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Title 3 . Commerce, Community, and Economic Development
Chapter 21 . Miscellaneous
Section 281. Investment transactions with affiliated or controlling persons for a life and health insurer

3 AAC 21.281. Investment transactions with affiliated or controlling persons for a life and health insurer

(a) Except as provided in this section, a life and health insurer may not, without first fulfilling the obligations imposed under this section,

(1) invest in an otherwise qualifying investment issued by or due from an affiliated party;

(2) purchase from an affiliated party an otherwise qualifying investment; or

(3) use the services of a broker or commissioned sales agent who is an affiliated or controlling person in securing an otherwise qualifying investment.

(b) Before completing an investment activity with or through an affiliated or controlling person or completing a transaction of the type listed in (f) of this section, a life and health insurer shall fully disclose and document in writing to its board of directors and the committee authorized by the board and charged with the supervision or making of the investment or loan involved the material facts concerning the affiliation or circumstances of control. A life and health insurer may not complete an investment activity with or through an affiliated or controlling person unless the board of directors, by specific board action, authorizes the transaction and concludes that the transaction complies with (c) and (d) of this section. The vote of the board authorizing the transaction must be recorded in the minutes on a member-by-member basis and must indicate each vote approving, disapproving, or abstaining on the transaction.

(c) A life and health insurer shall consummate an investment or loan with an affiliated or controlling person at current market transfer prices and under a fee structure and at interest or discount rates that are commercially reasonable in the area in which the transaction occurs.

(d) The life and health insurer's board of directors is responsible for determining that a transfer price is at current market and for determining the commercial reasonableness of the transaction with an affiliated or controlling person. The board of directors may rely on an independent third-party expert in making its determination.

(e) This section does not apply to a policy loan or to a circumstance in which the financial interest of the affiliated or controlling party is only nominal or so remote as not to give rise to a conflict of interest.

(f) A life and health insurer, either alone or in cooperation with one or more persons, may organize or acquire one or more subsidiaries engaged in the following kinds of business:

(1) insurance business authorized by AS 21;

(2) acting as an insurance producer or as an insurance agent for the life and health insurer's parent or for any of the life and health insurer's parent's insurer subsidiaries and controlled affiliates;

(3) investing, reinvesting, or trading in securities for the life and health insurer's own account, or an account of the life and health insurer's parent, a subsidiary of the life and health insurer's parent, an affiliate, or a subsidiary;

(4) management of an investment company subject to or registered under 15 U.S.C. 80a-1 - 80a-64 (Investment Company Act of 1940), including related sales and services;

(5) acting as a broker-dealer subject to or registered under 15 U.S.C. 78a - 78mm (Securities Exchange Act of 1934);

(6) rendering investment advice to a government, government agency, corporation, or other organization or group;

(7) rendering other services related to the operations of an insurance business, including actuarial, loss prevention, safety engineering, data processing, accounting, claims, appraisal, and collection services;

(8) ownership and management of assets that the parent corporation could own or manage;

(9) acting as administrative agent for a governmental instrumentality that is performing an insurance function;

(10) financing an insurance premium, agent, or other form of consumer financing;

(11) any other business activity determined by the director in writing using the standards set out in this section to be reasonably ancillary to an insurance business;

(12) owning a corporation engaged or organized to engage exclusively in one or more of the businesses specified in this section.

(g) A life and health insurer may also

(1) invest in securities described in 3 AAC 21.236 - 3 AAC 21.261 of a subsidiary in an amount that, in the aggregate with all other investments in subsidiaries, does not exceed the lesser of 10 percent of the life and health insurer's assets or 50 percent of the life and health insurer's policyholder surplus if, after the investment, the life and health insurer's policyholder surplus is reasonable in relation to the life and health insurer's outstanding liabilities and adequate to the life and health insurer's financial needs; in calculating the amount of the investment, a life and health insurer shall include the following:

(A) total net money or other consideration expended and all obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of the subsidiary if represented or not represented by the purchase of capital stock or issuance of other securities;

(B) all amounts expended in acquiring additional securities described in 3 AAC 21.236 - 3 AAC 21.261 and all contributions to the capital or surplus of a subsidiary subsequent to the subsidiary's acquisition or formation;

(2) invest an amount in a security described in 3 AAC 21.236 - 3 AAC 21.261 of a subsidiary engaged or organized to engage exclusively in the ownership and management of assets authorized as an investment for the life and health insurer if that subsidiary agrees to limit the subsidiary's investment in an asset in a way that the investment does not cause the amount of the total investment of the life and health insurer to exceed the limitations specified in (1) of this subsection or in 3 AAC 21.231 - 21.286; for the purpose of this paragraph, the total investment of the life and health insurer includes

(A) a direct investment by the life and health insurer in an asset; and

(B) the life and health insurer's proportionate share of an investment in an asset by a subsidiary of the life and health insurer calculated by multiplying the amount of the subsidiary's investment by the percentage of the ownership in the subsidiary; or

(3) with the prior written approval of the director, invest a greater amount in a security described in 3 AAC 21.236 - 3 AAC 21.261 of a subsidiary if after the investment the insurer's policyholder surplus is reasonable in relation to the life and health insurer's outstanding liabilities and adequate to the life and health insurer's financial needs.

(h) A life and health insurer shall determine if an investment meets the applicable requirements under (g) of this section before the investment is made by calculating the applicable limitations under 3 AAC 21.231 as though the investment had already been made and by taking into account the existing outstanding principal balance on all previous investments under 3 AAC 21.236 - 3 AAC 21.261, calculated at admitted asset value, giving effect to a return of capital invested and not giving effect to dividends.

(i) If a life and health insurer ceases to control a subsidiary, the life and health insurer shall dispose of an investment in the subsidiary made under this section within three years after cessation of control unless, at any time after the investment has been made, the investment meets the requirements for investment under another provision of 3 AAC 21.201 - 3 AAC 21.399 and the life and health insurer has notified the director regarding the application of another provision of 3 AAC 21.201 - 3 AAC 21.399 to the investment.

History: Eff. 12/28/2001, Register 160; am 11/21/2004, Register 172

Authority: AS 21.06.090

AS 21.18.010

AS 21.18.030

AS 21.18.040

AS 21.21.010

AS 21.21.020

AS 21.21.255

AS 21.21.420


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Last modified 7/05/2006