(1)
Reason for promulgation.
The division is concerned that changes in economic conditions and other market
variables could adversely affect domestic insurers having a high concentration
of these investments. Accordingly, the division has concluded that a limitation
on the percentage of total admitted assets that a domestic insurer may
prudently invest in such obligations is reasonable, necessary and required in
order to carry out the division's responsibilities under relevant statutory
law.
The division understands that medium grade and lower grade
obligations can have a place in a well diversified portfolio. However, it is
also understood that the special risks associated with these investments
require a high degree of management even when they are held within an aggregate
limit. While this rule will leave all domestic insurers with authority to
invest a substantial portion of their assets in medium grade and lower grade
obligations, the prudent management of the attendant risk will remain an
essential element of such investing.
(2)
Purposes. The purposes
of this rule are:
a. To protect the interests
of the insurance-buying public by establishing limitations on the concentration
of medium grade and lower grade obligations in which a domestic insurer can
invest;
b. To regulate the acts and
practices of domestic insurers with respect to the concentration of investments
in medium grade and lower grade obligations. An insurer's obligations of these
classifications shall not exceed the greater of those allowed in subrule
5.10(2) or Iowa Code section
515.35(4)
"e," whichever is applicable, or this
rule.
(3)
Definitions. As used in this rule:
"Admitted assets" means the amount thereof
as of the last day of the most recently concluded annual statement year,
computed in accordance with rule
191-5.6 (505,515,520).
"Aggregate amount" of medium grade and lower
grade obligations means the aggregate statutory statement value thereof.
"Institution" means a corporation, a
joint-stock company, an association, a trust, a business partnership, a
business joint venture or similar entity.
"Lower grade obligations" means obligations
which are rated four, five or six by the Securities Valuation Office of the
National Association of Insurance Commissioners.
"Medium grade obligations" means obligations
which are rated three by the Securities Valuation Office of the National
Association of Insurance Commissioners.
(4)
Provisions.
a. No domestic insurer shall acquire,
directly or indirectly, 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
domestic insurer would exceed 20 percent of its admitted assets provided that:
(1) No more than 10 percent of its admitted
assets consists of obligations rated four, five or six by the Securities
Valuation Office;
(2) No more than
3 percent of its admitted assets consists of obligations rated five or six by
the Securities Valuation Office;
(3) No more than 1 percent of its admitted
assets consists of obligations rated six by the Securities Valuation Office.
Attaining or exceeding the limit of any one category shall not preclude an
insurer from acquiring obligations in other categories subject to the specific
and multicategory limits.
b. No domestic insurer may invest more than
an aggregate of 1 percent of its admitted assets in medium grade obligations
issued, guaranteed or insured by any one institution, nor may it invest more
than one-half of 1 percent of its admitted assets in lower grade obligations
issued, guaranteed or insured by any one institution. In no event, however, may
a domestic insurer invest more than 1 percent of its admitted assets in any
medium or lower grade obligations issued, guaranteed or insured by any one
institution.
c. Nothing contained
in this rule shall prohibit a domestic insurer from acquiring any obligations
which it has committed to acquire if the insurer would have been permitted to
acquire that obligation pursuant to this rule on the date on which such insurer
committed to purchase that obligation.
d. Notwithstanding the foregoing, a domestic
insurer may acquire an obligation of an institution in which the insurer
already has one or more obligations if the obligation is acquired in order to
protect an investment previously made in the obligations of the institution,
provided that all such acquired obligations shall not exceed one-half of 1
percent of the insurer's admitted assets.
e. Nothing contained in this rule shall
prohibit a domestic insurer from acquiring an obligation as a result of a
restructuring of a medium or lower grade obligation already held.
f. Nothing contained in this rule shall
require a domestic insurer to sell or otherwise dispose of any obligation
legally acquired prior to January 29, 1991.
g. The board of directors of any domestic
insurance company which acquires or invests, directly or indirectly, more than
2 percent of its admitted assets in medium grade and lower grade obligations of
any institution shall adopt a written plan for the making of such investments.
The plan, in addition to guidelines with respect to the quality of the issues
invested in, shall contain diversification standards including, but not limited
to, standards for issuer, industry, duration, liquidity and geographic
location.
This rule is intended to implement Iowa Code sections
511.8 and
515.35.
