33-12-304. Insurer investment pools. (1) An insurer may acquire investments in investment pools that:

(a) invest only in:

(i) obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating by a nationally recognized statistical rating organization recognized by the SVO or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating and have:

(A) a remaining maturity of 397 days or less or a put option that entitles the holder to receive the principal amount of the obligation that may be exercised through maturity at specified intervals not exceeding 397 days; or

(B) a remaining maturity of 3 years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London interbank offered rate, 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;

(ii) government money market mutual funds or class one money market mutual funds; or

(iii) securities lending, repurchase, and reverse repurchase transactions that meet all the requirements of 33-12-308, except the quantitative limitations of 33-12-308(1)(d); or

(b) invest only in investments that an insurer may acquire under this chapter if the insurer's proportionate interest in the amount invested in these investments does not exceed the applicable limits of this chapter.

(2) For an investment in an investment pool to be qualified under this chapter, the investment pool may not:

(a) acquire securities issued, assumed, insured, or guaranteed 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 33-12-308, except the quantitative limitations of 33-12-308(1)(d); or

(c) permit the aggregate value of securities then loaned or sold to, purchased from, or invested in any one business entity under this section to exceed 10% of the total assets of the investment pool.

(3) The limitations of 33-12-302(1) do not apply to an insurer's investment in an investment pool. However, an insurer may 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 investments then held by the insurer under this section:

(a) in any one investment pool would exceed 10% of its admitted assets;

(b) in all investment pools investing in investments permitted under subsection (1)(b) would exceed 25% of its admitted assets; or

(c) in all investment pools would exceed 40% of its admitted assets.

(4) For an investment in an investment pool to be qualified under this chapter, the manager of the investment pool:

(a) must be organized under the laws of the United States or a state and must be designated as the pool manager in a pooling agreement;

(b) must be:

(i) the insurer, an affiliated insurer, a business entity affiliated with the insurer, a qualified bank, or a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1, et seq.), as amended;

(ii) in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact; or

(iii) in the case of a United States branch of an alien insurer, its United States manager or affiliates or subsidiaries of its United States manager;

(c) shall compile and maintain detailed accounting records setting forth:

(i) the cash receipts and disbursements reflecting each participant's proportionate investment in the investment pool;

(ii) a complete description of all underlying assets of the investment pool, including amount, interest rate, maturity date, if any, and other appropriate designations; and

(iii) other records that, on a daily basis, allow third parties to verify each participant's investment in the investment pool; and

(d) shall maintain the assets of the investment pool in one 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 must:

(i) state and recognize the claims and rights of each participant;

(ii) 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

(iii) contain an agreement that the underlying assets of the investment pool may not be commingled with the general assets of the custodian qualified bank or any other person.

(5) The pooling agreement for each investment pool must be in writing and must provide that:

(a) an insurer and its affiliated insurers or, in the case of an investment pool investing solely in investments permitted under subsection (1)(a), the insurer and its subsidiaries or affiliates, any pension or profit-sharing plan of the insurer or its subsidiaries and affiliates, or in the case of a United States branch of an alien insurer, the affiliates or subsidiaries of its United States manager shall, at all times, hold 100% of the interests in the investment pool;

(b) the underlying assets of the investment pool may 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:

(i) each participant owns an undivided interest in the underlying assets of the investment pool; and

(ii) 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 must occur within a reasonable and customary period after withdrawal not to exceed 5 business days. Distributions under this subsection (5)(e) must be calculated in each case net of all then-applicable fees and expenses of the investment pool. The pooling agreement must provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:

(i) in cash, the then fair market value of the participant's pro rata share of each underlying asset of the investment pool;

(ii) in kind, a pro rata share of each underlying asset; or

(iii) 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.

History: En. Sec. 28, Ch. 304, L. 1999.