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Title 3 . Commerce, Community, and Economic Development
Chapter 21 . Miscellaneous
Section 350. Mortgage loans and real estate for a property and casualty insurer

3 AAC 21.350. Mortgage loans and real estate for a property and casualty insurer

(a) A property and casualty insurer may acquire, hold, or invest in an obligation secured by a mortgage on real estate situated within a domestic jurisdiction either directly or indirectly through a limited partnership interest or general partnership interest not otherwise prohibited by 3 AAC 21.216, a joint venture, stock of an investment subsidiary or a membership interest in a limited liability company, a trust certificate, or another similar instrument. A property and casualty insurer may not acquire, hold, or invest in a mortgage loan that is secured by other than a first lien unless the property and casualty insurer is the holder of the first lien. An obligation held by a property and casualty insurer and any obligation with an equal lien priority may not, at the time of acquisition of the obligation, exceed

(1) 90 percent of the fair market value of the real estate if the mortgage loan is secured by a purchase money mortgage or like security received by the property and casualty insurer upon disposition of the real estate;

(2) 80 percent of the fair market value of the real estate if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less, and has periodic payments made no less frequently than annually, subject to the following:

(A) each periodic payment must be sufficient to ensure that, at all times, the outstanding principal balance of the mortgage loan will not be greater than the outstanding principal balance would be under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period;

(B) a mortgage loan permitted under this paragraph is permitted notwithstanding that the loan provides for a payment of the principal balance before the end of the period of amortization of the loan;

(C) for a residential mortgage loan, the 80 percent limitation may be increased to 97 percent if acceptable private mortgage insurance has been obtained; or

(3) 75 percent of the fair market value of the real estate for a mortgage loan that does not meet the requirements of (1) or (2) of this subsection.

(b) For purposes of (a) of this section, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the United States Department of Housing and Urban Development, Federal Housing Administration or guaranteed by the United States Secretary of Veterans Affairs for the United States, or its successor.

(c) A mortgage loan that is held by a property and casualty insurer under 3 AAC 21.206(f) or acquired under this section and that is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the National Association of Insurance Commissioners accounting practices and procedures manual continues to qualify as a mortgage loan under 3 AAC 21.201 - 3 AAC 21.399.

(d) A credit lease transaction that does not qualify for investment under 3 AAC 21.330 need not comply with a requirement of(a) of this section if

(1) it includes a loan amortized over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;

(2) the lease payments cover or exceed the total debt service over the life of the loan;

(3) a tenant or its affiliated entity, whose rated credit instruments are rated one or two by the securities valuation office or have an equivalent rating from a nationally recognized statistical rating organization, has a full faith and credit obligation to make the lease payments;

(4) the property and casualty insurer holds or is the beneficial holder of a first lien mortgage on the real estate;

(5) the expenses of the real estate, other than exterior, structural, parking, heating, ventilation, and air conditioning replacement expenses, are passed through to the tenant, unless annual escrow contributions from cash flows derived from the lease payments cover the expense shortfall; and

(6) a perfected assignment exists of the rent due under the lease to or for the benefit of the property and casualty insurer.

(e) A property and casualty insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through a limited partnership interest or general partnership interest not otherwise prohibited in 3 AAC 21.216, a joint venture, the stock of an investment subsidiary, a membership interest in a limited liability company, a trust certificate, or another similar instrument, subject to the following:

(1) the real estate must be income-producing or intended for improvement or development for an investment purpose under an existing plan of improvement or development, in which case the real estate is considered to be income-producing;

(2) the real estate may be subject to a mortgage, lien, or other encumbrance, the amount of which must be deducted, to the extent that the obligations secured by the mortgage, lien, or encumbrance is without recourse to the property and casualty insurer, from the amount of the investment of the property and casualty insurer in the real estate for purposes of determining compliance with (g)(2) and (3) of this section.

(f) A property and casualty insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the business operations of the property and casualty insurer or its affiliates. For purposes of this subsection,

(1) real estate acquired may

(A) include excess space for rent to others if the excess space, valued at its fair market value, would otherwise be a permitted investment under (e) of this section and is so qualified by the property and casualty insurer; and

(B) be subject to a mortgage, lien, or other encumbrance, the amount of which must be deducted, to the extent that the obligation secured by the mortgage, lien, or encumbrance is without recourse to the insurer, from the amount of the investment of the property and casualty in the real estate for purposes of determining compliance with (h) of this section; and

(2) business operations

(A) include home office, branch office, and field office operations; and

(B) do not include operations on that portion of real estate used for the direct provision of health care services by a property and casualty insurer whose insurance premiums and reserves required by AS 21.18 for accident and health insurance constitute at least 95 percent of total premium considerations or total reserves required by AS 21.18, respectively; a property and casualty insurer may acquire real estate used for the direct provision of health care services under (e) of this section.

(g) A property and casualty insurer may not acquire an investment

(1) under (a) - (d) of this section if, as a result of and after giving effect to the investment, the aggregate amount of all investments then held by the property and casualty insurer under (a) - (d) of this section would exceed

(A) one percent of the property and casualty insurer's admitted assets in mortgage loans covering any one secured location;

(B) one-quarter of one percent of the property and casualty insurer's admitted assets in construction loans covering any one secured location; or

(C) one percent of the property and casualty insurer's admitted assets in construction loans in the aggregate;

(2) under (e) of this section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the property and casualty insurer in connection with the investment, the aggregate amount of investments then held by the property and casualty insurer under (e) of this section plus the guarantees then outstanding would exceed

(A) one percent of the property and casualty insurer's admitted assets in one parcel or group of contiguous parcels of real estate; however, the limitation in this subparagraph does not apply to that portion of real estate used for the direct provision of health care services by a property and casualty insurer whose insurance premiums and reserves required by AS 21.18 for accident and health insurance constitute at least 95 percent of total premium considerations or total reserves required by AS 21.18, respectively; for purposes of this subparagraph, real estate used for the direct provision of health care services includes hospitals, medical clinics, medical professional buildings, or other health facilities used for the purpose of providing health services;

(B) the lesser of 10 percent of the property and casualty insurer's admitted assets or 40 percent of the property and casualty insurer's policyholder surplus; or

(C) for a property and casualty insurer whose insurance premiums and reserves required by AS 21.18 for accident and health insurance constitute at least 95 percent of total premium considerations or total reserves required by AS 21.18, respectively, the lesser of 15 percent of the property and casualty insurer's admitted assets or 40 percent of the property and casualty insurer's policyholder surplus; or

(3) under (a) - (e) of this section if, as a result of and after giving effect to the investment and any guarantees the property and casualty insurer has made in connection with the investment, the aggregate amount of all investments then held by the property and casualty insurer under (a) - (e) of this section plus the guarantees then outstanding would exceed 25 percent of the property and casualty insurer's admitted assets.

(h) The limitations of 3 AAC 21.325 do not apply to a property and casualty insurer's acquisition of real estate under (f) of this section. A property and casualty insurer may not acquire real estate under (f) of this section if, as a result of and after giving effect to the acquisition, the aggregate amount of real estate then held by the property and casualty insurer under (f) of this section would exceed 10 percent of the property and casualty insurer's admitted assets, unless the director gives prior written permission, upon finding the acquisition consistent with the purposes of 3 AAC 21.201 - 3 AAC 21.399 as stated in 3 AAC 21.201 for the insurer to acquire additional amounts of real estate under (f) of this section.

(i) For purposes of 3 AAC 21.201 - 3 AAC 21.399, real estate includes a leasehold estate only if it has an unexpired term, including renewal options exercisable at the option of the lessee, extending beyond the scheduled maturity date of the obligation that is secured by a mortgage on the leasehold estate by a period equal to at least 20 percent of the original term of the obligation or 10 years, whichever is greater.

History: Eff. 12/28/2001, Register 160

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