KRS 304.7-407: Investment pools.

(1) An insurer may acquire investments in investment pools that:

(a) Invest only in:

1. Obligations that are rated 1 or 2 by SVO or have an equivalent of an

SVO 1 or 2 rating or, in the absence of a 1 or 2 rating or equivalent

rating, the issuer has outstandin g obligations with an SVO 1 or 2 or

equivalent rating by a nationally recognized statistical rating

organization recognized by the SVO and have:

a. A remaining maturity of three hundred ninety -seven (397) days or

less or a put that entitles the holder to r eceive the principal amount

of the obligation which put may be exercised through maturity at

specified intervals not exceeding three hundred ninety -seven (397)

days; or

b. A remaining maturity of three (3) years or less and a floating

interest rate that re sets no less frequently than quarterly on the

basis of a current short -term index (federal funds, prime rate,

treasury bills, London InterBank Offered Rate (LIBOR), or

commercial paper) and is subject to no maximum limit, if the

obligations do not have an interest rate that varies inversely to

market interest rate changes;

2. Government money market mutual funds or class one money market

mutual funds; or

3. Securities lending, repurchase, and reverse repurchase transactions that

meet all the requirements of KRS 304.7 -415, except the quantitative

limitations of KRS 304.7-415(4); or

(b) Invest only in investments that an insurer may acquire under this subtitle, if

the insurer's proportionate interest in the amount invested in these investments

does not exceed the applicable limits of this subtitle.

(2) For an investment in an investment pool to be qualified under this subtitle, the

investment pool shall not:

(a) Acquire securities issued, assumed, guaranteed, or insured by the insurer or an

affiliate of the insurer;

(b) Borrow or incur any indebtedness for borrowed money, except for securities

lending and reverse repurchase transactions that meet the requirements of

KRS 304.7-415, except the quantitative limitations of KRS 304.7-415(4); or

(c) Permit the aggrega te value of securities then loaned or sold to, purchased

from, or invested in any one (1) business entity under this section to exceed

ten percent (10%) of the total assets of the investment pool.

(3) The limitations of KRS 304.7-403(1) shall not apply to an insurer's investment in an

investment pool, however an insurer shall not acquire an investment in an

investment pool under this section if, as a result of and after giving effect to the

investment, the aggregate amount of inv estment then held by the insurer under this

section:

(a) In any one (1) investment pool would exceed ten percent (10%) of its admitted

assets;

(b) In all investment pools investing in investments permitted under paragraph (b)

of subsection (1) of this sect ion would exceed twenty -five (25%) of its

admitted assets; or

(c) In all investment pools would exceed thirty -five percent (35%) of its admitted

assets.

(4) For an investment in an investment pool to be qualified under this subtitle, the

manager of the investment pool shall:

(a) Be organized under the laws of the United States or a state and designated as

the pool manager in a pooling agreement;

(b) Be the insurer, an affiliated insurer or a business entity affiliated with the

insurer, a qualified bank, a b usiness entity registered under the Investment

Advisors Act of 1940 (15 U.S.C. sec. 80a -1 et seq.), as amended or, in the

case of a reciprocal insurer or interinsurance exchange, its attorney -in-fact, or

in the case of a United States branch of an alien in surer, its United States

manager or affiliates or subsidiaries of its United States manager;

(c) Compile and maintain detailed accounting records setting forth:

1. The cash receipts and disbursements reflecting each participant's

proportionate investment in the investment pool;

2. A complete description of all underlying assets of the investment pool,

including amount, interest rate, maturity date if any, and other

appropriate designations; and

3. Other records that, on a daily basis, allow third parties to verify each

participant's investment in the investment pool; and

(d) Maintain the assets of the investment pool in one (1) or more accounts, in the

name of or on behalf of the investment pool, under a custody agreement with a

qualified bank. The custody agreement shall:

1. State and recognize the claims and rights of each participant;

2. Acknowledge that the underlying assets of the investment pool are held

solely for the benefit of each participant in proportion to the aggregate

amount of its investments in the investment pool; and

3. Contain an agreement that the underlying assets of the investment pool

shall not be commingled with the general assets of the custodian

qualified bank or any other person.

(5) The pooling agreement for each investment pool sh all be in writing and shall

provide that:

(a) An insurer and its affiliated insurers or, in the case of an investment pool

investing solely in investments permitted under paragraph (a) of subsection

(1) of this section, the insurer and its subsidiaries, af filiates, or any pension or

profit sharing plan of the insurer, its subsidiaries and affiliates or, in the case

of a United States branch of an alien insurer, affiliates or subsidiaries of its

United States manager, shall at all times, hold one hundred per cent (100%) of

the interest in the investment pool;

(b) The underlying assets of the investment pool shall not be commingled with

the general assets of the pool manager or any other person;

(c) In proportion to the aggregate amount of each pool participant 's interest in the

investment pool:

1. Each participant owns an undivided interest in the underlying assets of

the investment pool; and

2. The underlying assets of the investment pool are held solely for the

benefit of each participant;

(d) A participant, or in the event of the participant's insolvency, bankruptcy, or

receivership, its trustee, receiver, or other successor -in-interest, may withdraw

all or any portion of its investment from the investment pool under the terms

of the pooling agreement;

(e) Withdrawals may be made on demand without penalty or other assessment on

any business day, but settlement of funds shall occur within a reasonable and

customary period thereafter not to exceed five (5) business days. Distributions

under this paragraph shall be calculated in each case net of all then applicable

fees and expenses of the investment pool. The pooling agreement shall

provide that the pool manager shall distribute to a participant, at the discretion

of the pool manager:

1. In cash, the then fair ma rket value of the participant's pro rata share of

each underlying asset of the investment pool;

2. In kind, a pro rata share of each underlying asset; or

3. In a combination of cash and in -kind distributions, a pro rata share in

each underlying asset; and

(f) The pool manager shall make the records of the investment pool available for

inspection by the commissioner.