CHAPTER 202

FORMERLY

SENATE BILL NO. 165 AS AMENDED BY SENATE AMENDMENT NO. 1

AN ACT TO AMEND CHAPTER 13, TITLE 18 OF THE DELAWARE CODE RELATING TO INVESTMENTS OF INSURERS.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend §1302(e) Title 18, Delaware Code by striking such subsection in its entirety and substituting in lieu thereof a new subsection (e) to read as follows:

"(e) An insurer shall not invest in:

(1) Corporate obligations under §1308 (c)(5) of this title;

(2) Bonds, notes or other evidences of indebtedness secured by second mortgages or deeds of trust under §1323(a) of this title;

(3) Participations under §1323(e) of this title;

(4) Secured obligations of institutions under §1331 of this title; or

(5) (5) Production payments under §1332 of this title;

Unless such insurer possesses unimpaired capital and surplus (contributed and assigned) of not less than $7,500,000 (as shown by the insurer's annual statement as of December 31 next preceding the date of acquisition), which amount shall be invested in investments permitted under this chapter other than those specified in this subsection or §1320 (miscellaneous investments) of this title."

Section 2. Amend Section 1302(d) by striking such subsection in its entirety and adding a new subsection "(d)" to read as follows:

"(d) Unless otherwise specified, an investment limitation computed on the basis of an insurer's admitted assets or capital and surplus shall relate to the amount required to be shown on the statutory balance sheet of the insurer most recently required to be filed with the commissioner or as shown by a current financial statement resulting from merger of another insurer, bulk reinsurance, or change in capitalization. For purposes of computing any limitation based upon admitted assets, the insurer shall deduct from the amount of its admitted assets the amount of the liability recorded on its statutory balance sheet for:

1. The return of acceptable collateral received in a reverse repurchase transaction or a securities lending transaction;

2. Cash received in a dollar roll transaction; and

3. The amount reported as borrowed money in the most recently filed financial statement to the extent not included in Paragraphs (1) and (2) of this subsection."

Section 3. Further Amend Section 1303, Title 18, Delaware Code, by adding a new subsection ("f') to read as follows:

"(f) For purposes of the investment limitations of this chapter, investments made by an insurer shall include investments made by that insurer's investment subsidiary."

Section 4. Amend Section 1308, Title 18, Delaware Code by re-designating the existing Section 1308 as subsection "(c)" of section 1308 and striking the introductory clause of this section and substituting in lieu thereof a new introductory clause to read as follows:

"(c) An insurer may also invest any of its funds in obligations other than those permitted in subsections (a) or (b) of this section or those eligible for investment under §1323 (real estate mortgages) of this title if they are issued, assumed or guaranteed by any solvent institution created or existing under the laws of the United States or Canada or of any state, district, province or territory thereof and are qualified under any of the following:"

Section 5. Further amend Section 1308, Title 18, Delaware Code by adding a new subsection "(b)" to read as follows:

"(b) An insurer may also invest any of its funds in any medium or lower grade obligations of any institution created or existing under the laws of the United States or Canada or of any state, district, province or territory thereof, provided, however, that:

(1) Without prior approval of the commissioner, no insurer shall invest any of its funds in any medium grade or lower grade obligation of any institution, if, after giving effect to any such acquisition, the aggregate amount of all medium grade and lower grade obligations then held by the insurer would exceed 20 percent of its admitted assets.

(2) Without the prior approval of the commissioner, no insurer shall invest any of its funds in any lower grade obligation of any institution if, after giving effect to any such acquisition, the aggregate amount of all lower grade obligations then held by the insurer would exceed ten percent of its admitted assets provided that: no more than three percent of its admitted assets consists of obligations rated five or six by the Securities Valuation Office. In addition, without the Commissioner's prior approval, no insurers shall acquire any obligation rated six by the Securities Valuation Office and no more than one percent of its admitted assets may consist of obligations rated six by the Securities Valuation Office.

(3) Attaining the limit of any one category referred to in paragraph (2) of this Section shall not preclude an insurer from investing any of its funds in obligations in other categories subject to the specific and multi-category limits. Nothing contained in this Section shall prohibit an insurer from investing any of its funds in any obligation which it has committed to acquire if the insurer would have been permitted to invest any of its funds in that obligation pursuant to this Section on that date on which such insurer committed to make such investment. For the purposes of determining limitations contained in this chapter, an insurer shall give appropriate recognition to any commitments to acquire investments. Notwithstanding the foregoing, an insurer may invest any of its funds in an obligation of an institution in which such insurer already has one or more investments, if such investment is made in order to protect an investment previously made in the obligations of such institution, provided that such investment shall not exceed one-half of one percent of the insurer's admitted assets."

Section 6. Further Amend Section 1308, Title 18, Delaware Code by adding a new subsection "(a)" to read as follows:

"(a) An insurer may invest any of its funds in obligations rated 1 or 2 by the SVO if they are issued, assumed or guaranteed by any solvent institution created or existing under the laws of the United States or Canada or of any state, district, province or territory thereof."

Section 7. Amend Section 1309(a), Title 18, Delaware Code by striking sub-section (2) thereof in its entirety and substituting in lieu thereof a new sub-section (2) to read as indicated hereinbelow and adding new sub-sections (7), (8) and (9) to read as indicated hereinbelow.:

(2) "Institution" includes corporations, joint-stock associations, investment partnerships, business joint ventures and business trusts or similar entities.

(7) "Medium grade obligations" means obligations rated three by the Securities Valuation Office of the National Association of Insurance Commissioners.

(8) "Lower grade obligations" means obligations rated four, five or six by the Securities Valuation Office of the National Association of Insurance Commissioners.

(9) "SVO" means the Securities Valuation Office of the NAIC or any successor office established by the NAIC."

Section 8. Amend Section 1310, Title 18, Delaware Code by striking that section in its entirety and substituting in lieu thereof a new section to read as follows:

"§1310. Preferred or Guaranteed Stocks. An insurer may invest in preferred or guaranteed stocks or shares of any solvent institution existing under the laws of the United States or of Canada, or of any state or province thereof, if all of the prior obligations and prior preferred stocks, if any, of such institution at the date of acquisition of the investment by the insurer are eligible as investments under this chapter and are rated 1 or 2 by the SVO or if the net earnings of such institution available for its fixed charges during either of the last 2 years have been, and during each of the last 5 years have averaged, 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. For the purposes of this section such
computation shall refer to the fiscal years immediately preceding the date of acquisition of the investment by the insurer, and the term "preferred dividend requirement" shall be deemed to mean cumulative or noncumulative dividends, whether paid or not."

Section 9. Amend subsection (a) of Section 1321, Title 18, Delaware Code by striking such subsection in its entirety and substituting a new subsection to read as follows:

"§1321. Investments in Foreign Countries

(a) An insurer transacting insurance in a foreign country may invest funds required to meet its obligations in such country and in conformity with the laws thereof in the same kinds of securities and investments of or in such country as the insurer is authorized to invest in or acquire under other provisions of this chapter. Except as provided in the foregoing sentence and in subsection (b) of this section, an insurer may not invest more than 10% of its assets in securities or investments of or in foreign countries other than Canada nor invest more than an aggregate of 5% of its assets in securities or investments of or in a single foreign jurisdiction which has a sovereign debt rating of SVO 1 or 3% of its assets as to any other foreign jurisdiction."

Section 10. Amend Section 1330, Title 18, Delaware Code, by striking the words "under subdivision (2) or (4) of §1308" and inserting in lieu thereof the words "under §1308(a) or under subdivisions (2) or (4) of §1308(c)".

Section 11. Amend Section 1331, Title 18, Delaware Code, by striking the words "under subdivision (2), (4) or (5) of §1308" and inserting in lieu thereof the words "under §1308(a) or under subdivisions (2), (4) or (5) of §1308(c)".

Section 12. Amend Section 1332, Title 18, Delaware Code, by striking the words "under §1308(1)" in their entirety and inserting in lieu thereof the words "under §1308(a) or under. subdivision (I) of §1308(c)".

Approved July 17, 1997