Ins 6.20(4)(4) General limitations on restricted insurers. No insurer restricted under s. 620.03, Stats., may invest in any of the following classes of assets, unless prior permission is granted by the commissioner: Ins 6.20(4)(a)(a) Any securities of an issuer who has defaulted on any payment on any debt security within the previous 5 years. Ins 6.20(5)(5) Special limitations pertaining to a restricted insurer other than a town mutual insurer. An insurer that is restricted under s. 620.03, Stats., and is not a town mutual insurer shall not invest in any of the following investments: Ins 6.20(5)(a)(a) Bonds or evidences of indebtedness. An insurer shall not invest in bonds or evidences of indebtedness described in s. 620.22 (1), Stats., unless the bonds or evidences of indebtedness are lawfully authorized and have at least one of the following characteristics: Ins 6.20(5)(a)1.1. At the time of purchase have a 1 or 2 designation by the national association of insurance commissioners, or an equivalent rating by a NRSRO. Ins 6.20(5)(a)2.2. The bonds or evidences of indebtedness are of a municipally owned public utility of this state created pursuant to section 3 of article XI of the constitution, and the net book value of the property pledged as security for the bonds has been established or approved by the public service commission, and the total issue of the bonds does not exceed 50% of the net book value of such property. Ins 6.20(5)(a)3.3. Principal and interest are payable from revenues of a public utility or railroad owned by or held for the benefit of any governmental unit in the United States or Canada, if they are adequately secured by mortgage or lien on property or by specific pledge or revenues, and lawful authorizing resolutions or ordinance of the governing body of the unit require that during the life of the bond or evidence of indebtedness the rates, fees, tolls or charges together with any other revenues pledged shall at all times produce revenues sufficient to pay all expenses of operation and maintenance, interest as promised and the principal sum when due. Ins 6.20(5)(a)4.4. The bonds or evidences of indebtedness are of public utilities in the United States or Canada and are either adequately secured by mortgage, pledge or other collateral, or have had net earnings available for fixed charges that for the previous 3 fiscal years have averaged per year not less than 1 1/2 times the average annual fixed charges. Ins 6.20(5)(a)5.5. The bonds or evidences of indebtedness are of a United States or Canadian private corporation, and they are either adequately secured by mortgage, pledge or other collateral, or are issued by a corporation which has had net earnings available for fixed charges that have averaged for the previous 5 years, and equaled for each of the previous 2 years an annual amount which exceeded average annual fixed charges by at least 50%, or 25% in the case of corporations engaged primarily in wholesale or retail merchandising, installment, commercial and consumer financing, factoring or small loan business. Ins 6.20(5)(b)(b) Equipment securities. In equipment securities or in certificates of an equipment trust under sub. (8) (b) unless the obligor’s net earnings have averaged at least 2 times its average annual fixed charges for the previous 3 years. Ins 6.20(5)(c)1.1. On the security of encumbered property, but property shall not be deemed encumbered because of unpaid but not delinquent assessments and taxes, mineral, oil or timber rights, easements for public highways, private roads, railroads, telegraph, telephone, electric light and power lines, drains, sewers or other similar easements, liens for service and maintenance of water rights when not delinquent, party wall agreements, building restrictions, or other restrictive covenants or conditions, with or without a reversionary clause, or leases under which rents or profits are reserved to the owner; Ins 6.20(5)(c)2.2. In excess of 2/3 of the fair market value, including buildings covered by the mortgage. If the value of buildings constitute part of the security, the buildings must be insured adequately to protect the insurer’s security interest. The 2/3 limitation shall not apply to any loan fully insured by a federal insurance corporation; nor Ins 6.20(5)(c)3.3. On the security of a leasehold interest in real property unless it is unencumbered except by rentals owed to the owner of the fee, has at least 25 years yet to run, and then for no more than 50% of the fair market value of the leasehold less the present value of all rentals due upon it to the owner of the fee. Ins 6.20(5)(d)(d) Preferred shares. In preferred shares unless the issuing company has had, disregarding fixed charges on indebtedness and dividend requirements on preferred stock for the retirement of which provision has been made at the date of the investment, net earnings: Ins 6.20(5)(d)1.1. Available for fixed charges and dividends that during the previous 5 fiscal years have averaged not less than twice the sum of the fixed charges, maximum contingent interest and preferred dividend requirements of the issuing company; or Ins 6.20(5)(d)2.2. Available for fixed charges and dividends that for each of the previous 3 fiscal years have been not less than 1 1/2 times the sum of the fixed charges, maximum contingent interest and preferred dividend requirements of the issuing company; or Ins 6.20(5)(d)3.3. Available to meet preferred dividend requirements of the previous 5 years, after allowance for fixed charges and federal and state income taxes, that have averaged not less than 3 times the preferred dividend requirements. Ins 6.20(5)(e)1.1. In accordance with a plan of acquisition proposed by the insurer and approved by the commissioner; and Ins 6.20(5)(e)2.2. In common stocks which are authorized securities for NASDAQ, the automated quotation system of the National Association of Securities Dealers. Ins 6.20(5)(f)(f) Real property. In any investment under s. 620.22 (4) or (5), Stats., except with prior written approval of the commissioner. Ins 6.20(5)(g)1.1. Except as permitted under subd. 2., more than 3% of assets in securities of any single issuer unless it obtains the prior written permission of the commissioner or unless the investment is in securities of the government of the United States or its instrumentalities or in securities guaranteed by the full faith and credit of the United States; or Ins 6.20(5)(g)2.2. More than 10% of assets in the securities of one state, of one instrumentality of a state, or of one governmental unit of a state. Ins 6.20(6)(a)(a) Status as a restricted insurer. Town mutual insurance companies authorized to operate under the provisions of ch. 612, Stats., are restricted insurers and are subject to the restrictions of ss. 612.36 and 620.03 (1), Stats., sub. (4) and other applicable provisions of this section. The commissioner may grant exemptions under s. 620.03 (2), Stats. Ins 6.20(6)(b)(b) Permitted investments. Except as permitted by pars. (c), (d) and (e), a town mutual insurer may only invest in one or more of the following: Ins 6.20(6)(b)1.1. Treasury bonds, treasury notes, treasury bills or any other direct obligations of the United States government or agencies or instrumentalities of the United States government with a final maturity 15 years or less, except that no part of the amount determined under this paragraph shall be invested in zero coupon bonds or collateralized mortgage obligations. Ins 6.20(6)(b)2.2. Demand deposit, interest bearing accounts and certificates of deposit in financial institutions, including banks, savings and loan associations and credit unions, except that the amount of an insurer’s investment with each such financial institution shall be limited to the total amount eligible for insurance under the financial institution’s depositor insurance program. Ins 6.20(6)(b)3.3. Bonds of any United State or Canadian corporation that at the time of purchase have a 1 or 2 designation by the national association of insurance commissioners, or an equivalent rating by a NRSRO, except that no part of the amount determined under this paragraph shall be invested in zero coupon bonds, collateralized mortgage obligations, payment in kind bonds, or bonds with a final maturity of more than 15 years. Ins 6.20(6)(b)4.4. Bonds of any United States municipality that at the time of purchase have a 1 or 2 designation by the national association of insurance commissioners or an equivalent rating by a NRSRO, with a final maturity of 15 years or less, except that no amount shall be invested in zero coupon bonds. Ins 6.20(6)(b)5.5. No more than an aggregate of 5% of assets in cumulative dividend preferred stock of any United States or Canadian corporation that at the time of purchase has a 1 or 2 designation by the national association of insurance commissioners, or an equivalent rating by a NRSRO. Ins 6.20(6)(b)5g.5g. Shares in no-load mutual funds, provided that all of the following requirements are met: Ins 6.20(6)(b)5g.a.a. Each no-load mutual fund shall have an expense ratio, including any fees for marketing or distribution, of 1.20% or less. Ins 6.20(6)(b)5g.b.b. Each no-load mutual fund shall have as a stated investment objective, as disclosed in its prospectus, an intent to invest 80% or more of its assets under management in bonds of any direct obligations of the United States government or agencies or instrumentalities of the United States government, any United States or Canadian corporation, or any United States municipality, that, at the time of purchase, have a 1 or 2 designation by the national association of insurance commissioners, or an equivalent rating by a NRSRO. Ins 6.20(6)(b)5g.c.c. Each no-load mutual fund shall have an intent, as stated in its prospectus, to maintain a weighted average maturity of 8 years or less. Ins 6.20(6)(b)5g.d.d. Each no-load mutual fund investment must be carried at the fair market value on the annual statement filed with the commissioner. Ins 6.20(6)(b)5g.e.e. Each town mutual insurer shall file a prospectus of each fund purchased in accordance with this paragraph with the commissioner no later than February 15 of the year immediately following the year the purchase was made. Ins 6.20(6)(b)5r.5r. Shares of exchange-traded funds, provided that all of the following requirements are met: Ins 6.20(6)(b)5r.a.a. Each exchange-traded fund shall have an expense ratio, including any fees for marketing or distribution, of 1.20% or less. Ins 6.20(6)(b)5r.b.b. Each exchange-traded fund shall have as a stated investment objective, as disclosed in its prospectus, an intent to invest 80% or more of its assets under management in bonds of any direct obligations of the United States government or agencies or instrumentalities of the United States government, any United States or Canadian corporation or any United States municipality, that, at the time of purchase, have a 1 or 2 designation by the national association of insurance commissioners, or equivalent ratings by a NRSRO. Ins 6.20(6)(b)5r.c.c. Each exchange-traded fund shall have an intent, as stated in its prospectus, to maintain a weighted average maturity of 8 years or less. Ins 6.20(6)(b)5r.d.d. Each exchange-traded fund investment shall be carried at the fair market value on the annual statement filed with the commissioner. Ins 6.20(6)(b)5r.e.e. Each town mutual insurer shall file a prospectus of each fund purchased in accordance with this paragraph with the commissioner no later no later than February 15 of the year immediately following the year the purchase was made. Ins 6.20(6)(c)(c) Minimum expected assets. A town mutual insurer may invest in assets permitted under par. (d) only if, on December 31 of the preceding year, its assets invested in accordance with par. (b) were in an amount at least equal to the sum of its liabilities plus the greatest of the following: Ins 6.20(6)(c)1.1. 100% of the net written premiums and assessments for the 12-month period ending December 31. Ins 6.20(6)(c)2.2. 33% of the direct written premiums and assessments for the 12-month period ending December 31. Ins 6.20(6)(d)(d) Permitted investments for assets in excess of minimum expected assets. A town mutual insurer may invest assets in excess of the amount determined under par. (c) in one or more of the following: Ins 6.20(6)(d)1.1. Unrated bonds of a Wisconsin municipality or political subdivision not included in par. (b). Any bonds purchased under this subdivision must be direct obligations of the municipality or political subdivision, and no investment shall be made in unrated industrial revenue or industrial development bonds. Such investments shall not exceed 3% of assets in any single issue or 10% of assets in a single issuer or its affiliates; Ins 6.20(6)(d)2.2. Bonds with a final maturity of more than 15 years that would otherwise be classified within par. (b) 1., 3. or 4. Ins 6.20(6)(d)3c.3c. Stock which is either common stock or preferred stock of a licensed insurance company domiciled in this state which reinsured town mutual insurers in this state at the time it converted from a mutual insurance corporation to a stock insurance corporation. Ins 6.20(6)(d)3g.3g. Common or preferred stock or convertible securities of any United States, Canadian or foreign corporation not included in par. (b) that are traded on a federally regulated securities exchange in the United States. Ins 6.20(6)(d)3L.3L. Shares in no-load mutual funds, which have an expense ratio, including any fees for marketing or distribution, of 1.20% or less and have as their stated investment objective, as disclosed in their prospectus, an intent to invest 80% or more of their assets under management in common or preferred stock or convertible securities of any United States, Canadian or foreign corporation not included in par. (b). Ins 6.20(6)(d)3p.3p. Shares of exchange-traded funds, which have an expense ratio, including any fees for marketing or distribution, of 1.20% or less and have as their stated investment objective, as disclosed in their prospectus, an intent to invest 80% or more of their assets under management in common or preferred stock or convertible securities of any United States, Canadian or foreign corporation not included in par. (b). Ins 6.20(6)(d)3t.3t. Shares in no-load mutual funds with a weighted average maturity of more than 8 years that would otherwise be permitted under par. (b) 5g. Ins 6.20(6)(d)3x.3x. Shares in exchange-traded funds with a weighted average maturity of more than 8 years that would otherwise be permitted under par. (b) 5r. Ins 6.20(6)(d)4.4. Any subsidiaries formed to provide services ancillary to the town mutual insurer’s insurance operations. Subsidiaries are considered ancillary subsidiaries if they are engaged principally in insurance-related activities such as acting as an insurance agent or providing claims adjusting services. A town mutual insurer may invest in a subsidiary only with the prior written approval of the commissioner and the investment may not exceed the amount approved by the commissioner or 10% of assets, whichever is less. Ins 6.20(6)(d)6.6. Real property needed for the convenient transaction of the insurer’s business, provided that the insurer obtains the prior written approval of the commissioner. Ins 6.20(6)(d)7.7. Real estate loans on property meeting the requirements of sub. (5) (c) and investment in real estate partnerships. Any investment in real estate partnerships shall be with the prior approval of the commissioner. Ins 6.20(6)(d)9.9. Investments not otherwise permitted by this paragraph, and not specifically prohibited by statute or rule, to the extent of not more than 5% of the insurer’s assets. This includes the cash surrender value of life insurance policies and annuities of insurers authorized to do business in Wisconsin. Ins 6.20(6)(e)(e) Town mutual insurer reinsurer stock. A town mutual insurer is not required to divest stock described in par. (d) 3c. This type of stock is an authorized investment and is not an asset invested in accordance with par. (b). Ins 6.20(6)(f)(f) Limitations on amount of investment. A town mutual insurer may not invest in any of the following: Ins 6.20(6)(f)1.1. Except as permitted under subd. 2., more than 3% of assets in securities of any single issuer unless it obtains the prior written permission of the commissioner or unless the investment is in securities of the government of the United States or its instrumentalities or in securities guaranteed by the full faith and credit of the United States. Ins 6.20(6)(f)2.2. More than 10% of assets in the securities of one state, of one instrumentality of a state, or of one governmental unit of a state. Ins 6.20(6)(f)5.5. More than 20% of assets in investments sponsored or managed by any single issuer or its affiliates with respect to mutual funds and exchange-traded funds. Ins 6.20(6)(g)(g) Transition and divestment. Except as provided under par. (e), a town mutual insurer shall comply with all of the following: Ins 6.20(6)(g)1.1. A town mutual insurer that holds investments permitted under par. (d) but no longer meets the minimum asset test of par. (c) may continue to hold such investments so long as the town mutual insurer holds investments in accordance with par. (b) in an amount that is no less than the sum of its liabilities plus the greatest of any of the following: Ins 6.20(6)(g)1.a.a. 75% of the net written premiums and assessments for the 12-month period ending December 31. Ins 6.20(6)(g)1.b.b. 33% of the direct written premiums and assessments for the 12-month period ending December 31. Ins 6.20(6)(g)2.2. A town mutual insurer shall divest of any investment which does not meet the requirements of pars. (b) to (f) due to decline in the rating of a bond, the insurer’s size, limitations on investments or any other reason, within three years of its noncompliance. Ins 6.20(6)(g)3.3. If at the time of purchase a town mutual insurer investment did not meet the requirements of pars. (b) to (f), then the town mutual insurer shall immediately divest of the investment. Ins 6.20(6)(h)(h) Authorization of investments by the board of directors. Ins 6.20(6)(h)1.1. The board of directors of a town mutual shall adopt a written plan for acquiring and holding investments and for engaging in investment practices which specifies guidelines as to the quality, maturity, diversification of investments and other specifications including investment strategies intended to assure that the investments and investment practices are appropriate for the business conducted by the insurer, its liquidity needs and the amount of its surplus. The board shall review and assess the company’s technical and administrative capabilities and expertise with regard to investments before adopting a written plan concerning any investment strategy or investment practice. The board shall give due consideration to all commissions and expenses associated with each investment, and the effect of such costs on anticipated returns and on liquidity. Ins 6.20(6)(h)2.2. All investments acquired and held under this section shall be acquired and held under the supervision and direction of the board of directors of the town mutual insurer. The town mutual insurer board of directors shall require that all investments be authorized or approved by the board or a committee of the board charged with the responsibility to supervise and direct its investments in accordance with delegations, standards, limitations, and investment objectives prescribed by the board. Ins 6.20(6)(h)3.3. For all mutual funds held by a town mutual insurer, the insurer shall maintain in its records the fund’s prospectus and latest issued annual financial statement. Ins 6.20(6)(h)4.a.a. If a town mutual insurer utilizes the services of an investment advisor, the town mutual shall have, and maintain, a written agreement with the investment advisor, that shall be approved by the board of directors. A separate agreement shall be entered into for each specific arrangement. Ins 6.20(6)(h)4.b.b. Each written agreement with an investment advisor shall include a description of the scope and nature of the services to be provided; the standard of care to be provided; how or whether the investment strategy, including asset allocations, and any applicable limitations, incorporates the board approved investment policy; the level of authority the advisor exercises over the insurer’s portfolio, whether discretionary or non-discretionary; a description of all types of compensation to the investment advisor; and a description as to how investment transactions, holdings, and portfolio performance will be communicated to the company’s board of directors, including the frequency, content and means of reporting. Ins 6.20(6)(h)4.c.c. An agreement under subd. 4. b. shall clearly state whether the investment advisor is, or is not, acting as a fiduciary with respect to the town mutual insurer. A fiduciary is someone whose conduct is subject to the fiduciary duty standard, as defined under applicable rules, regulations, or standards of conduct promulgated by the U.S. securities and exchange commission. Ins 6.20(6)(i)(i) Custody. In addition to the requirements of s. 610.23, Stats., the shares of any mutual fund in which a town mutual insurer invests may be held in the direct custody of the town mutual insurer, and the shares must be maintained either in book entry form with the mutual fund’s registrar and transfer agent, or in certificate form. If the town mutual insurer does not have direct custody of the shares, the shares shall be held in the custody of a bank or bank and trust company.
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Office of the Commissioner of Insurance (Ins)
administrativecode/Ins 6.20(6)(b)
administrativecode/Ins 6.20(6)(b)
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