HOUSE AMENDED
PRIOR PRINTER'S NO.1109 PRINTER'S NO. 1681
No. 935 Session of 1985
INTRODUCED BY HOPPER, JUBELIRER, HOLL, LOEPER, MOORE, SALVATORE,
SHUMAKER AND CORMAN, JUNE 5, 1985
AS REPORTED FROM COMMITTEE ON INSURANCE, HOUSE OF
REPRESENTATIVES, AS AMENDED, DECEMBER 9, 1985
AN ACT
1 Amending the act of May 17, 1921 (P.L.682, No.284), entitled "An
2 act relating to insurance; amending, revising, and
3 consolidating the law providing for the incorporation of
4 insurance companies, and the regulation, supervision, and
5 protection of home and foreign insurance companies, Lloyds
6 associations, reciprocal and inter-insurance exchanges, and
7 fire insurance rating bureaus, and the regulation and
8 supervision of insurance carried by such companies,
9 associations, and exchanges, including insurance carried by
10 the State Workmen's Insurance Fund; providing penalties; and
11 repealing existing laws," further providing for investments.
12 The General Assembly of the Commonwealth of Pennsylvania
13 hereby enacts as follows:
14 Section 1. It is the general purpose of this act to provide
15 insurance companies with greater investment flexibility while
16 maintaining reasonable investment standards, and to promote
17 economic development in this Commonwealth by encouraging
18 insurance companies to invest in Pennsylvania new and small
19 businesses.
20 Section 2. Sections 402, 404, 405 and 405.1 of the act of
21 May 17, 1921 (P.L.682, No.284), known as The Insurance Company
1 Law of 1921, are repealed.
2 Section 3. The act is amended by adding sections to read:
3 Section 404.1. Investment.--Subject to the provisions of
4 sections 405.2 and 406.1, the assets of any life insurance
5 company organized under the laws of this Commonwealth shall be
6 invested in the following classes of investment, provided the
7 value of which, as determined for annual statement purposes, but
8 in no event in excess of cost, shall not exceed the specified
9 percentage of such company's assets as of the thirty-first day
10 of December next preceding the date of investment:
11 (1) Bonds, notes or obligations issued, assumed or
12 guaranteed by the United States or by any State thereof, or by
13 any county, city, town, village, municipality or district
14 therein or by any political subdivision thereof or by a public
15 instrumentality of one or more of the foregoing, if, by
16 statutory or other legal requirements applicable thereto, such
17 obligations are payable, as to both principal and interest, from
18 taxes levied or required to be levied upon all taxable property
19 or all taxable income within the jurisdiction of such
20 governmental unit, or from adequate special revenues pledged or
21 otherwise appropriated or by law required to be provided for the
22 purpose of such payment; but not including any obligation
23 payable solely out of special assessments on properties
24 benefited by local improvements, unless adequate security is
25 evidenced by the ratio of assessment to the value of the
26 property or the obligation additionally secured by an adequate
27 guaranty fund required by law.
28 (2) Bonds, notes, obligations and in stock where stated,
29 issued, assumed or guaranteed by the following agencies of the
30 United States, or in which such government is a participant,
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1 whether or not such obligations are guaranteed by such
2 government:
3 (i) Farm Loan Bank.
4 (ii) Commodity Credit Corporation.
5 (iii) Federal intermediate credit banks.
6 (iv) Federal land banks.
7 (v) Central Bank for Cooperatives.
8 (vi) Federal home loan banks and stock thereof.
9 (vii) Federal National Mortgage Association and stock
10 thereof.
11 (viii) International Bank for Reconstruction and
12 Development.
13 (ix) Inter-American Development Bank.
14 (x) Asian Development Bank.
15 (xi) Any other similar agency of, or participated in by, the
16 government of the United States and of similar financial
17 quality, which such investments the Insurance Commissioner has
18 determined were of similar financial quality.
19 (3) Bonds, notes, obligations or other investments of or in
20 any business or governmental unit in or of any foreign country
21 which are of the same kinds, classes and investment grades as
22 those eligible for investment under this section. Investments
23 under this clause in the Dominion of Canada shall not exceed ten
24 per centum (10%) of such company's admitted assets. Investments
25 under this clause in all other foreign countries shall not
26 exceed ten per centum (10%) of such company's admitted assets
27 except as provided in section 406.1(a).
28 (4) Business obligations:
29 (i) Bonds, notes or obligations issued, assumed, guaranteed
30 or accepted by any corporation, joint stock association,
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1 business trusts, business partnerships and business joint
2 ventures, incorporated or existing under the laws of the United
3 States or of any State, District or Territory thereof.
4 (ii) Preferred stock of any of the foregoing.
5 (iii) Interest-bearing deposits or certificates of deposits
6 in banks, bank and trust companies, savings banks, savings
7 associations, savings and loan associations or national banking
8 associations, incorporated or existing under the laws of the
9 United States or any State, District or Territory hereof and
10 branches of foreign banking institutions located in the United
11 States or any State, District or Territory thereof.
12 (iv) Obligations which are not issued, assumed, guaranteed
13 or accepted by any person described under subclause (i) but are
14 secured by an assignment of a right to receive rent, purchase or
15 other payment or revenues for the use or purchase of real or
16 personal property sufficient to repay the investment and payable
17 or guaranteed by any one or more persons or entities whose
18 bonds, notes or obligations would qualify for investment under
19 this section or a mortgage, interest in mortgage pool or
20 mortgage participation, or lien or security interest in real or
21 personal property or any interest therein. Investments permitted
22 under subclause (ii) shall be limited to an aggregate of five
23 per centum (5%) of such company's admitted assets.
24 (5) Trustees', receivers' or equipment trust obligations:
25 (i) Certificates, notes or obligations issued by trustees or
26 receivers of any corporation or business trust created or
27 existing under the laws of the United States or of any State,
28 District or Territory thereof which, or the assets of which, are
29 being administered under the direction of any court having
30 jurisdiction, if such obligation is adequately secured as to
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1 principal and interest.
2 (ii) Equipment trust obligations or certificates, which are
3 adequately secured, or other adequately secured instruments,
4 evidencing an interest in transportation equipment, wholly or in
5 part within the United States, and a right to receive determined
6 portions of rental, purchase or other fixed obligatory payments
7 for the use or purchase of such transportation equipment.
8 (6) Obligations secured by real property or any interests
9 therein, obligations or participations therein, secured by liens
10 on real property, or interests therein, located within the
11 United States, District or Territory thereof. The value of such
12 real property or interest together with such other security as
13 shall secure any such obligation shall be adequate to secure the
14 investment as well as any lien senior to the lien created by the
15 investment in such real estate. No investment in a single
16 transaction shall exceed an amount equal to five per centum (5%)
17 of such company's admitted assets.
18 (7) Loans upon the security of its own policies not
19 exceeding the net value of the policy at the time of making the
20 loan.
21 (8) Such real estate or interests therein located in any
22 State, District or Territory of the United States as such
23 company is authorized to hold under this act.
24 (9) Subsidiaries as permitted under this act.
25 (10) Equity interests:
26 (i) Investments (other than investments provided for in
27 section 406, clauses (11) and (13) of this section 404 and
28 investments in subsidiaries as provided for in section 405.2(c))
29 in common stocks, limited partnership interests, trust
30 certificates (except equipment trust certificates described in
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1 clause (5)) or other equity interests (other than preferred
2 stocks) of corporations, joint stock associations, business
3 trusts, business partnerships and business joint ventures
4 incorporated, organized or existing under the laws of the United
5 States, or of any State, District or Territory thereof.
6 (ii) Stocks or shares of any regulated investment company
7 which is registered as an investment company under the Federal
8 Investment Company Act of 1940 (54 Stat 789, 15 U.S.C. §§ 80a-1
9 to 80a-52, 107), as from time to time amended, and which has no
10 preferred stock, bonds, loans or any other outstanding
11 securities having preference or priority as to the assets or
12 earnings over its common stock at the date of purchase.
13 (iii) Investments under this clause shall not exceed twenty-
14 five per centum (25%) of such company's admitted assets and no
15 investment in any single corporation or entity contemplated by
16 this clause shall exceed five per centum (5%) of such company's
17 admitted assets.
18 (11) Investments in or investments in interests in
19 machinery, equipment, facilities, furnishings, fixtures or other
20 tangible personal property used for, in or as part of or
21 connected with any commercial, industrial, manufacturing,
22 processing or financial, business activity or operation and
23 which may be subject to contractual or other similar
24 arrangements for the purchase, sale or use thereof. Investments
25 in this clause shall not exceed fifteen per centum (15%) of such
26 company's admitted assets.
27 (12) Investments in securities or other instruments which
28 are not interest bearing or income paying. Such investment shall
29 include hedging and other transactions:
30 (i) In foreign currency in connection with the purchase and
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1 sale of permitted investments under other provisions of this
2 section.
3 (ii) In contracts for future acquisitions of options, calls
4 and other rights to purchase, and contracts for future delivery
5 of puts or other rights to require another person to purchase
6 securities permitted for investment under this section, provided
7 that such contracts, options, calls, puts and rights are traded
8 on a national or regional securities exchange or board of trade
9 regulated under the laws of the United States. For purposes of
10 subclause (i), a bona fide hedging transaction means a purchase
11 or sale of foreign currency or of such option, contract, put,
12 call or right, as the case may be, entered into for the purpose
13 of offsetting changes in foreign currency exchange rates or in
14 the market value of a security held, or proposed to be acquired,
15 by the insurance company. Investments in this clause shall not
16 exceed five per centum (5%) of such company's admitted assets.
17 (13) Investment in properties and facilities for the
18 exploration, development, production and distribution of energy
19 producing substances. Such investments may include ownership and
20 control of such properties and facilities or interests therein,
21 including royalty interests and production payments from such
22 activities or investments in limited partnerships engaged in
23 such activities. Investments under this clause shall not exceed
24 five per centum (5%) of such company's admitted assets. The
25 investments in activities producing royalty interests and
26 production payments shall not exceed an additional ten per
27 centum (10%) of such company's admitted assets. An additional
28 one per centum (1%) of such company's assets may be invested in
29 properties, facilities, royalty interests or production payments
30 under this section, provided that such properties and facilities
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1 are located in or operated principally in this Commonwealth.
2 (14) Loans upon the security of investments stated in this
3 section, provided that the value of such collateral in
4 accordance with this clause shall be adequate at the time such
5 investment is made to secure such loan.
6 (15) Other loans and investments:
7 (i) Loans or investments not authorized by any of the
8 clauses of this section, to an amount not exceeding the
9 aggregate of twenty per centum (20%) of such company's admitted
10 assets. The twenty per centum (20%) limitation provided above
11 shall be increased in the same amount that investments approved
12 by the Insurance Commissioner are made in the following
13 categories of investments provided that their principal
14 operations or locations are located in this Commonwealth:
15 (A) Investments in venture capital limited partnerships or
16 in new and young small businesses which are making an initial
17 public offering of securities or utilizing a limited private
18 placement.
19 (B) Investments in minority-owned and operated businesses
20 domiciled in Pennsylvania as provided in the act of July 22,
21 1974 (P.L.598, No.206), known as the "Pennsylvania Minority
22 Business Development Authority Act."
23 (C) Investments in businesses located in enterprise zones
24 designated by the Department of Community Affairs.
25 (D) Investments in housing for families and persons of low
26 income or in housing in enterprise zones designated by the
27 Department of Community Affairs.
28 (E) Investments in seed capital funds established pursuant
29 to the provisions of the act of July 2, 1984 (P.L.555, No.111),
30 known as the "Small Business Incubators Act."
19850S0935B1681 - 8 -
1 (F) Investments in business development credit corporations
2 established pursuant to the act of December 1, 1959 (P.L.1647,
3 No.606), known as the "Business Development Credit Corporation
4 Law."
5 (G) Investments in small business investment corporations
6 and minority enterprise small business investment companies
7 certified pursuant to applicable Federal laws.
8 In no event may the percentage limitation under this subclause
9 (i) exceed the aggregate of twenty-five per centum (25%).
10 (ii) For each one-half per centum (.5%) of such company's
11 admitted assets invested in categories (A) through (G) of
12 subclause (i) of this clause whose principal operations or
13 locations are located in this Commonwealth, investments under
14 other clauses of this section may exceed the volume limitations
15 set forth in such other clauses by an aggregate of two and one-
16 half per centum (2.5%) of the company's admitted assets, but in
17 no event may such excess investments exceed a maximum of five
18 per centum (5%) of admitted assets; however, such excess
19 investments shall be charged against the limitation established
20 in subclause (i) of this clause.
21 (16) Except as hereafter provided in this clause or
22 elsewhere in this act, the value of investments for annual
23 statement purposes shall be determined in accordance with the
24 applicable valuation guidelines of the National Association of
25 Insurance Commissioners. If required by the Insurance
26 Commissioner, any such investment shall be submitted to the
27 National Association of Insurance Commissioners for valuation in
28 accordance with the appropriate guidelines. With respect to
29 investments as to which a valuation shall not be available under
30 the National Association of Insurance Commissioners guidelines,
19850S0935B1681 - 9 -
1 such insurance company shall determine such valuation in
2 accordance with any generally accepted valuation procedure.
3 Section 405.2. Additional Investment Authority for
4 Subsidiaries.--(a) As used in this section the following words
5 and phrases shall have the meanings given to them in this
6 subsection:
7 "Insurance company" or "insurer" includes any company,
8 association or exchange authorized to conduct an insurance
9 business in the jurisdiction of its domicile.
10 "NAIC" means the National Association of Insurance
11 Commissioners.
12 "Owner" or "holder" of securities of a specified person is
13 one who owns any security of such person, including common
14 stock, preferred stock, debt obligations and any other security
15 convertible into or evidencing the right to acquire any of the
16 foregoing.
17 "Person" is an individual, corporation, partnership,
18 association, joint stock company, business trust, unincorporated
19 organization, any similar entity, or any combination of the
20 foregoing acting in concert.
21 "Subsidiary" shall mean only a corporation in which another
22 person owns or holds with the power to vote directly, or through
23 one or more intermediaries, a majority of the outstanding voting
24 securities. A person whose business consists primarily of real
25 property and interests therein or a corporation which is held in
26 a separate account pursuant to section 406.2, shall not be
27 deemed a subsidiary for the purposes of determining the volume
28 limitations set forth in subsection (c)(1). A person which is
29 controlled by another person solely as a result of the temporary
30 assumption of control by the owner of securities upon the
19850S0935B1681 - 10 -
1 happening of a prescribed event of default shall not be deemed a
2 subsidiary or affiliate for purposes of this section, if such
3 securities are disposed of within five years from the date of
4 acquisition, unless such period is extended by the Insurance
5 Commissioner to enable the owner to dispose of such securities
6 in a reasonable and orderly manner.
7 "Voting security" means stock of any class or any ownership
8 interest having the power to elect the directors, trustees or
9 management of a person, other than securities having such power
10 only by reason of the happening of a contingency.
11 (b) Any domestic life insurance company, either by itself or
12 in cooperation with one or more persons, may, in addition to any
13 authority to acquire or hold securities in corporations provided
14 for elsewhere in this act, organize or acquire one or more
15 subsidiaries. Such subsidiaries may conduct any kind of business
16 or businesses and their authority to do so shall not be limited
17 by reason of the fact that they are subsidiaries of a domestic
18 life insurance company.
19 (c) (1) At no time shall a domestic life insurance company
20 make an investment in any subsidiary which will bring the
21 aggregate value of its investments, as determined for annual
22 statement purposes but not in excess of cost, in all
23 subsidiaries under this subsection to an amount in excess of ten
24 per centum (10%) of its total admitted assets as of the
25 immediately preceding December 31. In determining the amount of
26 investments of any domestic life insurance company in
27 subsidiaries for purposes of this subsection, there shall be
28 included investments made directly by such insurance company and
29 if such investment is made by another subsidiary, then to the
30 extent that funds for such investments are provided by the
19850S0935B1681 - 11 -
1 insurance company for such purpose.
2 (2) The limitations set forth in clause (1) of this
3 subsection shall not apply to investments in any subsidiary
4 which is:
5 (i) An insurance company.
6 (ii) A holding company to the extent its business consists
7 of the holding of the stock of, or otherwise controlling, its
8 own subsidiaries.
9 (iii) A corporation whose business primarily consists of
10 direct or indirect ownership, operation or management of assets
11 authorized as investments pursuant to sections 404.1 and 406.
12 (iv) A company engaged in any combination of the activities
13 described in subclauses (i), (ii) and (iii) of this clause.
14 Investments made pursuant to subclause (i) shall not be
15 restricted in amount provided that after such investment, as
16 calculated for NAIC annual statement purposes, the insurer's
17 surplus will be reasonable in relation to the insurer's
18 outstanding liabilities and adequate to its financial needs.
19 Investments made pursuant to subclause (ii), or to the extent
20 applicable in this subclause shall in addition not be subject to
21 any limitations on the amount of a domestic life insurance
22 company's assets provided for under any other provision of this
23 act and which might otherwise be applicable: Provided, however,
24 That such life insurance company's investments, to the extent
25 that such life insurance company provided the funds therefor, in
26 each of the subsidiaries of such holding company shall be
27 subject to the limitations, if any, applicable to such
28 investment as if the holding company's interest in each such
29 subsidiary were instead owned directly by the life insurance
30 company. Investments made pursuant to subclause (iii), or, to
19850S0935B1681 - 12 -
1 the extent applicable, this clause, shall be counted in
2 determining the limitations contained in applicable subsections
3 of sections 404.1 and 406: Provided, however, That the value as
4 calculated for annual statement purposes but not in excess of
5 the cost thereof, of such investment, shall include only funds
6 provided by the insurance company therefor. Investments made in
7 other subsidiaries of such life insurance company by any
8 subsidiary described in subclauses (i), (ii), (iii) and this
9 subclause or by a person whose business primarily consists of
10 direct or indirect ownership, operation or management of real
11 property and interest therein under section 406, shall be deemed
12 investments made by the insurance company only to the extent the
13 funds for such investment were provided by such insurance
14 company.
15 (d) No restrictions, prohibitions or limitations contained
16 in this act otherwise applicable to investments of domestic life
17 insurers shall be applicable to investments in common stock,
18 preferred stock, debt obligations or other securities of
19 subsidiaries made pursuant to subsection (c); nor shall the
20 additional investment authority granted by subsection (c) have
21 the effect of restricting, prohibiting or limiting the rights of
22 a domestic life insurer to make investments permitted under any
23 other section of this act.
24 (e) Whether any investment made pursuant to subsection (c)
25 meets at any time thereafter the applicable requirements thereof
26 is to be determined when such investment is made, taking into
27 account the then outstanding principal balance on all previous
28 investments in debt obligations, and the value, but not in
29 excess of the cost thereof, of all previous investments in
30 equity securities as calculated for annual statement purposes.
19850S0935B1681 - 13 -
1 In calculating the amount of such investments, there shall be
2 included all as determined for NAIC annual statement purposes:
3 (1) Total net moneys or other consideration expended and
4 obligations assumed in the acquisition or formation of a
5 subsidiary, including all organizational expenses and
6 contributions to capital and surplus of such subsidiary whether
7 or not represented by the purchase of capital stock or issuance
8 of other securities.
9 (2) All amounts expended by the domestic life insurance
10 company in acquiring additional common stock, preferred stock
11 debt obligations, and other securities and all contributions to
12 the capital or surplus, or a subsidiary subsequent to its
13 acquisition or formation.
14 (f) If a domestic life insurer ceases to own, directly or
15 indirectly through one or more intermediaries, a majority of the
16 voting securities of a subsidiary held pursuant to subsection
17 (c), it shall dispose of any investment therein made pursuant to
18 such subsection within five years from the time of the cessation
19 of control or within such further time as the commissioner may
20 prescribe, unless at any time after such investment shall have
21 been made, such investment shall have met the requirements for
22 investment under any other section of this act.
23 Section 4. Section 406 of the act, added May 9, 1947
24 (P.L.201, No.93) and amended June 2, 1965 (P.L.77, No.54), is
25 amended to read:
26 Section 406. Real Estate Which May Be Purchased, Held or
27 Conveyed.--Subject to the provisions of section four hundred
28 six, point one, it shall be lawful for any life insurance
29 company, organized under the laws of this Commonwealth directly
30 or indirectly, alone or together with one or more persons or
19850S0935B1681 - 14 -
1 entities, to purchase, receive, hold and convey, real estate or
2 any interest therein:
3 (a) Required for its convenient accommodation in the
4 transaction of its business with reasonable regard to future
5 needs; including residential real estate purchased from employes
6 transferred or about to be transferred to new places of
7 employment with such company.
8 (b) Acquired in satisfaction or on account of loans,
9 mortgages, liens, judgments or decrees, previously owing to it
10 in the course of its business;
11 (c) Acquired in part payment of the consideration of the
12 sale of real property owned by it if the transaction shall
13 result in a net reduction in the company's investment in real
14 estate;
15 (d) Reasonably necessary for the purpose of maintaining or
16 enhancing the sale value or real property previously acquired or
17 held by it under subsections (a), (b) or (c) of this section;
18 [(e) Purchased, leased or owned for the purpose of
19 maintenance, or construction and maintenance, of housing
20 projects consisting of apartment, tenement or other dwelling
21 houses, which projects may include accommodations for retail
22 stores, shops, offices and other community services, reasonably
23 incidental thereto and any improvements thereon, but not
24 hotels;]
25 (f) Purchased, leased or owned[, for the purpose of renting
26 for business, commercial or industrial use, or for development,
27 improvement, maintenance or construction and maintenance for
28 such purpose, as an investment for the production of income.]
29 for residential, business, commercial or industrial use, or for
30 development, improvement, maintenance or construction and
19850S0935B1681 - 15 -
1 maintenance. Provided that investments under this article (a) <--
2 SUBSECTION (F), including investments in limited partnership <--
3 interests or other entities where said entities are engaged
4 primarily in holding real estate or interests therein under this
5 subsection and corporations which are engaged primarily in
6 holding real estate or interests therein as defined in this
7 subsection and the majority of whose voting securities are owned
8 directly or indirectly through one or more intermediaries, shall
9 not exceed twenty-five per centum (25%) of such company's
10 admitted assets.
11 Section 5. Section 406.1 of the act, added May 9, 1947
12 (P.L.201, No.93), and amended July 19, 1951 (P.L.1100, No.245),
13 June 2, 1965 (P.L.77, No.54), July 31, 1968 (P.L.1028, No.309),
14 June 1, 1972 (P.L.321, No.88) and May 7, 1982 (P.L.385, No.112),
15 is amended to read:
16 Section 406.1. General Investment Provisions and
17 Restrictions.--Investment under authority of section [four
18 hundred four, or four hundred five] 404.1 and holding of real
19 estate under authority of section four hundred six by any life
20 insurance company, organized under the laws of this
21 Commonwealth, shall be subject to the following provisions:
22 (a) The Insurance Commissioner may permit such company to
23 invest sufficient of its [capital and reserves] assets exclusive
24 of the amounts permitted in section 404.1(3) in the securities
25 of a foreign government in order to comply with the laws of such
26 foreign government and transact business in such foreign
27 country.
28 (b) No investment under section 404.1 or 406 shall be made
29 in the equity interest, as defined in section 404.1(10), of any
30 unincorporated business or enterprise other than a business
19850S0935B1681 - 16 -
1 trust [or], joint stock company or limited partnership in which
2 a life insurance company acts as a limited partner. A subsidiary
3 of a life insurance company may act as a general partner.
4 (c) No investment shall be made in any loan solely upon
5 personal security of an individual or individuals, but nothing
6 in this act shall be construed to prevent the taking of a bona
7 fide obligation with legal interest in payment of any premium,
8 the making of a collateral loan, as provided in section [four
9 hundred five,] 404.1 or a loan for defraying in whole or in part
10 the expenses of an employe transferred or about to be
11 transferred to a new place of employment with such company.
12 (d) No investment shall be made by any life insurance
13 company in any loan upon the stock, shares or obligation of such
14 company or any other insurance company transacting like classes
15 of business but any stock life insurance company may, with the
16 approval of its board of directors, acquire, retain, cancel or
17 dispose of shares of its own capital stock: Provided, That (i)
18 no such company shall acquire such stock without the prior
19 approval of the Insurance Commissioner, [which shall be granted
20 in accordance with regulations previously promulgated by him,]
21 (ii) no such company shall effect a reduction in its capital
22 stock without complying with the applicable provisions of the
23 law, and (iii) no such company shall directly or indirectly vote
24 shares of its own stock held by it.
25 [(f) No investment in a single mortgage shall exceed ten
26 thousand dollars ($10,000), or an amount equal to two per cent
27 (2%) of such company's total admitted assets as of the thirty-
28 first day of December next preceding the date of investment,
29 whichever is the greater.
30 (g) Exclusive of investments in subsidiaries as provided in
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1 section four hundred five point one no investment shall be made
2 which would result in the cost of total investments in, or in
3 loans upon, any of the following classes of investment exceeding
4 the percentage of such company's admitted assets on the thirty-
5 first day of December next preceding the date of investment,
6 which is specified in the class.
7 (1) Stock or shares of any one corporation, other than stock
8 or shares of a corporation incorporated for a purpose stated in
9 subsection (e) or (f) of section four hundred six, all of whose
10 stock or shares, except directors' qualifying shares, was at the
11 time of acquisition owned by such insurance company or by
12 insurance companies authorized to do business in this
13 Commonwealth, two per cent (2%).
14 (2) Common stock or common shares of corporations, including
15 stock or shares of regulated investment companies, but excluding
16 stock or shares of corporations incorporated for a purpose
17 stated in subsection (e) or (f) of section four hundred six, and
18 excluding stock or shares guaranteed by corporations whose
19 obligations would be eligible for investment under section four
20 hundred four, ten per cent (10%): Provided, however, That the
21 limitation for a company having a surplus of less than five
22 million dollars ($5,000,000) shall be the lesser of (i) the
23 amount of such company's surplus or (ii) ten per cent (10%) of
24 such company's admitted assets.
25 (3) Stock or shares of corporations, incorporated for a
26 purpose stated in subsection (e) or (f) of section four hundred
27 six, and real estate or interests therein, purchased, leased or
28 owned, under authority of such subsections, fifteen per cent
29 (15%).
30 (4) Obligations and stock or shares of corporations or
19850S0935B1681 - 18 -
1 business trusts incorporated or existing under the laws of the
2 Dominion of Canada, or any province thereof; and bonds or
3 evidences of indebtedness issued, assumed or guaranteed by any
4 province of the Dominion of Canada, or any county, city, town,
5 municipality or political subdivision located in the Dominion of
6 Canada or any province thereof, ten per cent (10%): Provided,
7 however, That the limitation for a company having a surplus of
8 less than five million dollars ($5,000,000) shall be the lesser
9 of (i) the amount of such company's surplus or (ii) ten per cent
10 (10%) of such company's admitted assets.
11 (h) The cost to such a company of improvements of each
12 parcel of real estate acquired under subsection (f) of section
13 four hundred six, plus costs incurred by it in improving and
14 developing such parcel, shall be written down annually on the
15 books of the company at a rate which will average not less than
16 two per cent (2%) of such cost or costs for each year, or part
17 of a year, the parcel is held after the date of acquisition.
18 (i) Any parcel of real estate acquired by a company under
19 any other subsection of section four hundred six may be held
20 under authority of subsection (e) or (f) of section four hundred
21 six upon transfer on the company's books as a real estate
22 investment for the purpose stated in such subsection, in which
23 event the date of transfer shall be considered to be the date of
24 acquisition in applying the provisions of this section to a
25 parcel so transferred, and for the purpose of applying the
26 limitation of clause three of subsection (g) of this section the
27 cost of the parcel shall be considered to be its book value on
28 the date of transfer, plus the estimated cost of improvement or
29 development under any improvement or development program
30 contemplated by the company.
19850S0935B1681 - 19 -
1 (j) Any such company may own, hold, maintain, improve,
2 manage, lease, collect or receive income from, sell, transfer,
3 convey or assign any real estate or interest therein after
4 acquisition thereof, under authority of section four hundred
5 six, subject to the provisions of such section and of this
6 section: Provided, That within such reasonable time as the
7 Insurance Commissioner shall direct by written notice to such
8 company, any such company shall sell and dispose of any real
9 estate or interest therein held by it under authority of
10 subsections (b), (c) or (d) of section four hundred six, and
11 which shall have been so held for a period of more than five (5)
12 years, provided the Commissioner after due notice and hearing,
13 shall have found that such real estate or interest therein
14 should be disposed of by such company in the interest of its
15 policyholders, and that the interest of the company will not
16 suffer materially by a forced sale, except that any such company
17 heretofore organized, having the power to receive and execute
18 trusts, may take, receive and hold estates and property, real
19 and personal, which may be granted, committed, transferred or
20 conveyed to it with its consent upon any trust or trusts
21 whatsoever at any time or times, or by any court of the United
22 States or of this Commonwealth and may administer, fulfill and
23 discharge the duties of such trusts.]
24 (k) With the approval of the Insurance Commissioner such
25 company may enter into agreements with one or more insurance
26 companies[,] authorized to do business in this Commonwealth,
27 whereby such companies shall participate in ownership,
28 management and control of real estate held or to be acquired by
29 such company or companies under subsection [(e) or] (f) of
30 section four hundred six, or held by a corporation whose stock
19850S0935B1681 - 20 -
1 is held or to be acquired by such company or companies.
2 [(l) Subject to subsection (k) of this section, no such
3 company shall enter into any agreement to withhold any of its
4 property from sale, and the disposition of its property shall be
5 at all times within the control of its board of directors or
6 trustees.]
7 (m) No provision of this act shall be so construed as to
8 prevent any such company from investing any of its [capital,
9 reserve or surplus funds, as authorized by acts or parts of acts
10 not repealed by this act] assets, or from holding any of such
11 funds in cash or deposits in banks or trust companies or from
12 acquiring or holding property taken in reorganization or
13 foreclosure proceedings or which may be obtained in satisfaction
14 of or on account of any debt previously contracted.
15 (n) Any such company may continue its investment of any of
16 its [capital, reserve or surplus funds] assets in any corporate
17 bonds, notes or obligations held by it on the effective date of
18 this amendment, under authority of section four hundred four, as
19 amended by the act, approved the twelfth day of May, one
20 thousand nine hundred and thirty-nine (Pamphlet Laws 131).
21 [(o) No security or investment of a class stated in
22 subsections (b), (c), (d), (e), (f) or (g) of section four
23 hundred five shall by this act, be authorized or permitted for
24 investment of reserve funds of any such company, if at the date
25 of investment its total investment in classes of investment
26 stated in section four hundred four, is less than its capital
27 and three-fourths (3/4) of its reserves.
28 (p) No such company shall acquire by purchase from the
29 United States any housing project acquired by the Federal Works
30 Administrator, or the National Housing Administrator under the
19850S0935B1681 - 21 -
1 provisions of the act of Congress, approved October 14, 1940, as
2 amended by the act, approved April 29, 1941, the act, approved
3 June 28, 1941, and the act, approved January 21, 1942.]
4 (q) "Date of Investment" shall mean the date of commitment
5 in the case of a commitment to invest.
6 (r) If any investment is made in a manner not authorized by
7 this act, the officers, directors and trustees making or
8 authorizing such investment, shall be personally liable for any
9 loss occasioned thereby.
10 (s) "State" shall mean any state District or Territory
11 including Puerto Rico, the Virgin Islands of the United States
12 and [also] the [Commonwealth of Puerto Rico] District of
13 Columbia.
14 [(t) Investments permitted under sections 404(bb) and 405(i)
15 shall be limited to five per cent (5%) of such company's
16 admitted assets: Provided, however, That the limitation for a
17 company having a surplus of less than five million dollars
18 ($5,000,000) shall be the lesser of (i) the amount of such
19 company's surplus or (ii) five per cent (5%) of such company's
20 admitted assets. For purposes of calculating these limitations,
21 the investments referred to under subsection (g)(4) shall not be
22 taken into account.
23 (u) Investments permitted under section 405(j) shall be
24 limited to five per cent (5%) of such company's admitted
25 assets.]
26 Section 6. Section 406.2 of the act, amended December 13,
27 1974 (P.L.951, No.313), is amended to read:
28 Section 406.2. Separate Accounts.--(a) Any life insurance
29 company organized under the laws of this Commonwealth may
30 establish one or more separate accounts and may allocate thereto
19850S0935B1681 - 22 -
1 any amounts (including without limitation proceeds applied under
2 optional modes of settlement or under dividend options) to
3 provide for life insurance or annuities (and benefits incidental
4 thereto) payable in fixed or variable amounts or both, and for
5 any other investment purpose consistent with a company's
6 investment powers under section 404.1, 406 and 406.1 or this
7 subsection in connection with any product permissible to such
8 company under this act and subject to the following:
9 (1) The income, gains and losses, realized or unrealized,
10 from assets allocated to a separate account shall, in accordance
11 with applicable contracts, be credited to or charged against
12 such account, without regard to other income, gains or losses of
13 the company. Life insurance companies may maintain one or more
14 separate accounts subject to reasonable regulations promulgated
15 by the commissioner with respect to:
16 (i) Separate accounts with all or any portion of the
17 benefits guaranteed as to dollar amounts and duration.
18 (ii) Separate accounts with all or any portion of the funds
19 guaranteed as to the principal amount or stated rate of
20 interest.
21 (2) [Except as may be provided with respect to reserves for
22 guarantee benefits and funds referred to in clause (3) of this
23 subsection (a), (i) amounts allocated to any separate account
24 and accumulations thereon may be invested and reinvested without
25 regard to any requirements or limitations prescribed by the laws
26 of this Commonwealth governing the investments of life insurance
27 companies and (ii) the investments in such separate account or
28 accounts shall not be taken into account in applying the
29 investment limitations otherwise applicable to the investments
30 of the company.] Except as herein provided, the amounts
19850S0935B1681 - 23 -
1 allocated to each separate account established by the insurer
2 pursuant to this section, together with any accumulations
3 thereon, may be invested and reinvested in any class of
4 investments which may be authorized in the written contract or
5 agreement without regard to any investment limitations otherwise
6 applicable to the investment of life insurance companies. The
7 investments in such separate account or accounts shall not be
8 taken into account in the investment limitations applicable to
9 the investments of the insurance company under the provisions of
10 this act.
11 (3) [Except with the approval of the Insurance Commissioner
12 and under such conditions as to investments and other matters as
13 he may prescribe, which shall recognize the guaranteed nature of
14 the benefits provided, reserves for (i) benefits guaranteed as
15 to dollar amount and duration and (ii) funds guaranteed as to
16 principal amount or stated rate of interest shall not be
17 maintained in a separate account.
18 (4) Unless otherwise approved by the Insurance Commissioner,
19 assets] Assets allocated to a separate account shall be valued
20 at their market value on the date of valuation, or [if] at
21 amortized cost if it approximates market value. If there is no
22 readily available market value, then such assets shall be valued
23 as provided under the terms of the contract or the rules or
24 other written agreement applicable to such separate account[:
25 Provided, That unless otherwise approved by the Insurance
26 Commissioner, the portion, if any, of the assets of such
27 separate account equal to the company's reserve liability with
28 regard to the guaranteed benefits and funds referred to in
29 clause (3) of this subsection (a) shall be valued in accordance
30 with the rules otherwise applicable to the company's assets] or
19850S0935B1681 - 24 -
1 by regulation prescribed by the commissioner.
2 (5) [Amounts allocated to a separate account shall be owned <--
3 by the company, and the company shall not be, nor hold itself
4 out to be, a trustee with respect to such amounts. If and to the
5 extent so provided under the applicable contracts, that portion
6 of the assets of any such separate account equal to the reserves
7 and other contract liabilities with respect to such account
8 shall not be chargeable with liabilities arising out of any
9 other business the company may conduct.] Sales, exchanges or <--
10 other transfers of assets may be made by a company at any time
11 between any of its separate accounts or between any other
12 investment account and one or more of its separate accounts
13 provided that the transfer into or from a separate account is
14 made by:
15 (i) A transfer of cash.
16 (ii) A transfer of assets having a valuation which could be
17 readily determined in the marketplace.
18 (iii) Such other transfers as the commissioner in his
19 discretion may approve.
20 (6) If pursuant to the terms of the applicable contracts
21 amounts allocated to a separate account are to be invested in
22 shares of a specified investment company registered under the
23 Investment Company Act of 1940, as amended, which shares are to
24 be held for the exclusive benefit of the applicable contracts,
25 such shares shall, if and to the extent provided in the
26 applicable contracts, be deemed to be a separate account
27 pursuant to the provisions of section 406.2.
28 [(7) No sale, exchange or other transfer of assets may be
29 made by a company between any of its separate accounts or
30 between any other investment account and one or more of its
19850S0935B1681 - 25 -
1 separate accounts unless, in case of a transfer into a separate
2 account, such transfer is made solely to establish the account
3 or to support the operation of the contracts with respect to the
4 separate account to which the transfer is made, and unless such
5 transfer, whether into or from a separate account, is made (i)
6 by a transfer of cash, or (ii) by a transfer of securities
7 having a readily determinable market value: Provided, That such
8 transfer of securities is approved by the Insurance
9 Commissioner. The Insurance Commissioner may approve other
10 transfers among such accounts if, in his opinion, such transfers
11 would not be inequitable.]
12 (8) To the extent the company deems it necessary to comply
13 with any applicable Federal or State laws, such company, with
14 respect to any separate account, including without limitation
15 any separate account which is a management investment company or
16 a unit investment trust, may provide for persons having an
17 interest therein appropriate voting and other rights and special
18 procedures for the conduct of the business of such account,
19 including without limitation special rights and procedures
20 relating to investment policy, investment advisory services,
21 selection of independent public accountants, and the selection
22 of a committee, the members of which need not be otherwise
23 affiliated with such company, to manage the business of such
24 account.
25 (b) Any contract providing benefits for life insurance or
26 annuities payable in variable amounts delivered or issued for
27 delivery in this Commonwealth shall contain a statement of the
28 essential features of the procedures to be followed by the
29 insurance company in determining the dollar amount of such
30 variable benefits. Any such contract under which the benefits
19850S0935B1681 - 26 -
1 vary to reflect investment experience, including a group
2 contract and any certificate in evidence of variable benefits
3 issued thereunder, shall state that such dollar amount will so
4 vary and shall contain on its first page a statement to the
5 effect that the benefits thereunder are on a variable basis.
6 (c) No company shall deliver or issue for delivery within
7 this Commonwealth variable contracts unless it is licensed or
8 organized to do a life insurance business in this Commonwealth,
9 and the Insurance Commissioner is satisfied that its condition
10 or method of operation, including investment policy, in
11 connection with the issuance of such contracts will not render
12 its operation hazardous to the public or its policyholders in
13 this Commonwealth. In this connection, the Insurance
14 Commissioner shall consider among other things:
15 (1) The history and financial condition of the company;
16 (2) The character, responsibility and general fitness of the
17 officers and directors or trustees of the company, and whether
18 such individuals command the public confidence and warrant the
19 belief that the business of the company will be honestly and
20 efficiently conducted in accordance with the intent and purpose
21 of this act; and
22 (3) The law and regulation under which the company is
23 authorized in the state of domicile to issue variable contracts.
24 The state of entry of an alien company shall be deemed its place
25 of domicile for this purpose.
26 If the company is a subsidiary of an admitted life insurance
27 company, or affiliated with such company through common
28 management or ownership, it may be deemed by the Insurance
29 Commissioner to have met the provisions of this section if
30 either it or the parent or the affiliated company meets the
19850S0935B1681 - 27 -
1 requirements hereof.
2 (d) Notwithstanding any other provision of law, the
3 Insurance Commissioner shall have sole authority to regulate the
4 issuance and sale of variable contracts, including the approval
5 or disapproval of provisions of the contracts under section 354
6 of this act, and, further including annual statements furnished
7 to contract holders, and to issue such reasonable rules and
8 regulations as may be appropriate to carry out the purposes and
9 provisions of section 406.2 in the public interest, including
10 that the premiums to be charged shall not be excessive,
11 inadequate or unfairly discriminatory, and the prevention of
12 excessive management, administrative and sales charges. Variable
13 contracts, and agents or other persons who sell variable
14 contracts, shall not be subject to the act of December 5, 1972
15 (P.L.1280, No.284), known as the "Pennsylvania Securities Act of
16 1972," or to regulation by the Pennsylvania Securities
17 Commission.
18 [(e) Under no circumstances shall premiums payable, by a
19 person who meets standard underwriting requirements, for a
20 variable life insurance contract issued in this Commonwealth,
21 exclusive of that portion allocable to any incidental insurance
22 benefit, exceed the following:
23 (1) Either one hundred twenty-five per centum (125%) of the
24 premiums payable for an equivalent plan of fixed benefit life
25 insurance for the same initial face amount issued by the same
26 insurance company or its affiliate; or
27 (2) When an equivalent plan of fixed benefit life insurance
28 for the same initial face amount issued by the same insurance
29 company or its affiliate is not available the maximum premium
30 for that contract shall be fixed under the rules and regulations
19850S0935B1681 - 28 -
1 promulgated by the Insurance Commissioner.]
2 (f) Except for sections 410(b), 410(c), 410(h), 410(i),
3 410(j), 410(k) and 410A and 410D of The Insurance Company Law of
4 1921 and section 6 (1) of the act of May 11, 1949 (P.L.1210,
5 No.367), entitled "An act relating to group life insurance;
6 describing permitted policies and restrictions thereon, the
7 premium basis thereof and rights thereunder; limiting the amount
8 of such insurance; prescribing standard policy provisions; and
9 requiring notice of conversion privileges," in the case of
10 variable life insurance contract and sections 410B(a), 410B(f),
11 410B(g) [and], 410B(3) and 410E of The Insurance Company Law of
12 1921 in the case of a variable annuity contract and except as
13 otherwise provided in section 406.2, all pertinent provisions of
14 the insurance laws shall apply to separate accounts and
15 contracts relating thereto. Any individual variable life
16 insurance or variable annuity contract, delivered or issued for
17 delivery in this Commonwealth shall contain grace, reinstatement
18 [and], incontestability, nonforfeiture [provisions] and right to
19 review provisions as shall be provided in rules and regulations
20 established by the commissioner appropriate to such contract;
21 and any group variable life insurance contract, delivered or
22 issued for delivery in this Commonwealth shall contain a grace
23 provision as shall be provided in rules and regulations
24 established by the commissioner appropriate for such contract.
25 The reserve liability for variable contracts shall be
26 established in accordance with actuarial procedures acceptable
27 to the Insurance Commissioner that recognize the variable nature
28 of the benefits provided and any mortality guarantees.
29 Section 7. Any investments properly made pursuant to
30 applicable provisions of this act prior to the effective date of
19850S0935B1681 - 29 -
1 this amendatory act shall continue as permitted investments
2 under this act.
3 Section 8. This act is not intended to repeal section 641 of
4 the act of May 17, 1921 (P.L.789, No.285), known as The
5 Insurance Department Act of one thousand nine hundred and
6 twenty-one or its application as provided in the act of December
7 30, 1974 (P.L.1148, No.365), entitled "An act amending the act
8 of May 17, 1921 (P.L.789, No.285), entitled, as amended, 'An act
9 relating to insurance; establishing an insurance department; and
10 amending, revising, and consolidating the law relating to the
11 licensing, qualification, regulation, examination, suspension,
12 and dissolution of insurance companies, Lloyds associations,
13 reciprocal and inter-insurance exchanges, and certain societies
14 and orders, the examination and regulation of fire insurance
15 rating bureaus, and the licensing and regulation of insurance
16 agents, and brokers; the service of legal process upon foreign
17 insurance companies, associations or exchanges; providing
18 penalties, and repealing existing laws,' prohibiting the
19 licensing of lending institutions, public utilities and holding
20 companies except for the sale of certain types of insurance."
21 Section 9. The act of July 11, 1917 (P.L.804, No.309),
22 entitled "An act relating to domestic and foreign insurance
23 companies and corporations holding and dealing in insurance
24 stock and certificates; regulating the sale of stock and
25 evidence of indebtedness of such companies and corporations, and
26 of subscriptions and applications therefor; and prescribing
27 penalties," is repealed.
28 Section 10. This act shall take effect immediately.
E20L40RLC/19850S0935B1681 - 30 -