) and (2).

(8)        Subject to G.S. 58‑19‑30 and G.S. 58‑7‑170, an insurer from directly or indirectly making or holding an investment described in G.S. 58‑7‑173(11).

(f)        The prohibition in subsection (c) of this section shall not apply with respect to any investment by an insurer in an entity in which the officers, directors, and controlling shareholders hold no more than ten percent (10%) of the voting interests or which is otherwise not an affiliate of the insurer, or which is controlled by a trust established in accordance with the North Carolina Uniform Trust Code, so long as (i) the investment complies with the requirements of G.S. 58‑19‑30 and G.S. 58‑7‑170 and (ii) the trust is controlled by a trustee not affiliated with the insurer."

SECTION 3.  G.S. 58‑7‑179(c) reads as rewritten:

"(c)      No such mortgage loan or loans made or acquired by an insurer on any one property shall, at the time of investment by the insurer, exceed the larger of the following amounts, as applicable:

(1)        Ninety‑five percent (95%) of the value of the real property or leasehold securing the real property in the case of a mortgage on a dwelling primarily intended for occupancy by not more than four families if they insure down to seventy‑five percent (75%) with a licensed mortgage insurance company, or seventy‑five percent (75%) of the value in the case of other real estate mortgages;

(2)        The amount of any insurance or guaranty of the loan by the United States or by an agency or instrumentality thereof; or

(3)        The percentage‑of‑value limit on the amount of the loan applicable under subdivision (1) of this subsection, plus the amount by which the excess of the loan over the percentage‑of‑value limit is insured or guaranteed by the United States or by any agency or instrumentality thereof.

(4)        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.

(5)        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 30 years or less, and requires 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 not greater than the outstanding principal balance that would be owed 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. A mortgage providing for a payment of the principal balance prior to the end of the period of amortization of the loan shall be permitted under this subsection. With respect to residential mortgage loans, the limitation under this section shall be ninety‑seven percent (97%) rather than eighty percent (80%) if the borrower obtains private mortgage insurance that meets the usual and customary standards for private mortgage insurance covering residential mortgages.

(6)        Seventy‑five percent (75%) of the fair market value of the real estate for mortgage loans that do not meet the requirements of subdivision (4) or (5) of this subsection."

SECTION 4.(a)  Article 7 of Chapter 58 of the General Statutes is amended by adding a new section to read:

"§ 58‑7‑184.  Securities lending, repurchase, reverse repurchase, and dollar roll transactions.

(a)        Definitions. – The following definitions apply in this section:

(1)        Dollar roll transaction. – A transaction that consists of a set of two simultaneous transactions with different settlement dates no more than 96 days apart that meets the following requirements:

a.         The transaction with the earlier settlement date is a sale by an insurer to a business entity.

b.         The transaction with the later settlement date is a sale in which the insurer is obligated to purchase from the same business entity involved in the first transaction.

c.         Both transactions consist of substantially similar securities that are either (i) asset-backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation, or their respective successors; or (ii) other asset-backed securities referred to in Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. § 77r‑1), as amended.

(2)        Repurchase transaction. – A transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period of time or upon demand.

(3)        Reverse repurchase transaction. – A transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or upon demand.

(4)        Securities lending transaction. – A transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or upon demand.

(b)        Requirements for Allowed Transactions. – An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the following requirements:

(1)        The insurer shall enter into a written agreement for all transactions authorized in this section other than dollar roll transactions. The written agreement shall require that each transaction terminate no more than one year from its inception or upon the earlier demand of the insurer. The agreement required by this subdivision shall be with the business entity counterparty for all transactions authorized in this section other than securities lending transactions. Agreements for securities lending transactions may be with either the business entity or an agent acting on behalf of the insurer, if the agent is a qualified business entity, and if the agreement (i) requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this section and (ii) prohibits securities lending transactions under the agreement with the agent or its affiliates.

(2)        Cash received in a transaction under this section shall be invested in accordance with this Article and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. For so long as the transaction remains outstanding, the insurer, its agent, or custodian shall maintain, as to acceptable collateral received in a transaction under this section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or other securities depositories approved by the Commissioner, any of the following:

a.         Possession of the acceptable collateral.

b.         A perfected security interest in the acceptable collateral.

c.         In the case of collateral located in a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.

(3)        The limitations of G.S. 58‑7‑170 and G.S. 58‑7‑178 shall not apply to the business entity counterparty exposure created by transactions under this section. For purposes of calculations made to determine compliance with the requirements of this section, no effect will be given to the insurer's future obligation to resell securities, in the case of a repurchase transaction, or to repurchase securities, in the case of a reverse repurchase transaction. An insurer shall not enter into a transaction under this section if, as a result of and after giving effect to the transaction, the aggregate amount of all securities then loaned, sold to, or purchased from all business entities under this section would exceed forty percent (40%) of the insurer's admitted assets.

(4)        In a repurchase transaction, the insurer shall receive as acceptable collateral transferred securities having a market value at least equal to one hundred two percent (102%) of the purchase price paid by the insurer for the securities. If at any time the market value of the acceptable collateral is less than one hundred percent (100%) of the purchase price paid by the insurer, the business entity counterparty shall be obligated to provide additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals one hundred two percent (102%) of the purchase price. Securities acquired by an insurer in a repurchase transaction shall not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.

(5)        In a reverse repurchase transaction that is not a dollar roll transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to ninety‑five percent (95%) of the market value of the securities transferred by the insurer in the transaction as of that date. If at any time the market value of the acceptable collateral is less than ninety‑five percent (95%) of the market value of the securities so transferred, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals ninety‑five percent (95%) of the market value of the transferred securities.

(6)        In a securities lending transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to one hundred two percent (102%) of the market value of the securities loaned by the insurer in the transaction as of that date. If at any time the market value of the acceptable collateral is less than the market value of the loaned securities, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral then held in connection with the transaction, at least equals one hundred two percent (102%) of the market value of the loaned securities.

(7)        In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date."

SECTION 4.(b)  G.S. 58‑7‑26(a) reads as rewritten:

"(a)      An asset or a reduction from liability for reinsurance ceded by a domestic insurer to an assuming insurer not meeting the requirements of G.S. 58‑7‑21 shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer. The reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with the assuming insurer as security for the payment of obligations thereunder, if the security is held in the United States subject to withdrawal solely by, and under the exclusive control of, the ceding insurer; or, in the case of a trust, held in a qualified United States financial institution as defined in subsection (c) of this section. This security may be in the form of:any of the following forms:

(1)        Cash;Cash.

(2)        Securities that are listed by the Securities Valuation Office of the NAIC and qualifying as admitted assets;assets.

(3)        Clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in subsection (b) of this section, effective no later than December 31 of the year for which the filing is being made, and in the possession of, or in trust for, the ceding company on or before the filing date of its annual statement. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance (or confirmation) shall, notwithstanding the issuing (or confirming) institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever occurs first; orfirst.

(3a)      Repurchase and reverse repurchase transactions, as defined in G.S. 58‑7‑184(a).

(4)        Any other form of security acceptable to the Commissioner."

SECTION 5.  G.S. 58‑7‑173(15) reads as rewritten:

"(15)    Loans with a maturity not in excess of 12 years30 years from the date thereof that are secured by the pledge of securities eligible for investment under this Chapter or by the pledge or assignment of life insurance policies issued by other insurers authorized to transact insurance in this State. On the date made, no such loan shall exceed in amount seventy‑five percent (75%) of the market value of the collateral pledged, except that loans upon the pledge of U.S. Government bonds andbonds, loans upon the pledge or assignment of life insurance policies policies, and loans upon the pledge of securities designated a "1" in accordance with the Purposes and Procedures Manual issued by the Securities Valuation Office of the NAIC shall not exceed ninety‑five percent (95%) of the market value of the bonds or the cash surrender value of the policies pledged. The market value of the collateral pledge shall at all times during the continuance of the loans meet or exceed the miminum percentages herein. Loans made under this section shall not be renewable beyond a period of 12 years30 years from the date of the loan."

SECTION 6.  Section 2 of this act is effective when it becomes law and applies retroactively to any transaction entered into on or after July 1, 2015. The remainder of this act is effective when it becomes law.