40 Pa. Stat. § 505.2

Current through Pa Acts 2024-53, 2024-56 through 2024-92

Section 505.2 - Additional investment authority for subsidiaries

(a) As used in this section the following words and phrases shall have the meanings given to them in this subsection:

"Insurance company" or "insurer" includes any company, association or exchange authorized to conduct an insurance business in the jurisdiction of its domicile.

"NAIC" means the National Association of Insurance Commissioners.

"Owner" or "holder" of securities of a specified person is one who owns any security of such person, including common stock, preferred stock, debt obligations and any other security convertible into or evidencing the right to acquire any of the foregoing.

"Person" is an individual, corporation, partnership, association, joint-stock company, business trust, unincorporated organization, any similar entity or any combination of the foregoing acting in concert.

"Subsidiary" shall mean only a corporation in which another person owns or holds, with the power to vote directly or through one or more intermediaries, a majority of the outstanding voting securities. A person whose business consists primarily of real property and interests therein, or a corporation which is held in a separate account pursuant to section 406.2, shall not be deemed a subsidiary for the purposes of determining the volume limitations set forth in subsection (c)(1). A person which is controlled by another person solely as a result of the temporary assumption of control by the owner of securities upon the happening of a prescribed event of default shall not be deemed a subsidiary or affiliate for purposes of this section, if such securities are disposed of within five years from the date of acquisition, unless such period is extended by the Insurance Commissioner to enable the owner to dispose of such securities in a reasonable and orderly manner.

"Voting security" means stock of any class or any ownership interest having the power to elect the directors, trustees or management of a person, other than securities having such power only by reason of the happening of a contingency.

(b) Any domestic life insurance company, either by itself or in cooperation with one or more persons, may, in addition to any authority to acquire or hold securities in corporations provided for elsewhere in this act, organize or acquire one or more subsidiaries. Such subsidiaries may conduct any kind of business or businesses, and their authority to do so shall not be limited by reason of the fact that they are subsidiaries of a domestic life insurance company. No domestic life insurance company shall be deemed to be authorized to participate in or to form a general partnership with any other person.

(c)

(1) Except as set forth in paragraph (1.1), at no time shall a domestic life insurance company make an investment in any subsidiary which will bring the aggregate value of its investments, as determined for annual statement purposes but not in excess of cost, in all subsidiaries under this subsection to an amount in excess of ten per centum (10%) of its total admitted assets as of the immediately preceding thirty-first day of December. In determining the amount of investments of any domestic life insurance company in subsidiaries for purposes of this subsection, there shall be included investments made directly by such insurance company and, if such investment is made by another subsidiary, then to the extent that funds for such investments are provided by the insurance company for such purpose.

(1.1) A domestic life insurance company may increase the aggregate value of its investments, as determined for annual statement purposes, but not in excess of cost, in all subsidiaries under this subsection to an amount in excess of ten per centum (10%) but at no time in excess of fifteen per centum (15%) of its total admitted assets as of the immediately preceding thirty-first day of December if the increase has been approved in writing by the Insurance Department prior to making the investment. If the Insurance Department does not approve or disapprove the increased investment within thirty (30) days of receipt of a request for approval, the increased investment shall be deemed approved. In determining the amount of investments of any domestic life insurance company in subsidiaries for purposes of this subsection, there shall be included investments made directly by such insurance company and, if such investment is made by another subsidiary, then to the extent that funds for such investments are provided by the insurance company for such purpose.

(2) The limitations set forth in clauses (1) and (1.1) of this subsection shall not apply to investments in any subsidiary which is:

(i) An insurance company or a health maintenance organization holding a certificate of authority under the act of December 29, 1972 (P.L. 1701, No. 364), known as the "Health Maintenance Organization Act."

(ii) A holding company to the extent its business consists of the holding of the stock of, or otherwise controlling, its own subsidiaries.

(iii) A corporation whose business primarily consists of direct or indirect ownership, operation or management of assets authorized as investments pursuant to sections 404.1 and 406.

(iv) A company engaged in any combination of the activities described in subclauses (i), (ii) and (iii) of this clause. Investments made pursuant to subclause (i) shall not be restricted in amount provided that after such investment, as calculated for NAIC annual statement purposes, the insurer's surplus will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs. Investments made pursuant to subclause (ii), or to the extent applicable in this subclause, shall in addition not be subject to any limitations on the amount of a domestic life insurance company's assets provided for under any other provision of this act and which might otherwise be applicable: Provided, however, That such life insurance company's investments, to the extent that such life insurance company provided the funds therefor, in each of the subsidiaries of such holding company shall be subject to the limitations, if any, applicable to such investment as if the holding company's interest in each such subsidiary were instead owned directly by the life insurance company. Investments made pursuant to subclause (iii), or, to the extent applicable, this clause, shall be counted in determining the limitations contained in applicable subsections of sections 404.2 and 406: Provided, however, That the value as calculated for annual statement purposes, but not in excess of the cost thereof, of such investment shall include only funds provided by the insurance company therefor. Investments made in other subsidiaries of such life insurance company by any subsidiary described in subclauses (i), (ii), (iii) and this subclause or by a person whose business primarily consists of direct or indirect ownership, operation or management of real property and interest therein undersection 406 shall be deemed investments made by the insurance company only to the extent the funds for such investment were provided by such insurance company.

(d) No restrictions, prohibitions or limitations contained in this act otherwise applicable to investments of domestic life insurers shall be applicable to investments in common stock, preferred stock, debt obligations or other securities of subsidiaries made pursuant to subsection (c); nor shall the additional investment authority granted by subsection (c) have the effect of restricting, prohibiting or limiting the rights of a domestic life insurer to make investments permitted under any other section of this act.

(e) Whether any investment made pursuant to subsection (c) meets, at any time thereafter, the applicable requirements thereof is to be determined when such investment is made, taking into account the then outstanding principal balance on all previous investments in debt obligations and the value, but not in excess of the cost thereof, of all previous investments in equity securities as calculated for annual statement purposes. In calculating the amount of such investments, there shall be included, as determined for NAIC annual statement purposes:

(1) Total net moneys or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary, including all organizational expenses and contributions to capital and surplus of such subsidiary whether or not represented by the purchase of capital stock or issuance of other securities.

(2) All amounts expended by the domestic life insurance company in acquiring additional common stock, preferred stock debt obligations, and other securities and all contributions to the capital or surplus, or a subsidiary subsequent to its acquisition or formation.

(f) If a domestic life insurer ceases to own, directly or indirectly through one or more intermediaries, a majority of the voting securities of a subsidiary held pursuant to subsection (c), it shall dispose of any investment therein made pursuant to such subsection within five years from the time of the cessation of control or within such further time as the commissioner may prescribe, unless, at any time after such investment shall have been made, such investment shall have met the requirements for investment under any other section of this act.

40 P.S. § 505.2

1921, May 17, P.L. 682, No. 284, § 405.2, added 1986 , June 11, P.L. 226, No. 64, § 6, imd. effective. Amended 1995 , Dec. 21, P.L. 714, No. 79, § 2, effective in 60 days; 2008, July 9, P.L. 885, No. 62, §2, effective in 60 days [ 9/8/2008].