Effective 28 Aug 1997

379.083. Insurer investment in investment pools permitted, when — limitations — custodial and pooling agreements. — 1. As used in this section, the following terms mean:

(1) "Affiliate", as defined in section 382.010;

(2) "Business entity", a corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund trust, or other similar form of business organization, including such an entity when organized as a not-for-profit entity;

(3) "Qualified bank", a national bank, state bank or trust company that at all times is no less than adequately capitalized as determined by the standards adopted by the United States banking regulators and that is either regulated by state banking laws or is a member of the Federal Reserve System.

2. An insurer may acquire investments in investment pools that invest only in investments which an insurer may acquire pursuant to sections 379.080, 379.082 and other provisions of law. The insurer's proportionate interest in the amount invested in these investments shall not exceed the applicable limits of sections 379.080, 379.082 and other provisions of law. An insurer and its affiliated insurers may invest in a maximum of three investment pools.

3. An investment pool qualified pursuant to this section shall not:

(1) Acquire securities issued, assumed, guaranteed or insured by the insurer or an affiliate of the insurer;

(2) Borrow or incur an indebtedness for borrowed money, except for transactions that meet the requirements of sections 379.080, 379.082 and other provisions of law;

(3) Permit the aggregate value of securities then loaned or sold to, purchased from or invested in any one business entity, which in no event will be an affiliated entity of the participant, to exceed ten percent of the total assets of the investment pool; or

(4) Lend money or other assets to participants in the pool.

4. An insurer shall not acquire an investment in an investment pool pursuant to this section if, as a result of such investment, the aggregate amount of investments then held by the insurer pursuant to this section:

(1) In any one investment pool would exceed ten percent of its admitted assets; or

(2) In all investment pools would exceed thirty percent of its admitted assets.

5. For an investment in an investment pool to be qualified pursuant to this section, the manager of the investment pool shall:

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

(2) Be the insurer, an affiliated insurer, a qualified bank, a business entity registered under the federal Investment Advisors Act of 1940 (15 U.S.C. section 80A-1 et seq.) as amended or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact;

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

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

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

(c) Other records which, on a daily basis, allow third parties to verify each participant's investment in the investment pool; and

(4) Maintain the assets of the investment pool in one custody account, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. All custodial agreements shall be filed with the department of commerce and insurance for prior approval. The custody agreement shall:

(a) State and recognize the claims and rights of each participant;

(b) 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

(c) 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.

6. The pooling agreement for each investment pool shall be in writing and shall provide that:

(1) An insurer and its affiliated insurers shall, at all times, hold one hundred percent of the interests in the investment pool;

(2) The underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;

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

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

(b) The underlying assets of the investment pool are held solely for the benefit of each participant;

(4) 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 pool under the terms of the pooling agreement;

(5) Withdrawals may be made upon 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 business days. Distributions pursuant to this subdivision shall be calculated in each case net of all then applicable fees and expenses of the pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:

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

(b) In kind, a pro rata share of each underlying asset; or

(c) In a combination of cash and in-kind distributions, a pro rata share in each underlying asset; and

(6) The pool manager shall make the records of the investment pool available for inspection by the director of the department of commerce and insurance.

7. The investment pool authorized pursuant to this section shall be a business entity.

8. The pooling agreement and any other arrangements or agreements relating to an investment pool, and any amendments thereto, shall be submitted to the department of commerce and insurance for prior approval pursuant to section 382.195. Individual financial transactions between the pool and its participants in the ordinary course of the investment pool's operations shall not be subject to the provisions of section 382.195. Investment activities of pools and transactions between pools and participants shall be reported annually in the registration statement required by section 382.100.

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(L. 1997 H.B. 793)