Current through Register Vol. 49, No. 9, September, 2024
SECTION 1.
PURPOSE. The purposes of this Regulation include protecting the interests of
the Arkansas insurance-buying public by establishing limitations on the
concentration of medium grade and lower grade obligations in which a domestic
Arkansas insurer and others can invest; and implementing Ark. Code Ann.
§§
23-63-801, et seq.
in pertinent part, by specifying certain allowable investments of domestic
Arkansas insurers and others as to investments in medium and lower grade
obligations.
The Rule and Regulation is necessary to avoid undesirable results
when market conditions and other market variables adversely affect domestic
insurers having a high concentration of these investments. Accordingly, a
limitation on the percentage of total admitted assets that a domestic insurer
may prudently invest in such obligations is reasonable, necessary and required
in order to carry out the Department's solvency responsibilities under the
Insurance Code. While this Regulation will leave all affected domestic insurers
and others with authority to invest a substantial portion of their assets in
medium grade and lower grade obligations, the prudent management of the
attendant risks will remain an essential element of such investing.
SECTION 2. AUTHORITY AND SCOPE.
The Commissioner is promulgating this Rule pursuant to his authority under Ark.
Code Ann. §
23-61-108;
§§
23-63-601,
et seq. as to insurer assets generally; §§
23-63-801, et seq.
as to insurer investments generally; and including but not limited to the
following types of domestic insurers or corporations: §§
23-70-101,
et seq. as to reciprocal insurers; §§
23-71-101,
et seq. as to stipulated premium plan insurers; §§
23-72-101,
et seq. as to mutual assessment life and disability insurers; §§
23-73-101,,
et seq. as to farmers' mutual aid associations; §
23-75-113,
as to hospital and medical service corporations; §
23-76-117
and §
23-76-125, as to
health maintenance organizations; §§ 23-94-101, et seq. as to risk
retention groups; §§
25-15-201, et
seq. under the Administrative Procedure act and; other applicable laws or
rules. This Rule is intended to apply to and authiorized domestic insurers
holding an Arkansas Certificate of Authority, including domestic stock and
mutual insurers, domestic risk retention groups, domestic hospital and medical
service corporations, domestic health maintenance organizations, domestic
farmers' mutual aid associations, and domestic reciprocal and stipulated
premium plan insurers.
This Rule is not intended to apply to foreign farmers' mutual aid
associations; domestic or foreign fraternal benefit societies; foreign
reciprocal or stipulated premium plan insurers; foreign or alien insurers;
foreign or alien hospital or medical service corporations; foreign or alien
health maintenance organizations; or foreign or alien risk retention
groups.
SECTION 3.
EFFECTIVE DATE. The effective date of this Rule and Regulation shall be August
1, 1994, after filing with the Arkansas Secretary of State and the Arkansas
State Library, pursuant to Ark. Code Ann. §§
25-15-201, et
seq., as amended by Act 1106 of 1993.
SECTION
4. DEFINITIONS. As used in this Regulation:
A. "Medium grade obligations" means
obligations which are rated three (3) by the Securities Valuation Office of the
National Association of Insurance Commissioners ("NAIC").
B. "Lower grade obligations" means
obligations which are rated four (4), five (5) or six (6) by the Securities
Valuation Office of the NAIC.
C.
"Admitted assets" means the amount thereof as of the last day of the most
recently concluded annual statement year, computed in the same manner as
"admitted assets" in Ark. Code Ann. §§
23-63-601,
et seq., as reported in the insurer's annual statement, per the NAIC convention
blank.
D. "Aggregate amount" of
medium grade and lower grade obligations means the aggregate statutory
statement value thereof.
E.
"Institution" means a corporation, a joint-stock company, an association, a
trust, a business partnership, a business joint venture or similar
entity.
SECTION 5.
PROVISIONS!
A. On and after the effective
date of this Rule, no domestic insurer shall acquire, directly or indirectly,
any medium grade or lower grade obligation of any institution if, after giving
effect to any such acquisition, the aggregate amount of all medium grade and
lower grade obligations then held by the domestic insurer would exceed twenty
percent (202) of its admitted assets, provided that:
(1) no more than ten percent (102) of its
admitted assets consists of obligations rated four (4), five (5) or six (6) by
the Securities Valuation Office; and
(2) no more than three percent (32) of its
admitted assets consists of obligations rated five (5) or six (6) by the
Securities Valuation Office; and
(3) no more than one percent (12) of its
admitted assets consists of obligations rated six (6) by the Securities
Valuation Office. Attaining or exceeding the limit of any one (1) category
shall not preclude an insurer from acquiring obligations in other categories
subject to the specific and multi-category limits.
B. No domestic insurer may invest more than
an aggregate of one percent (12) of its admitted assets in medium grade
obligations issued, guaranteed or insured by any one institution, nor may it
invest more than one half of one percent (.52) of its admitted assets in lower
grade obligations issued, guaranteed or insured by any one institution. In no
event, however, may a domestic insurer invest more than one percent (12) of its
admitted assets in any medium or lower grade obligations issued, guaranteed or
insured by any one institution.
C.
Nothing contained in this Regulation shall prohibit a domestic insurer from
acquiring any obligations which it has committed to acquire if the insurer
would have been permitted to acquire that obligation pursuant to this
Regulation on the date on which such insurer committed to purchase that
obligation.
D. Notwithstanding the
foregoing, a domestic insurer may acquire an obligation of an institution in
which the insurer already has one or more obligations, if the obligation is
acquired in order to protect an investment previously made in the obligations
of the institution; provided that all such acquired obligations shall not
exceed one-half of one percent (52) of the insurer's admitted
assets.
E. Nothing contained in
this Regulation shall prohibit a domestic insurer from acquiring an obligation
as a result of a restructuring of a medium or lower grade obligation already
held.
F. Nothing contained in this
Regulation shall require a domestic insurer to sell or otherwise dispose of any
obligation legally acquired prior to the effective date of this Regulation
although insurers are encouraged to gradually replace such securities until
full compliance with this Rule and Regulation is met.
G. The Board of Directors of any domestic
insurance company which acquires or invests, directly or indirectly, more than
two percent (2%) of its admitted assets in medium grade and lower grade
obligations of any institution, shall adopt a written plan for the making of
such investments. The plan, in addition to guidelines with respect to the
quality of the issues invested in, shall contain diversification standards
including, but not limited to, standards for issuer, industry, duration,
liquidity and geographic location. Domestic insurers shall file such plans with
the Commissioner within one hundred and twenty (120) days after the effective
date of this Rule, absent obtaining an extension from the Commissioner for good
cause shown; and shall promptly file any amendments to the plan subsequent to
this initial filing.
SECTION
6. SEVERABILITY. Any section or provision of this Rule held by a
court to be invalid or unconstitutional will not affect the validity of any
other section or provision of this Rule.
