KRS 304.37-110: Subsidiaries that may be organized or acquired by domestic insurer --

Investments of domestic insurers.

(1) Any domestic insurer, either by itself or in cooperation with one (1) or more

persons, may organize or acquire one (1) or more subsidiaries engaged in the

following kinds of business:

(a) Any kind of insurance business authorized by the jurisdiction in which it is

incorporated;

(b) Acting as an insurance agent for its parent or any of its parent's insurer

subsidiaries;

(c) Investing, reinvesting, or trading in securities for its own account, that of its

parent, any subsidiary of its parent, or any affiliate or subsidiary;

(d) Management of any investment company subject to or registered pursuant to

the Investment Company Act of 1940, as amended, including related sales and

services;

(e) Acting as a broker -dealer subject to or registered pursuant to the Securities

Exchange Act of 1934, as amended;

(f) Rendering investment advice to governments, government agencies,

corporations, or other organizations or groups;

(g) Rendering other services related to the operations of an insurance business,

such as actuarial, loss prevention, safety engineering, data processing,

accounting, claims, appraisal, and collection services;

(h) Ownership and management of assets which the parent corporation may own

or manage if the aggregate investment by the insurer and its subsidiaries

acquired or organized pursuant to this paragraph shall not exceed the

limitations applicable to these investments by the insurer. This paragraph shall

not prohibit investments permitted under KRS 304.7-120;

(i) Acting as an administrative agent for a governmental instrumentality which is

performing an insurance function;

(j) Financing of insurance premiums, agents, and other forms of cons umer

financing;

(k) Any other business activity determined by the commissioner to be reasonably

ancillary to an insurance business; and

(l) Owning a corporation or corporations engaged or organized to engage

exclusively in one (1) or more businesses specified in this section.

(2) In addition to investments in common stock, preferred stock, debt obligations, and

other securities permitted under this chapter, a domestic insurer may also:

(a) Invest, in common stock, preferred stock, debt obligations, and other

securities of one (1) or more subsidiaries, amounts which do not exceed the

lesser of ten percent (10%) of the insurer's assets or fifty percent (50%) of the

insurer's surplus as regards policyholders, if after these investments, the

insurer's surplus as regards policyholders will be reasonable in relation to the

insurer's outstanding liabilities and adequate to meet its financial needs. In

calculating the amount of these investments, inv estments in domestic or

foreign insurance subsidiaries shall be excluded, and there shall be included:

1. Total net moneys or other consideration expended and obligations

assumed in the acquisition or formation of a subsidiary, including all

organizational expenses and contributions to capital and surplus of the

subsidiary whether or not represented by the purchase of capital stock or

issuance of other securities; and

2. All amounts expended in acquiring additional common stock, preferred

stock, debt obliga tions, and other securities and all contributions to the

capital or surplus, of a subsidiary subsequent to its acquisition or

formation;

(b) Invest any amount in common stock, preferred stock, debt obligations, and

other securities of one (1) or more subsi diaries engaged or organized to

engage exclusively in the ownership and management of assets authorized as

investments for the insurer, if each subsidiary agrees to limit its investments in

any asset so that the investments will not cause the amount of the total

investment of the insurer to exceed any of the investment limitations specified

in paragraph (a) of this subsection or in Subtitle 7 of KRS Chapter 304. For

the purpose of this paragraph, "the total investment of the insurer" shall

include:

1. Any direct investment by the insurer in an asset; and

2. The insurer's proportionate share of any investment in an asset by any

subsidiary of the insurer, which shall be calculated by multiplying the

amount of the subsidiary's investment by the percentage of th e

ownership of the subsidiary;

(c) With the approval of the commissioner, invest any greater amount in common

stock, preferred stock, debt obligations, or other securities of one (1) or more

subsidiaries, if after the investment the insurer's surplus as re gards

policyholders will be reasonable in relation to the insurer's outstanding

liabilities and adequate to its financial needs.

(3) Investments in common stock, preferred stock, debt obligations, or other securities

of subsidiaries made pursuant to subsection (2) of this section shall not be subject to

any of the otherwise applicable restrictions or prohibitions contained in this chapter

applicable to the investments of insurers.

(4) Whether any investment pursuant to subsection (2) of this section meets t he

requirements shall be determined before the investment is made, by calculating the

applicable investment limitations as though the investment had already been made,

taking into account the then outstanding principal balance on all previous

investments in debt obligations, and the value of all previous investments in equity

securities as of the day they were made, net of any return of capital invested, not

including dividends.

(5) If an insurer ceases to control a subsidiary, it shall dispose of any inves tment made

pursuant to this section within three (3) years of the time of the cessation of control,

or within an extension of time as the commissioner may prescribe, unless at any

time after the investment has been made, the investment has met the requirem ents

for investment under any other provision of this chapter, and the insurer has notified

the commissioner.