KRS 304.7-014: Application -- Investments that may be acquired and held as admitted

assets -- Computation of limitations based on admitted assets -- Documentation

-- Agreements to purchase securities in advance of their issuance -- Order to

limit investment practice.

(1) (a) Insurers may acquire, hold, or invest investments or engage in investment

practices as set forth in this subtitle. Investments not conforming to this

subtitle or otherwise expressly allowed in this chapter shall not be admitted

assets.

(b) This subtitle shall apply to investments and investment practices of domestic

insurers and United States branches of alien insurers entered through this

state. This subtitle shall not apply to separate accounts of an insurer except to

the extent that the provisions of KRS 304.7-240 so provide.

(2) Subject to subsection (3) of this section, an insurer shall not acquire or hold an

investment as an admitted asset unless at the time of acquisition it is:

(a) Eligible for the payment or accrual of interest or discou nt, whether in cash or

other securities, eligible to receive dividends or other distributions, or is

otherwise income producing; or

(b) Acquired under KRS 304.7 -413(3), 304.7-415, 304.7-419, 304.7-423, 304.7-

465(3), 304.7-467, 304.7-471, or 304.7-473, or under the authority of sections

of the code other than in this subtitle.

(3) An insurer may acquire or hold as admitted assets investments that do not otherwise

qualify under this subtitle if the insurer has not acquired them for the purpose of

circumventing any limitations contained in this subtitle, if the insurer acquires the

investments in the following circumstances and the insurer complies with the

provisions of KRS 304.7-363 as to the investments:

(a) As payment on account of existing indebtedness or in connection with the

refinancing, restructuring, or workout of existing indebtedness, if taken to

protect the insurer's interest in that investment;

(b) As realization on collateral for an obligation;

(c) In connection with an otherwise qualified investm ent or investment practice,

as interest on a dividend, other distribution related to the investment,

investment practice, or in connection with the refinancing of the investment,

in each case for no additional or only nominal consideration;

(d) Under a law ful and bona fide agreement of recapitalization, voluntary, or

involuntary reorganization in connection with an investment held by the

insurer; or

(e) Under a bulk reinsurance, merger, or consolidation transaction approved by

the commissioner if the assets constitute admissible investments for the

ceding, merged, or consolidated companies.

(4) A foreign insurer that becomes a domestic insurer in accordance with KRS 304.24 -

500 may hold as admitted assets investments that do not otherwise qualify under

this s ubtitle if the investments were qualified as admitted assets in the insurer's

former state of domicile immediately prior to the insurer's becoming a Kentucky

domestic insurer, if the insurer has not acquired the investments for the purpose of

circumventing any limitations contained in this subtitle and if the insurer complies

with the provisions of KRS 304.7-363 as to the investments.

(5) An investment or portion of an investment acquired by an insurer under subsections

(3) or (4) of this section shall become a nonadmitted asset three (3) years, or five (5)

years in the case of mortgage loans and real estate, from the date of its acquisition,

unless within that period the investment has become a qualified investment under

this subtitle other than s ubsections (3) or (4) of this section, but an investment

acquired under an agreement of bulk reinsurance, merger, or consolidation may be

qualified for a longer period if so provided in the plan for reinsurance, merger, or

consolidation as approved by the commissioner. Upon application by the insurer

and a showing that the nonadmission of an asset held under subsections (3) or (4) of

this section would materially injure the interests of the insurer, the commissioner

may extend the period for admissibility for an additional reasonable period of time.

(6) Except as provided in subsections (7) and (9) of this section, an investment shall

qualify under this subtitle if, on the date the insurer committed to acquire the

investment or on the date of its acquisition , it would have qualified under this

subtitle. For the purposes of determining limitations contained in this subtitle, an

insurer shall give appropriate recognition to any commitments to acquire

investments.

(7) (a) An investment held as an admitted asset by an insurer on July 14, 2000 that

qualified under this subtitle shall remain qualified as an admitted asset under

this subtitle.

(b) Each specific transaction constituting an investment practice of the type

described in this subtitle that was lawfully en tered into by an insurer and was

in effect on July 14, 2000 shall continue to be permitted under this subtitle

until its expiration or termination under its terms.

(8) 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. 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:

(a) The return of acceptable collateral received in a reverse repurchase transaction

or a securities lending transaction;

(b) Cash received in a dollar roll transaction; and

(c) The amount reported as borrowed money in the most recently filed financial

statement to the extent not included in paragraphs (a) and (b) of this

subsection.

(9) An investment qualified, in whole or in part, for acquisition or holding as an

admitted asset may be qualified or requalified at the time of acquisition or a later

date, in whole or in part, under any other section of this subtitle, if the relevant

conditions contained in the other s ection of this subtitle are satisfied at the time of

qualification or requalification.

(10) An insurer shall maintain documentation demonstrating that investments were

acquired in accordance with this subtitle, and specifying the section of this subtitle

under which they were acquired.

(11) An insurer shall not enter into an agreement to purchase securities in advance of

their issuance for resale to the public as part of a distribution of the securities by the

issuer, or otherwise guarantee the distribution , except that an insurer may acquire

privately placed securities with registration rights.

(12) Notwithstanding the provisions of this subtitle, the commissioner, for good cause,

may order under the state's administrative regulations, an insurer to nonadmi t, limit,

dispose of, withdraw from or discontinue an investment or investment practice. The

authority of the commissioner under this subsection is in addition to any other

authority of the commissioner.

(13) Insurance futures and insurance futures options are not considered investments or

investment practices for the purposes of this subtitle.