KRS 304.7-465: Permitted acquisitions -- Loan-to-value ratio -- Exemptions for certain

mortgage loans and credit release transactions -- Real estate -- Ratios relating

to aggregate amount of investments.

(1) Subject to the limitations of KRS 304.7 -455, an insurer may acquire, either directly

or indirectly through limited partnership interests and general partnership interests

not otherwise prohibited by KRS 304.7 -363(4), joint ventures, stock of an

investment subsidiary or membership interests in a limited liabilit y company, trust

certificates, or other similar instruments, obligations secured by mortgages on real

estate situated within a domestic jurisdiction, but a mortgage loan that is secured by

other than a first lien shall not be acquired unless the insurer is the holder of the first

lien. The obligations held by the insurer and any obligations with an equal lien

priority, shall not, at the time of acquisition of the obligation, exceed:

(a) Ninety percent (90%) of the fair market value of the real estate, if th e

mortgage loan is secured by a purchase money mortgage or like security

received by the insurer upon disposition of the real estate;

(b) Eighty percent (80%) of the fair market value of the real estate, if the

mortgage loan requires immediate scheduled pa yments in periodic

installments of principal and interest, has an amortization period of thirty (30)

years or less, and periodic payments made no less frequently than annually.

Each periodic payment shall be sufficient to assure that at all times the

outstanding principal balance of the mortgage loan shall not be greater than

the outstanding principal balance that would be outstanding under a mortgage

loan with the same original principal balance, with the same interest rate, and

requiring equal payments of principal and interest with the same frequency

over the same amortization period. Mortgage loans permitted under this

subsection are permitted notwithstanding the fact that they provide for a

payment of the principal balance prior to the end of the period of amortization

of the loan. For residential mortgage loans, the eighty percent (80%) limitation

may be increased to ninety -seven percent (97%) if acceptable private

mortgage insurance has been obtained; or

(c) Seventy-five percent (75%) of the fair marke t value of the real estate for

mortgage loans that do not meet the requirements of paragraph (a) or (b) of

this subsection.

(2) For purposes of subsection (1) of this section, the amount of an obligation required

to be included in the calculation of the lo an-to-value ratio may be reduced to the

extent the obligation is insured by the Federal Housing Administration, guaranteed

by the Administrator of Veteran Affairs, or their successors.

(3) A mortgage loan that is held by an insurer under KRS 304.7 -014(7) o r acquired

under this section and is restructured in a manner that meets the requirement of a

restructured mortgage loan in accordance with the NAIC Accounting Practices and

Procedures Manual or successor publication shall continue to qualify as a mortgage

loan under this subtitle.

(4) Subject to the limitations of KRS 304.7 -455, credit lease transactions that do not

qualify for investment under KRS 304.7-457 with the following characteristics shall

be exempt from the provisions of subsection (1) of this section:

(a) The loan amortizes over the initial fixed lease term at least in an amount

sufficient so that the loan balance at the end of the lease term does not exceed

the original appraised value of the real estate;

(b) The lease payments cover or exceed t he total debt service over the life of the

loan;

(c) A tenant or its affiliated entity whose rated credit instruments have a SVO 1 or

2 designation or a comparable rating from a nationally recognized statistical

rating organization recognized by the SVO ha s a full faith and credit

obligation to make the lease payments;

(d) The insurer holds or is the beneficial holder of a first lien mortgage on the real

estate;

(e) The expenses of the real estate are passed through to the tenant excluding

exterior, structu ral, parking, and heating, ventilation and air conditioning

replacement expenses, unless annual escrow contributions, from cash flows

derived from the lease payments, cover the expense shortfall; and

(f) There is a perfected assignment of the rents due und er the lease to or for the

benefit of the insurer.

(5) An insurer may acquire, manage, and dispose of real estate situated in a domestic

jurisdiction either directly or indirectly through limited partnership interests and

general partnership interests not otherwise prohibited by KRS 304.7 -363(4), joint

ventures, stock of an investment subsidiary or membership interests in a limited

liability company, trust certificates, or other similar instruments. The real estate

shall be income producing or intended for improvement or development for

investment purposes under an existing program, in which case the real estate shall

be deemed to be income producing.

(6) The real estate may be subject to mortgages, liens, or other encumbrances, the

amount of which shall, to the extent that the obligations secured by the mortgages,

liens, or encumbrances are without recourse to the insurer, be deducted from the

amount of the investment of the insurer in the real estate for purposes of

determining compliance with subsections (9) and (10) of this section.

(7) An insurer may acquire, manage, and dispose of real estate for the convenient

accommodation of the insurer's, which may include its affiliates, business

operations, including home office, branch office, and field office operations.

(a) Real estate acquired under this subsection may include excess space for rent to

others if the excess space, valued at its fair market value, would otherwise be

a permitted investment under subsections (5) and (6) of this sectio n and is so

qualified by the insurer;

(b) The real estate acquired under this subsection may be subject to one (1) or

more mortgages, liens, or other encumbrances, the amount of which shall, to

the extent that the obligations secured by the mortgages, lien s, or

encumbrances are without recourse to the insurer, be deducted from the

amount of the investment of the insurer in the real estate for purposes of

determining compliance with subsection (11) of this section; and

(c) For purposes of this subsection, "b usiness operations" shall not include that

portion of real estate used for the direct provision of health care services by an

insurer whose insurance premiums and required statutory reserves for accident

and health insurance constitute at least ninety -five percent (95%) of total

premium considerations or total statutory required reserves, respectively. An

insurer may acquire real estate used for these purposes under subsections (5)

and (6) of this section.

(8) An insurer shall not acquire an investment unde r subsections (1) to (4) of this

section if, as a result of and after giving effect to the investment, the aggregate

amount of all investments then held by the insurer under subsections (1) to (4) of

this section would exceed:

(a) One percent (1%) of its a dmitted assets in mortgage loans covering any one

(1) secured location;

(b) One-quarter of one percent (0.25%) of its admitted assets in construction loans

covering any one (1) secured location; or

(c) One percent (1%) of its admitted assets in construction loans in the aggregate.

(9) An insurer shall not acquire an investment under subsections (5) and (6) of this

section if, a result of and after giving effect to the investment and any outstanding

guarantees made by the insurer in connection with the inves tment, the aggregate

amount of investments then held by the insurer under subsections (5) and (6) of this

section plus the guarantees then outstanding would exceed:

(a) One percent (1%) of its admitted assets in any one (1) parcel or group of

contiguous parcels of real estate, except that this limitation shall not apply to

that portion of real estate used for the direct provision of health care services

by an insurer whose insurance premiums and required statutory reserves for

accident and health insurance constitute at least ninety -five percent (95%) of

total premium considerations or total statutory required reserves, respectively,

such as hospitals, medical clinics, medical professional buildings, or other

health facilities used for the purpose of providing health services; or

(b) The lesser of ten percent (10%) of its admitted assets or forty percent (40%) of

its surplus as regards policyholders in the aggregate, except for an insurer

whose insurance premiums and required statutory reserves for accident a nd

health insurance constitute at least ninety-five percent (95%) of total premium

considerations or total statutory required reserves, respectively, this limitation

shall be increased to fifteen percent (15%) of its admitted assets in the

aggregate.

(10) An insurer shall not acquire an investment under subsections (1) to (6) of this

section if, as a result of and after giving effect to the investment and any guarantees

it has made in connection with the investment, the aggregate amount of all

investments then held by the insurer under subsections (1) to (6) of this section plus

the guarantees then outstanding would exceed twenty -five percent (25%) of its

admitted assets.

(11) The limitations of KRS 304.7 -455 shall not apply to an insurer's acquisition of re al

estate under subsection (7) of this section. An insurer shall not acquire real estate

under subsection (7) of this section if, as a result of and after giving effect to the

acquisition, the aggregate amount of all real estate then held by the insurer un der

subsection (7) of this section would exceed ten percent (10%) of its admitted assets.

With the permission of the commissioner, additional amounts of real estate may be

acquired under subsection (7) of this section.