Any United States government obligation owned by an insurance company obligated under an unexpired written call option shall be valued at the lesser of the striking price or value established in accordance with the method of valuation as prescribed by the commissioner of insurance for financial reporting purposes.
"Striking price" means the price per United States government obligation, exclusive of selling costs, the company would receive should the call option be exercised by the holder.
History: L. 1972, ch. 173, § 1; L. 1989, ch. 134, § 1; July 1.
History: L. 1972, ch. 173, § 2; July 1.
History: L. 1972, ch. 173, § 3; July 1.
History: L. 1972, ch. 173, § 4; L. 1987, ch. 160, § 1; July 1.
(a) If fixed-interest bearing obligations, the average fixed charges shall have been covered at least 1 1/2 times by the average net earnings available for fixed charges of the last five years, and the company shall have earnings in two of the last three fiscal years immediately preceding the date of acquisition. In the case of obligations of finance companies, the coverage shall be at least 1 1/4 times;
(b) if income, or other contingent interest obligations, the net earnings available for fixed charges of the corporation for the five fiscal years next preceding the date of acquisition of the obligations shall have averaged per year not less than 1 1/2 times the sum of the fixed charges and the maximum contingent interest to which the corporation is subject as of the date of acquisition, and the company shall have earnings in two of the last three fiscal years immediately preceding the date of acquisition. In the case of obligations of finance companies, the coverage shall be at least 1 1/4 times;
(c) the corporation or a predecessor thereof must have been in existence for a period of not less than five years;
(d) investments in any corporate obligations under this act shall not be eligible if the corporation is in default on any fixed obligations as of the date of acquisition. Statements adjusted to show the actual condition at the time of acquisition or at effect of new financing (known commercially as pro forma statements) may be used when determining investments in this act or in compliance with requirements.
(e) As used in this section:
(1) The term "fixed charges" shall include actual interest incurred in each year on funded and unfunded debt. In the testing of obligations where interest is partially or entirely contingent upon earnings, fixed charges shall include contingent interest payments; and
(2) the term "net earnings available for fixed charges" shall mean income, before deducting interest on funded and unfunded debt and after deducting operating and maintenance expenses, taxes other than income taxes, depreciation and depletion. Extraordinary, nonrecurring items of income or expense shall be excluded.
History: L. 1972, ch. 173, § 5; L. 1987, ch. 160, § 2; L. 1991, ch. 130, § 1; July 1.
History: L. 1972, ch. 173, § 6; July 1.
(a) All bonds or other evidences of indebtedness and preferred stocks shown on the last published annual statement of the issuing corporation, if any, senior to the preferred stock acquired must be eligible as investments under K.S.A. 40-2a05 or 40-2a07, and amendments thereto, as of the date of acquisition;
(b) if cumulative preferred, not in arrears as to dividends, or if noncumulative, has paid full dividends in each of the last three years;
(c) sinking fund payments are on a current basis;
(d) if net earnings available for fixed charges for the most recently completed three fiscal year period is at least equal to 1 1/4 times the aggregate fixed charges, plus full contingent interest and preferred dividend requirements of the preferred stock under consideration and those on a parity therewith or having a priority thereto, for the same period; and
(e) the corporation or a predecessor thereof, must have been in existence for a period of not less than five years.
(f) As used in this section:
(1) "Fixed charges" shall include actual interest incurred in each year on funded and unfunded debt; and
(2) "net earnings" shall mean income, before deducting interest on funded and unfunded debt, and after deducting operating and maintenance expenses, depreciation and depletion, and all taxes (including income taxes). Extraordinary, nonrecurring items of income or expense shall be excluded.
History: L. 1972, ch. 173, § 7; L. 1987, ch. 160, § 3; July 1.
(a) The obligations, if any, shown on the last published annual statement of such corporation must be eligible for investment under K.S.A. 40-2a05, and amendments thereto;
(b) cash dividends have been paid during each of the last three years preceding the date of acquisition;
(c) the stock is registered with a national securities exchange regulated under the securities exchange act of 1934, as amended, or is regularly traded on a national or regional basis;
(d) the company shall have earnings in three of the last five years preceding the date of acquisition;
(e) investments in common stock in any one corporation shall at no time exceed 2% of the admitted assets of the investing insurance company determined on the basis of the cost of such shares to the insurance company at time of purchase, and at no time shall an insurance company purchase more than 5% of the outstanding shares of stock of any one given corporation;
(f) stock owned by an insurance company that is obligated under an unexpired written call option shall be valued at the lesser of the striking price or current market value. For the purposes of this subsection, "striking price" means the price per share, exclusive of selling costs, the company would receive should the call option be exercised by the holder;
(g) the provisions of subsections (b) and (d) shall not apply, if at the time of acquisition:
(1) The issuing corporation has net assets of $10,000,000 or more;
(2) the issuing corporation has a net worth of $1,000,000 or more; and
(3) the issuing corporation has an aggregate market value of $500,000,000 or more.
History: L. 1972, ch. 173, § 8; L. 1978, ch. 172, § 1; L. 1983, ch. 156, § 1; L. 1987, ch. 160, § 4; L. 1995, ch. 22, § 1; July 1.
(a) Stock in any insurance company or health maintenance organization, notwithstanding subsection (e) of K.S.A. 40-2a08, and amendments thereto. Before more than 5% of the outstanding shares of stock of any insurance company or health maintenance organization is acquired, or a tender offer made therefor, prior written approval of the commissioner of insurance must be secured;
(b) stock in an incorporated insurance agency: (1) If 5% or less of the outstanding shares of stock of such agency is acquired, the provisions of K.S.A. 40-2a08, and amendments thereto, shall apply; (2) if more than 5% of the outstanding shares of such incorporated agency is acquired, or a tender offer is made therefor, the prior approval of the commissioner of insurance shall be required and the provisions of subsection (d) of K.S.A. 40-2a08, and amendments thereto, shall apply. In valuing the stock of the agency, the assets of the agency shall be valued as if held directly by an insurance company; and (3) if majority interest in an incorporated insurance agency results from the organization of an agency by the insurance company to which this act applies, such investments shall be subject to the provisions of K.S.A. 40-2a16, and amendments thereto, until it has produced earnings for three out of five consecutive years. Such stock shall not be eligible for deposit with the commissioner of insurance as part of the legal reserve of such insurance company;
(c) stock in a holding corporation: (1) If 5% or less of the outstanding shares of stock of such holding corporation is acquired, the provisions of K.S.A. 40-2a08, and amendments thereto, shall apply; (2) if at least 55% of the holding corporation's voting stock is acquired, the prior approval of the commissioner shall be required and the provisions of K.S.A. 40-2a08, and amendments thereto, shall not apply. No insurer may purchase in excess of 5% of the outstanding voting stock of a holding corporation unless such insurer acquires at least 55% of such stock, nor shall the officers and directors of an insurer collectively own or control, directly or indirectly, more than 25% of such stock. The commissioner may direct an insurer to divest of its ownership in a holding corporation acquired pursuant to this subsection if it appears to the commissioner that the continued ownership or operation of the holding corporation is not in the best interest of the policyholders, or if the insurer's ownership in the holding corporation is less than 55% of the outstanding voting stock of the holding corporation, or if the officers and directors of the insurer collectively own or control, directly or indirectly, more than 25% of such stock. A holding corporation acquired pursuant to this subsection shall not acquire any investment not permitted for insurance companies other than life pursuant to article 2a of chapter 40 of the Kansas Statutes Annotated, and amendments thereto. In valuing the stock of any holding corporation acquired under this subsection in the annual financial statement of the insurer, value shall be assigned to the holding corporation's assets as though the assets were owned directly by the insurer. A percentage of the holding corporation's assets exactly equal to the insurer's ownership interest in the holding corporation will be added to the assets of the insurer in application of the insurer's investment limitations set forth in article 2a of chapter 40 of the Kansas Statutes Annotated, and amendments thereto. Stock in a holding corporation acquired under this subsection shall not be eligible for deposit with the commissioner of insurance as part of the legal reserves of such insurer.
History: L. 1972, ch. 173, § 9; L. 1979, ch. 139, § 1; L. 1982, ch. 200, § 1; L. 1983, ch. 156, § 2; L. 1987, ch. 161, § 1; L. 1994, ch. 86, § 1; July 1.
History: L. 1972, ch. 173, § 10; July 1.
History: L. 1972, ch. 173, § 11; July 1.
(a) Bonds, notes, obligations or other evidences of indebtedness secured by mortgages or deeds of trust which are a first lien upon unencumbered real property and appurtenances thereto within the United States of America or any insular or territorial possession of the United States of America, or the Dominion of Canada, and upon leasehold estates in real property wherein the term of such including any options to extend is not less than 15 years beyond the maturity of the loan as made or extended. At the date of acquisition the total indebtedness secured by such lien shall not exceed 80% of the market value of the property upon which it is a lien. These limitations shall not apply to obligations described in subsections (b), (c), (d) and (e) of this section. For the purpose of this section a mortgage or deed of trust shall not be deemed to be other than a first lien upon property within the meaning of this section by reason of the existence of taxes or assessments against real property and appurtenances thereto that are not delinquent, instruments creating or reserving mineral, oil or timber rights, rights of way, joint driveways, sewer rights, rights in walls or by reason of building restrictions or other like restrictive covenants, or when such real estate is subject to lease in whole or in part whereby rents or profits are reserved to the owner or when there is in existence a fixed obligation or lien against the property where an escrow account or indemnification bond is or has been established or obtained sufficient to cover the maximum liability created by such obligation or lien;
(b) bonds, notes or other evidences of indebtedness representing loans and advances of credit that have been issued, guaranteed or insured by the United States government or any agency or instrumentality thereof. Any uninsured or nonguaranteed portion shall not exceed 75% of the total amount;
(c) contracts of sale, purchase money mortgages or deeds of trust secured by property obtained through foreclosure or in settlement or satisfaction of any indebtedness;
(d) bonds, notes, obligations or other evidences of indebtedness secured by mortgages or deeds of trust which are a first lien upon unencumbered personal and real property, including a leasehold of real estate, under lease, purchase contract or lease purchase contract to any governmental body or instrumentality whose obligations qualify under K.S.A. 40-2a01, 40-2a02 or 40-2a03, and amendments to those sections, or to a corporation whose obligations qualify under K.S.A. 40-2a05, and amendments thereto, if there is adequate rental, after making allowances of lessors' or sellers' obligations and liabilities, if any, under the terms of the lease or contract, to retire the loan as to payment of principal and interest and such rentals are pledged or assigned to the lender;
(e) bonds, notes or other evidences of indebtedness representing loans and advances of credit that have been issued, guaranteed or insured, in accordance with the terms and provisions of an act of the federal parliament of the Dominion of Canada approved March 18, 1954, cited as the "national housing act, 1954," as heretofore and hereafter amended;
(f) first mortgages or deeds of trust upon improved real property to be occupied as a personal residence by an officer of the insurer, if the mortgage is at an interest rate that is no less than the prevailing rate of the insurer's existing portfolio of mortgage loans. Mortgages or deeds of trust entered into pursuant to this subsection shall be subject to the conditions set forth in subsection (a) of this section relating to mortgages or deeds of trust generally.
History: L. 1972, ch. 173, § 12; L. 1983, ch. 156, § 3; July 1.
(a) Such as shall be requisite for its convenient present and reasonable future accommodations in the transaction of its business. In the erection or purchase of any buildings for such purpose, additional space may be included for home office rental income;
(b) such as shall have been mortgaged to it in good faith, by way of security for loans previously contracted or for money due;
(c) such as shall have been conveyed to it in satisfaction of debts previously contracted in their legitimate business or for money due;
(d) such as shall have been purchased at sales upon judgments, decrees or mortgages obtained or made for such debts; or
(e) such as shall have been acquired for development or income purposes.
It shall not be lawful for any such company to purchase, hold or convey real estate in any other case or for any other purpose, except nothing in this section shall be deemed to prohibit any such company from purchasing the principal residence owned and inhabited by an employee or prospective employee who is being transferred by the company to a different community; and all such real estate as may be acquired as aforesaid and which shall not be necessary for the accommodation of such company in the transaction of its business, except real estate acquired for development or income purposes shall be sold and disposed of within five years after such company shall have acquired title thereto, unless the company shall procure a certificate from the commissioner of insurance that the interests of the company will suffer materially by a forced sale thereof, in which event the sale may be postponed for such period as the commissioner of insurance shall direct in the certificate. If the company so elects, real estate other than farm properties, which has been acquired under subsections (c) and (d) may be held by it for income purposes. The company's aggregate investment in real estate as herein provided shall not exceed 20% of the admitted assets of the company as shown by its last annual report as filed with the commissioner of insurance or a more recent quarterly financial statement as filed with the commissioner, on a form prescribed by the national association of insurance commissioners, within 45 days following the end of the calendar quarter to which the interim statement pertains.
History: L. 1972, ch. 173, § 13; L. 1982, ch. 201, § 1; L. 1983, ch. 156, § 4; L. 1987, ch. 160, § 5; July 1.
History: L. 1972, ch. 173, § 14; July 1.
History: L. 1972, ch. 173, § 15; Repealed, L. 2000, ch. 147, § 59; Jan. 1, 2001.
History: L. 1972, ch. 173, § 16; L. 1983, ch. 156, § 5; July 1.
History: L. 1972, ch. 173, § 17; L. 1986, ch. 175, § 1; April 24.
(a) The obligations shown on the last published annual statement of such trust must meet the qualifications specified for corporate obligations in subsections (a) through (d) of K.S.A. 40-2a05.
(b) Cash dividends have been paid during each of the last three (3) years preceding the date of acquisition.
(c) The shares are registered on a national securities exchange regulated under the securities exchange act of 1934, as amended, or regularly traded on a national or regional basis.
(d) The trust shall have earnings in three (3) of the last five (5) years preceding date of acquisition.
(e) No insurance company shall own more than five percent (5%) of the total number of shares of any one such trust, nor invest more than two percent (2%) of its admitted assets in shares of any one such trust.
Shares in each such trust which has over one-half (1/2) of its assets invested in ownership of real estate or which has such ownership as its stated investment objective shall be considered a real estate investment for purposes of conforming with the limitation on real estate ownership imposed in K.S.A. 40-2a13.
History: L. 1972, ch. 173, § 18; July 1.
History: L. 1972, ch. 173, § 19; July 1.
(1) Adopt a nominee name unique to such insurance company in which such insurance company's securities may be registered;
(2) designate a state or national bank or a federal home loan bank having trust powers to obtain a nominee name for such insurance company in which such insurance company's securities may be registered; or
(3) designate a state or national bank having trust powers as trustee to make any investment authorized by this act in the name of such trustee or such trustee's nominee.
(b) Under the provisions of paragraphs (2) and (3) of subsection (a), the designated state or national bank or the federal home loan bank may arrange for such securities to be held in a clearing corporation. Such arrangement must be in accordance with a written agreement, approved by the commissioner of insurance, between the insurance company and its designated bank and must impose the same degree of responsibility on the bank as if such securities were held in definitive form by such bank.
(c) As used in this section "clearing corporation" means: (1) A corporation defined in subsection (5) of K.S.A. 84-8-102, and amendments thereto;
(2) any organization or system for clearance and settlement of securities transactions which is operated or owned by a bank, trust company or other entity that is subject to regulation by the United States federal reserve board or the United States comptroller of the currency; or
(3) any clearing agency registered with the securities and exchange commission pursuant to the securities exchange act of 1934, section 17A, and amendments thereto.
History: L. 1975, ch. 240, § 1; L. 1986, ch. 176, § 1; L. 1996, ch. 81, § 1; L. 1996, ch. 202, § 90; L. 2009, ch. 83, § 23; July 1.
(a) (1) Acceptable collateral means:
(A) With respect to securities lending transactions, cash, cash equivalents, letters of credit, direct obligations of or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, specifically including the federal national mortgage association and the federal home loan mortgage corporation, and with respect to lending foreign securities, sovereign debt rated 1 by the SVO, all to the extent authorized by K.S.A. 40-2a01 et seq. and amendments thereto;
(B) with respect to repurchase transactions, cash, cash equivalents and direct obligations of, or securities that are fully guaranteed as to principal and interest by the government of the United States or any agency of the United States specifically including the federal national mortgage association and the federal home loan mortgage corporation, all to the extent authorized by K.S.A. 40-2a01, et seq. and amendments thereto; and
(C) with respect to reverse repurchase transactions, cash and cash equivalents to the extent authorized by K.S.A. 40-2a01 et seq. and amendments thereto.
(2) "Cash equivalents" means short-term, highly rated and highly liquid investments or securities readily convertible to known amounts of cash without penalty and so near maturity that they present insignificant risk of change in value. For purposes of this definition:
(A) "Short-term" means investments with a remaining term to maturity of 90 days or less;
(B) "highly rated" means an investment rated "P-1" by Moody's Investor's Service, Inc. or "A-1" by Standard and Poor's, or its equivalent rating by a nationally recognized statistical rating organization recognized by the SVO; and
(C) cash equivalents include government money market mutual funds and money market mutual funds rated 1 by the SVO.
(3) "Equivalent securities" means:
(A) In a securities lending transaction, securities that are identical to the loaned securities including the amount thereof, except as to certificate number if held in physical form, provided that if any different security shall be exchanged for any loaned security by recapitalization, merger, consolidation or other corporate action, such different security shall be deemed to be the loaned security;
(B) in a repurchase transaction, securities that are identical to the purchased securities including the amount of the purchased securities, except as to certificate number if held in physical form; and
(C) in a reverse repurchase transaction, securities that are identical to the sold securities including the amount of the sold securities, except as to certificate number if held in physical form.
(4) "Letters of credit" means clean, irrevocable and unconditional letters of credit issued or confirmed by, and payable and presentable at, financial institutions on the list of financial institutions meeting the standards for issuing letters of credit pursuant to the purposes and procedures of the securities valuation office or any successor publication. To constitute acceptable collateral for the purposes of this section, a letter of credit must have an expiration date beyond the term of the subject transaction.
(5) "Market value" means for the purpose of this section:
(A) With respect to cash and letters of credit, the amounts thereof; and
(B) with respect to any security as of any date, the price for the security on that date obtained from a generally recognized source, or the most recent quotation from such a source, plus accrued but unpaid income thereon to the extent not included in such price as of that date.
(6) "Qualified business entity" means a business entity which is, or is a subsidiary or affiliate of:
(A) An issuer of obligations or preferred stock which are rated 1 or 2 by the SVO or an issuer of obligations, preferred stock or derivative instruments which are rated the equivalent of 1 or 2 by the SVO or by a nationally recognized statistical rating organization recognized by the SVO; or
(B) a primary dealer in United States government securities, as recognized by the federal reserve bank of New York.
(7) "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity which is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, and either within a specified period of time or upon demand.
(8) "Reverse repurchase transaction" means 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 and either within a specified period of time or upon demand.
(9) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity which is obligated to return the loaned securities or equivalent securities to the insurer, within a specified period of time or upon demand.
(10) "Substantially similar securities" means securities that meet all the criteria for substantially similar securities specified in the NAIC accounting practices and procedures manual, as amended, and in an amount that constitutes good delivery form.
(11) "SVO" means the securities valuation office of the national association of insurance commissioners or any successor office established by the national association of insurance commissioners.
(b) Any property and casualty insurance company organized under any law of this state may enter into securities lending, repurchase and reverse repurchase transactions, subject to the following requirements:
(1) The insurer's board of directors shall adopt a resolution authorizing investments under this section and a written plan which specifies guidelines and objectives to be followed, such as:
(A) A description of how cash received will be invested or used for general corporate purposes of the insurer;
(B) operational procedures to manage interest rate risk, counterparty default risk and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and
(C) the extent to which an insurer may engage in these transactions.
(2) The insurer shall enter into a written agreement for all transactions authorized in this section. Such agreement shall adequately identify each security to which the agreement applies and shall require that each transaction terminate on a specified date no more than one year from its inception or upon earlier demand of the insurer. In a repurchase transaction, the agreement must also state that in the event of default by the party agreeing to repurchase the securities described in the agreement at the terms contained in the agreement, title to the described securities must pass immediately to the insurance company without recourse. Such agreement shall be with the counterparty business entity. For securities lending transactions the agreement may be with an agent acting on behalf of the insurer, if such agent is a qualified business entity, and if such agreement:
(A) Requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this section; and
(B) prohibits securities lending transactions under the agreement with the agent or its affiliates.
(3) Cash received in a transaction under this section shall be invested in accordance with K.S.A. 40-2a01 et seq. and amendments thereto, and in a manner that recognizes the liquidity needs of the transaction, or shall be 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, in the United States, as to acceptable collateral received in a transaction under this section, either physically or through book entry systems of the federal reserve or through a clearing corporation as permitted by K.S.A. 40-2a20 and amendments thereto: (A) Possession of the acceptable collateral; or (B) a perfected security interest in the acceptable collateral.
(4) For purposes of calculating the limitations of K.S.A. 40-2a01 et seq. and amendments thereto, securities lending, repurchase and reverse repurchase transactions shall not be considered investments in the counterparty, or in any issue of securities issued by the counterparty, or in the jurisdiction in which the counterparty is located. For purposes of calculations made to determine compliance with this part 4 of subsection (b), 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 may not enter into a transaction under this section if, as a result of and after giving effect to the transaction:
(A) The aggregate amount of all securities then loaned or sold to, or purchased from, any one business entity pursuant to this section would exceed 5% of its admitted assets. In calculating the amount sold to or purchased from a business entity pursuant to repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or
(B) the aggregate amount of all securities then loaned or sold to, or purchased from, all business entities under this section, without the effect of netting referred to in subpart (A), would exceed 40% of its admitted assets.
(5) In a securities lending transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 102% of the market value of the securities loaned by the insurer in such transaction as of that date. If at any time the market value of such acceptable collateral is less than the market value of the loaned securities, the business entity to which the securities are loaned 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, equals at least 102% of the market value of the loaned securities.
(6) In a reverse repurchase transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 95% of the market value of the securities transferred by the insurer in such transaction as of that date. If at any time the market value of such acceptable collateral is less than 95% of the market value of the securities so transferred, the business entity 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 95% of the market value of the transferred securities.
(7) In a repurchase transaction, the insurer shall receive as acceptable collateral transferred securities having a market value at least equal to 102% of the purchase price paid by the insurer for such securities. If at any time the market value of such acceptable collateral is less than 100% of the purchase price paid by the insurer, the business entity 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, equals at least 102% of such 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.
(c) 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 as shown on the insurer's last annual report as filed with the commissioner of insurance or a more recent quarterly financial statement as filed with the commissioner, on a form prescribed by the national association of insurance commissioners, within 45 days following the end of the calendar quarter to which the interim statement pertains. 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 such statutory balance sheet for:
(1) The return of acceptable collateral received in a reverse repurchase or a securities lending transaction; and
(2) the amount reported as borrowed money in the most recently filed financial statement to the extent not included in subpart (1).
History: L. 1982, ch. 201, § 2; L. 1996, ch. 27, § 1; July 1.
(b) Investments under this section, other than investments in money market mutual funds as described in subsection (c), shall be further limited as follows:
(1) The insurance company's aggregate investment under this provision and K.S.A. 40-2a08, and amendments thereto, combined shall not exceed 25% of its admitted assets as shown by the company's last annual report as filed with the state commissioner of insurance or a more recent quarterly financial statement as filed with the commissioner, on a form prescribed by the national association of insurance commissioners, within 45 days following the end of the calendar quarter to which the interim statement pertains;
(2) the investment company in which the insurance company acquires shares shall have assets of not less than $25,000,000 at the date of purchase;
(3) the insurance company shall not acquire more than 15% of the outstanding shares of any one investment company;
(4) investments in the shares of any one investment company shall not exceed 10% of the admitted assets of the insurance company as shown by the company's last annual report as filed with the commissioner of insurance, as determined on the basis of the cost of such shares to the insurance company at time of purchase.
(c) Investments in money market mutual funds shall not be subject to the limitations contained in subsection (b) when the assets of the fund represent qualified investments described in K.S.A. 40-2a01, 40-2a02, 40-2a03, 40-2a04, 40-2a05 and 40-2a21 and amendments thereto. Investments in money market mutual funds shall be further limited as follows:
(1) The investment company in which the insurance company acquires shares shall have assets of not less than $25,000,000 at the date of purchase; and
(2) investments in the shares of any one investment company shall not exceed 20% of the admitted assets of the insurance company as shown by the company's last annual report as filed with the commissioner of insurance, or a more recent quarterly financial statement as filed with the insurance commissioner, on a form prescribed by the national association of insurance commissioners, within 45 days following the end of the calendar quarter to which the interim statement pertains, as determined on the basis of the cost of such shares to the insurance company at the time of purchase.
History: L. 1983, ch. 156, § 15; L. 1985, ch. 162, § 1; L. 1987, ch. 160, § 6; L. 1995, ch. 96, § 1; July 1.
History: L. 1983, ch. 156, § 16; Repealed, L. 2000, ch. 147, § 58; July 1.
(b) As used in this section:
(1) "Cap" means an agreement obligating the seller to make payments to the buyer, each payment based on the amount by which a reference price or level or the performance or value of one or more underlying interest exceeds a predetermined number, sometimes called the strike rate or price.
(2) "Collar" means an agreement to receive payments as the buyer of an option, cap or floor and to make payments as the seller of a different option, cap or floor.
(3) (A) "Financial instrument" means an agreement, option, instrument or any series or combination thereof:
(i) To make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or
(ii) which has a price, performance, value or cash flow based primarily upon the actual or expected price, level, performance, value or cash flow of one or more underlying interests.
(B) Financial instruments include options, warrants, caps, floors, collars, swaps, forwards, future and any other agreements, options or instruments substantially similar thereto, or any series or combination thereof.
(4) "Financial instrument transaction" means a transaction involving the use of one or more financial instruments.
(5) "Floor" means an agreement obligating the seller to make payments to the buyer in which each payment is based on the amount that a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance or value of one or more underlying interests.
(6) "Forward" means an agreement (other than a future) to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance or value of one or more underlying interests.
(7) "Future" means an agreement traded on a qualified exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance or value of one or more underlying interests.
(8) "Hedging transaction" means a financial instrument transaction which is entered into and maintained to reduce:
(A) The risk of a change in the value, yield, price, cash flow or quantity of assets or liabilities which the insurer has acquired or incurred or anticipates acquiring or incurring; or
(B) the currency exchange-rate risk or the degree of exposure as to assets or liabilities which an insurer has acquired or incurred or anticipates acquiring or incurring.
(9) "Income generation transaction" means a financial instrument transaction involving the writing of the covered call options which is intended to generate income or enhance return.
(10) "Option" means an agreement giving the buyer the right to buy or receive, sell or deliver, enter into, extend or terminate, or effect a cash settlement based on the actual or expected price, level, performance or value of one or more underlying interests.
(11) "Potential exposure" means:
(A) As to a futures position, the amount of the initial margin required for that position; or
(B) as to swaps' collars and forwards, .5% times the notional amount times the square root of the remaining years of maturity.
(12) "Swap" means an agreement to exchange for net payments at one or more times based on the actual or expected price, level, performance or value of one or more underlying interests.
(13) "Underlying interest" means the assets, other interests, or a combination thereof, underlying a financial instrument, such as any one or more securities, currencies, rates, indices, commodities or financial instruments.
(14) "Warrants" means an option to purchase or sell the underlying securities or investments at a given price and time or at a series of prices and times outlined in the warrant agreement. Warrants may be issued alone or in connection with the sale of other securities, as part of a merger or recapitalization agreement, or to facilitate divestiture of the securities of another corporation.
(c) An insurance company may enter into financial instrument transactions for the purpose of hedging except that the transaction shall not cause any of the following limits to be exceeded:
(1) The aggregate statement value of options, caps, floors and warrants not attached to any other security or investment purchase in hedging transactions may not exceed 110% of the excess of such insurer's capital and surplus as shown on the company's last annual or quarterly report filed with the commissioner of insurance over the minimum requirements of a new stock or mutual company to qualify for a certificate of authority to write the kind of insurance which the insurer is authorized to write;
(2) the aggregate statement value of options, caps and floors written in hedging transactions may not exceed 3% of the insurance company's admitted assets; and
(3) the aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions may not exceed 5% of the insurance company's admitted assets.
(d) An insurance company may enter into the following types of income generation transactions if:
(1) Selling covered call options on noncallable fixed income securities or financial instruments based on fixed income securities, but the aggregate statement value of assets subject to call during the complete term of the call options sold, plus the face value of fixed income securities underlying any financial instrument subject to call, may not exceed 10% of the insurance company's admitted assets; and
(2) selling covered call options on equity securities, if the insurance company holds in its portfolio the equity securities subject to call during the complete term of the call option sold.
(e) Upon request of the insurance company, the commissioner may approve additional transactions involving the use of financial instruments in excess of the limits of subsection (c) or for other risk management purposes, excluding replication transactions, pursuant to regulations promulgated by the commissioner.
(f) For the purposes of this section, the value or amount of an investment acquired or held under this section, unless otherwise specified in this code, shall be the value at which assets of an insurer are required to be reported for statutory accounting purposes as determined in accordance with procedures prescribed in published accounting and valuation standards of the national association of insurance commissioners (NAIC), including the purposes and procedures of the securities valuation office, the valuation of securities manual, the accounting practices and procedures manual, the annual statement instructions or any successor valuation procedures officially adopted by the NAIC.
(g) Prior to engaging in transactions in financial instruments, an insurer shall develop and adequately document policies and procedures regarding investment strategies and objectives, recordkeeping needs and reporting matters. Such policies and procedures shall address authorized investments, investment limitations, authorization and approval procedures, accounting and reporting procedures and controls and shall provide for review of activity in financial instruments by the insurer's board of directors or such board's designee.
Recordkeeping systems must be sufficiently detailed to permit internal auditors and insurance department examiners to determine whether operating personnel have acted in accordance with established policies and procedures, as provided in this section. Insurer records must identify for each transaction the related financial instruments contracts.
History: L. 1985, ch. 156, § 2; L. 1996, ch. 83, § 1; July 1.
(a) Mortgage related securities issued or guaranteed by the federal home loan mortgage corporation and federal national mortgage association but the amount invested in any one such issue shall not exceed the greater of $750,000 or two percent of the admitted assets of the company as shown by its last annual report or a more recent quarterly financial statement filed with the commissioner of insurance;
(b) mortgage related securities issued by or in the name of any private entity which are designated "1" or "2" by the national association of insurance commissioners in their most recently published valuations of securities manual or supplement thereto or are rated investment grade by Standard and Poor's (at least BBB-) or Moody's (at least Baa3) at the time of acquisition. The investment in any one such issue shall not exceed two percent of the admitted assets of the company as shown by its last annual report or a more recent quarterly financial statement filed with the commissioner of insurance.
(c) For purposes of this section "mortgage related securities" shall mean a security that either:
(1) Represents ownership of one or more promissory notes or certificates of interest or participation in such notes (including any rights designed to assure servicing of, or the receipt or timeliness of receipt by the holders of such notes, certificates, or participations of amounts payable under, such notes, certificates, or participations), which notes:
(A) Are directly secured by a first lien on a single parcel of real estate, including stock allocated to a dwelling unit in a residential cooperative housing corporation, upon which is located a dwelling or mixed residential and commercial structure, or on a residential manufactured home as defined in U.S.C. §5402(6) of title 42, whether such manufactured home is considered real or personal property under the laws of the state in which it is to be located; and
(B) were originated by a savings and loan association, savings bank, commercial bank, credit union, insurance company, or similar institution which is supervised and examined by a federal or state authority, or by a mortgagee approved by the secretary of housing and urban development pursuant to U.S.C. §§1709 and 1715b of title 12, or, where such notes involve a lien on the manufactured home, by any such institution or by any financial institution approved for insurance by the secretary of housing and urban development pursuant to U.S.C. §1703 of title 12; or
(2) is secured by one or more promissory notes or certificates of interest or participations in such notes (with or without recourse to the issuer thereof) and, by its terms, provides for payments of principal in relation to payments, or reasonable projections of payments, on notes meeting the requirements of subparagraphs (1)(A) and (B) or certificates of interest or participations in promissory notes meeting such requirements.
For the purposes of this paragraph, the term "promissory note", when used in connection with a manufactured home, shall also include a loan, advance, or credit sale as evidenced by a retail installment sales contract or other instrument; or
(3) involve offers or sales of one or more promissory notes directly secured by a first lien on a single parcel of real estate upon which is located a dwelling or other residential or commercial structure, and participation interests in such notes:
(A) Where such securities are originated by a savings and loan association, savings bank, commercial bank, or similar banking institution which is supervised and examined by a federal or state authority, and are offered and sold subject to the following conditions:
(i) The minimum aggregate sales price per purchaser shall not be less than $250,000;
(ii) the purchaser shall pay cash either at the time of the sale or within 60 days thereof; and
(iii) each purchaser shall buy for such purchaser's own account only; or
(B) where such securities are originated by a mortgagee approved by the secretary of housing and urban development pursuant to U.S.C. §§ 1709 and 1715b of title 12 and are offered or sold subject to the three conditions specified in subparagraph (3)(A) to any institution described in such subparagraph or to any insurance company subject to the supervision of the insurance commissioner, or any agency or officer performing like function, of any state or territory of the United States or the District of Columbia, or the federal home loan mortgage corporation, the federal national mortgage association, or the government national mortgage association.
Transactions between any of the entities described in subparagraph (3)(A) or (3)(B) involving nonassignable contracts to buy or sell the foregoing securities which are to be completed within two years, where the seller of the foregoing securities pursuant to any such contract is one of the parties described in subparagraph (3)(A) or (3)(B) who may originate such securities and the purchaser of such securities pursuant to any such contract is any institution described in subparagraph (3)(A) or any insurance company described in subparagraph (3)(B), the federal home loan mortgage corporation, federal national mortgage association, or the government national mortgage association and where the foregoing securities are subject to the three conditions for sale set forth in subparagraphs (3)(A)(i) through (iii).
History: L. 1992, ch. 118, § 1; July 1.
(a) "Medium grade obligations" means obligations which are designated "3" by the national association of insurance commissioners in its most recently published valuations of securities manual.
(b) "Lower grade obligations" means obligations which are designated "4", "5" or "6" by the national association of insurance commissioners in its most recently published valuations of securities manual.
(c) "Admitted assets" means the amount shown on the insurer's last annual report as filed with the state commissioner of insurance.
(d) "Aggregate amount" of medium grade and lower grade obligations means the aggregate statutory statement value thereof.
(e) "Institution" means a corporation, a joint-stock company, an association, a trust, a business partnership, a business joint venture or similar entity.
(f) "Insurance company" or "insurer" means an insurance company other than life organized under the laws of this state.
History: L. 1992, ch. 121, § 1; July 1.
(b) No insurer organized under the laws of this state may invest more than one 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 one percent of its admitted assets in lower grade obligations issued, guaranteed or insured by any one institution. In no event, shall such insurer invest more than one 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 act shall prohibit an 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 act on the date on which such insurer committed to purchase that obligation.
(d) Notwithstanding the limitations of subsection (b) an 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, except all such acquired obligations shall not exceed one-half of one percent of the insurer's admitted assets.
(e) Nothing contained in this act shall prohibit an insurer to which this act applies from acquiring an obligation as a result of a restructuring of a medium or lower grade obligation already held or require such insurer to sell or otherwise dispose of any obligation legally acquired prior to the effective date of this act.
(f) Nothing contained in this act shall permit or be construed as permitting an insurer to exceed, alter or otherwise circumvent any of the limitations or restrictions applicable to the investments authorized by K.S.A. 40-2a01 et seq. and amendments thereto.
(g) Notwithstanding the provisions of K.S.A. 40-2a16 and amendments thereto, the total investment in medium and lower grade securities shall not exceed the limitations set forth in this section.
(h) The board of directors of any insurance company organized under the laws of this state which acquires or invests, directly or indirectly, more than two percent of its admitted assets in medium grade and lower grade obligations, 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 acceptable to the commissioner which may include, but not be limited to, standards for issuer, industry, duration, liquidity and geographic location.
History: L. 1992, ch. 121, § 2; L. 2005, ch. 87, § 1; July 1.
(1) To be an admitted asset under this section, an asset-backed security must, at the time of acquisition, be designated "1" or "2" by the national association of insurance commissioners in its most recently published valuations of securities manual or supplement thereto;
(2) the investment in any one issue of asset-backed securities shall not exceed 2% of the admitted assets of the investing insurance company as shown by its last annual report or a more recent quarterly financial statement filed with the commissioner. Each issue designated as provided in paragraph (1) shall constitute a single issue regardless of any other obligations or securities issued by the same or any affiliated issuer; and
(3) the investing company's aggregate investment in asset-backed securities as provided in this section shall not exceed 20% of the admitted assets of such company, as shown by such company's last annual report as filed with the commissioner of insurance or a more recent quarterly financial statement as filed with the commissioner, on a form prescribed by the national association of insurance commissioners, within 45 days following the end of the calendar quarter to which the interim statement pertains.
(b) As used in this section:
(1) "Asset-backed security" means any security or other instrument representing or evidencing an interest in, a loan to, a participation in a loan to, or any other right to receive payments from a business entity of any type or form, which has as its primary business activity the acquisition and holding of financial assets, directly or through a trustee, for the benefit of such business entity's debt or equity holders;
(2) "financial asset" means a single asset or a pool of assets consisting of interest-bearing obligations or other contractual obligations representing or constituting the right to receive payment from the asset or pool of assets.
History: L. 1995, ch. 23, § 2; July 1.