Code of the District of Columbia

Subchapter II. Life Insurers.


§ 31–1372.01. Application of subchapter.

This subchapter shall apply to the investments and investment practices of life insurers subject to the provisions of this chapter pursuant to § 31-1371.01.


(Apr. 11, 2003, D.C. Law 14-297, § 201, 50 DCR 330.)


§ 31–1372.02. General 3% diversification, medium and lower grade investments, and Canadian investments.

(a)(1) Except as otherwise specified in this chapter, an insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under this chapter if, as a result of and other giving effect to the investment, the insurer would hold more than 3% of its admitted assets in investments of all kinds issued, assumed, accepted, insured, or guaranteed by a single person.

(2) The 3% limitation shall not apply to the aggregate amounts insured by a single financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization.

(3) Asset-backed securities shall not be subject to the limitations of paragraph (1) of this subsection; provided, that an insurer shall not acquire an asset-backed security if, as a result of and after giving effect to the investment, the aggregate amount of asset-backed securities secured by or evidencing an interest in a single asset or single pool of assets held by a trust or other business entity held by the insurer would exceed 3% of its admitted assets.

(b)(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under §§ 31-1372.03, 31-1372.06, or 31-1372.09, or counterparty exposure under § 31-1372.10(d) if, as a result of and after giving effect to the investment:

(A) The aggregate amount of medium and lower grade investments then held by the insurer would exceed 20% of its admitted assets;

(B) The aggregate amount of lower grade investments then held by the insurer would exceed 10% of its admitted assets;

(C) The aggregate amount of investments rated 5 or 6 by the SVO then held by the insurer would exceed 3% of its admitted assets;

(D) The aggregate amount of investments rated 6 by the SVO then held by the insurer would exceed one percent of its admitted assets; or

(E) The aggregate amount of medium and lower grade investments held by the insurer that receive as cash income less than the equivalent yield for Treasury issues with a comparative average life would exceed one percent of its admitted assets.

(2) An insurer shall not acquire, directly or indirectly through an investment subsidiary, an investment under § 31-1372.03, § 31-1372.06, or § 31-1372.09, or counterparty exposure under § 31-1372.10(d) if, as a result of and after giving effect to the investment:

(A) The aggregate amount of medium and lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person or, as to asset-backed securities, secured by or evidencing an interest in a single asset or pool of assets held by the insurer would exceed one percent of its admitted assets; or

(B) The aggregate amount of lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person or, as to asset-backed securities secured by or evidencing an interest in a single asset or pool of assets, then held by the insurer would exceed 0.5% of its admitted assets.

(3) If an insurer attains or exceeds the limit of any rating category referred to in this subsection, the insurer shall not be precluded from acquiring investments in other rating categories subject to the specific and multi-category limits applicable to those investments.

(c)(1) An insurer shall not acquire, directly or indirectly through an investment subsidiary, a Canadian investment authorized by this chapter if, as a result of and after giving effect to the investment, the aggregate amount of these investments then held by the insurer would exceed 40% of its admitted assets or if the aggregate amount of Canadian investments not acquired under § 31-1372.03(b) held by the insurer would exceed 25% of its admitted assets.

(2) For an insurer that is authorized to do business in Canada or that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in Canada and denominated in Canadian currency, the limitations of paragraph (1) of this subsection shall be increased by the greater of:

(A) The amount the insurer is required by Canadian law to invest in Canada or to be denominated in Canadian currency; or

(B) One hundred fifteen percent of the amount of its reserves and other obligations under contracts on lives or risks resident or located in Canada.


(Apr. 11, 2003, D.C. Law 14-297, § 202, 50 DCR 330.)

Section References

This section is referenced in § 31-1372.03, § 31-1372.04, § 31-1372.05, § 31-1372.06, § 31-1372.07, § 31-1372.08, § 31-1372.09, and § 31-1372.12.


§ 31–1372.03. Rated credit instruments.

(a) Subject to the limitations of § 31-1372.02(b) and subsection (f) of this section, but not to the limitations of § 31-1372.02(a), an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(1) The United States; or

(2) A government-sponsored enterprise of the United States if the instruments of the government-sponsored enterprise are assumed, guaranteed, or insured by the United States or are otherwise backed or supported by the full faith and credit of the United States.

(b)(1) Subject to the limitations of § 31-1372.02(b) and paragraph (2) of this subsection, but not the limitations of § 31-1372.02(a), an insurer may acquire rated credit instruments issued, assumed, guaranteed, or insured by:

(A) Canada; or

(B) A government-sponsored enterprise of Canada if the instruments of the government-sponsored enterprise are assumed, guaranteed, or insured by Canada or are otherwise backed or supported by the full faith and credit of Canada.

(2) An insurer shall not acquire an instrument under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held by the insurer under this subsection would exceed 40% of its admitted assets.

(c)(1) Subject to the limitations of § 31-1372.02(b) and paragraph (2) of this subsection, but not to the limitations of § 31-1372.02(a), an insurer may acquire rated credit instruments, excluding asset-backed securities:

(A) Issued by a government money market mutual fund, a class one money market mutual fund, or a class one bond mutual fund;

(B) Issued, assumed, guaranteed, or insured by a government-sponsored enterprise of the United States other than those eligible under subsection (a) of this section;

(C) Issued, assumed, guaranteed, or insured by a state if the instruments are general obligations of the state; or

(D) Issued by a multilateral development bank.

(2) An insurer shall not acquire an instrument of any fund, enterprise or entity, or state under this subsection if, as a result of and after giving effect to the investment, the aggregate amount of investments then held in any one fund, enterprise or entity, or state under this subsection would exceed 10% of its admitted assets.

(d) Subject to the limitations of § 31-1372.02, an insurer may acquire preferred stocks that are not foreign investments and that meet the requirements of rated credit instruments if, as a result of and after giving effect to the investment:

(1) The aggregate amount of preferred stock then held by the insurer under this subsection does not exceed 20% of its admitted assets; and

(2) The aggregate amount of preferred stock then held by the insurer under this subsection which are not sinking fund stocks or rated P1 or P2 by the SVO does not exceed 10% of its admitted assets.

(e) Subject to the limitations of § 31-1372.02, in addition to those investments eligible under subsections (a), (b), (c), and (d) of this section, an insurer may acquire rated credit instruments that are not foreign investments.

(f) Notwithstanding any other provision of this section, an insurer shall not acquire special rated credit instruments under this section if, as a result of and after giving effect to the investment, the aggregate amount of special rated credit instruments held by the insurer would exceed 5% of its admitted assets.

(g) For purposes of this section, obligations of the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or other mortgage-backed or mortgage-related securities as defined in section 106 of the Secondary Mortgage Market Enhancement Act of 1984, approved October 3, 1984 (98 Stat. 1691; 15 U.S.C. § 77r-1), may be acquired to the same extent as allowed under subsection (a) of this section, whether or not they are rated credit instruments authorized in subsection (a) of this section.


(Apr. 11, 2003, D.C. Law 14-297, § 203, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.02, § 31-1372.02, § 31-1372.06, and § 31-1372.07.


§ 31–1372.04. Insurer investment pools.

(a) An insurer may acquire investments in investment pools that invest only in:

(1) Obligations that are rated 1 or 2 by the SVO or have an equivalent of an SVO 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with an SVO 1 or 2 or equivalent rating) by a nationally recognized statistical rating organization recognized by the SVO and have:

(A) A remaining maturity not exceeding 397 days or a put that entitles the holder to receive the principal amount of the obligation, which put may be exercised through maturity at specified intervals not exceeding 397 days; or

(B) A remaining maturity not exceeding 3 years, a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (including federal funds, prime rate, treasury bills, London InterBank Offered Rate, or commercial paper), and is subject to no maximum limit if the obligations do not have an interest rate that varies inversely to market interest rate changes;

(2) Government money market mutual funds or class one money market mutual funds; or

(3) Securities lending, repurchase, and reverse repurchase transactions that meet all the requirements of § 31-1372.08, except the quantitative limitations of § 31-1372.08(d); or

(4) Investments which an insurer may acquire under this chapter if the insurer’s proportionate interest in the amount invested in these investments does not exceed the applicable limits of this chapter.

(b) For an investment in an investment pool to be qualified, the investment pool shall not:

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

(2) Borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of § 31-1372.08 other than the quantitative limitations of § 31-1372.08(d); or

(3) Permit the aggregate value of securities then loaned or sold to, purchased from, or invested in any one business entity under this section to exceed 10% of the total assets of the investment pool.

(c) The limitations of § 31-1372.02(a) shall not apply to an insurer’s investment in an investment pool; provided, that an insurer shall not acquire an investment in an investment pool under this section if, as a result of and after giving effect to the investment, the aggregate amount of investments held by the insurer under this section:

(1) In any one investment pool would exceed 10% of its admitted assets;

(2) In all investment pools investing in investments permitted under subsection (a)(2) of this section, would exceed 25% of its admitted assets; or

(3) In all investment pools would exceed 35% of its admitted assets.

(d) For an investment in an investment pool to be qualified, the manager of the investment pool shall:

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

(2)(A) Be the insurer; an affiliated insurer or a business entity affiliated with the insurer; a qualified bank; or a business entity registered under the Investment Advisors Act of 1940, approved August 22, 1984 (54 Stat. 789; 15 U.S.C. § 80a-1 et seq.);

(B) In the case of a reciprocal insurer or interinsurance exchange, be its attorney-in-fact; or

(C) In the case of a United States branch of non-U.S. insurer, be its United States manager or affiliates or subsidiaries of its United States manager;

(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 or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank, which 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 investment 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.

(e) The pooling agreement for each investment pool shall be in writing and shall provide that:

(1) An insurer and its affiliated insurers; in the case of an investment pool investing solely in investments permitted under subsection (a)(1) of this section, the insurer and its subsidiaries, affiliates, or any pension or profit-sharing plan of the insurer, its subsidiaries, and affiliates; and, in the case of a United States branch of a non-U.S. insurer, the affiliates or subsidiaries of its United States manager, shall, at all times, hold 100% 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 investment pool under the terms of the pooling agreement;

(5) Withdrawals may be made on demand without penalty or other assessment on any business day; provided, that settlement of funds shall occur within a reasonable and customary period thereafter not to exceed five 5 business days.

(6) The pool manager shall make the records of the investment pool available for inspection by the Commissioner.

(f) Distributions under subsection (e)(5) of this section shall be calculated net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager may distribute to a participant, at the discretion of the pool manager:

(A) In cash, the 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.


(Apr. 11, 2003, D.C. Law 14-297, § 204, 50 DCR 330.)

Section References

This section is referenced in § 31-1372.09.


§ 31–1372.05. Equity interests.

(a) Subject to the limitations of § 31-1372.02, an insurer may acquire equity interests in business entities organized under the laws of any domestic jurisdiction.

(b) An insurer shall not acquire an investment under this section if, as a result of and after giving effect to the investment, the aggregate amount of investments held by the insurer under this section would exceed 20% of its admitted assets or the amount of equity interests held by the insurer that are not listed on a qualified exchange would exceed 5% of its admitted assets. An accident and health insurer shall not be subject to this section, but shall be subject to the same aggregate limitation on equity interests as a fire, casualty, and marine insurer under § 31-1373.06 and to the provisions of § 31-1373.02.

(c) An insurer shall not acquire under this section any investments that the insurer may acquire under § 31-1372.07.

(d) An insurer shall not short sell equity investments unless the insurer covers the short sale by owning the equity investment or an unrestricted right to the equity instrument exercisable within 6 months of the short sale.


(Apr. 11, 2003, D.C. Law 14-297, § 205, 50 DCR 330.)


§ 31–1372.06. Tangible personal property under lease.

(a)(1) Subject to the limitations of § 31-1372.02, an insurer may acquire tangible personal property or equity interests therein, which property or interests are located or used wholly or in part within a domestic jurisdiction, directly or indirectly through:

(A) Limited partnership interests and general partnership interests not otherwise prohibited § 31-1371.05;

(B) Joint ventures;

(C) Stock of an investment subsidiary;

(D) Membership interests in a limited liability company;

(E) Trust certificates; or

(F) Other similar instruments.

(2) Investments acquired under paragraph (1) of this subsection shall be eligible only if:

(A) The property is subject to a lease or other agreement with a person whose rated credit instruments the insurer could acquire under § 31-1372.03 for a price equal to the purchase price of the personal property; and

(B) The lease or other agreement provides the insurer the right to receive rental, purchase, or other fixed payments for the use or purchase of the property, and the aggregate value of the payments, together with the estimated residual value of the property at the end of its useful life and the estimated tax benefits to the insurer resulting from ownership of the property, shall be adequate to return the cost of the insurer’s investment in the property, plus a return considered adequate by the insurer.

(b) The insurer shall compute the amount of each investment under this section on the basis of the cash purchase price and applicable related expenses paid by the insurer for the investment, net of each borrowing made to finance the purchase price and expenses to the extent the borrowing is nonrecourse to the insurer.

(c) An insurer shall not acquire an investment under this section if, as a result of and after giving effect to the investment, the aggregate amount of all investments held by the insurer under this section would exceed:

(1) Two percent of its admitted assets; or

(2) One half of one percent of its admitted assets as to any single item of tangible personal property.

(d) For purposes of determining compliance with the limitations of § 31-1372.02:

(1) Investments acquired by an insurer under this section shall be aggregated with those acquired under § 31-1372.03; and

(2) Each lessee of the property under a lease referred to in this section shall be deemed the issuer of an obligation in the amount of the investment of the insurer in the property determined as provided under subsection (b) of this section.

(e) This section shall not be applicable to a lease of tangible personal property between an insurer and its subsidiaries or affiliates under a cost sharing arrangement or agreement permitted under subchapter I of Chapter 7 of Title 31.


(Apr. 11, 2003, D.C. Law 14-297, § 206, 50 DCR 330.)

Section References

This section is referenced in § 31-1372.02.


§ 31–1372.07. Mortgage loans and real estate.

(a)(1) Subject to the limitations of § 31-1372.02, an insurer may acquire, directly or indirectly, through limited partnership interests and general partnership interests not otherwise prohibited by by § 31-1371.05, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by a first mortgage on real estate situated within a domestic jurisdiction; provided, that a mortgage loan which is secured by a subordinate lien may be acquired if the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority, shall not, at the time of acquisition of the obligations, exceed:

(A) Ninety 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 insurer upon disposition of the real estate;

(B) Eighty 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 not exceeding 30 years, and periodic payments made no less frequently than annually; provided, that:

(i) Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall be not greater than the outstanding principal balance that would be outstanding 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;

(ii) Mortgage loans permitted under this paragraph shall be permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan; and

(iii) For residential mortgage loans, the 80% limitation shall be 97% if acceptable private mortgage insurance has been obtained; or

(C) Seventy-five percent of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraphs (A) or (B) of this paragraph.

(2) For purposes of paragraph (1) of this subsection, 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 Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.

(3) A mortgage loan that is held by an insurer under § 31-1371.03(f) or acquired under this section and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAICAccounting Practices and Procedures Manual, or successor publication, shall continue to qualify as a mortgage loan.

(4) Subject to the limitations of § 31-1372.02, credit lease transactions that do not qualify for investment under § 31-1372.03 shall be exempt from the provisions of paragraph (1) of this subsection if their terms are as follows:

(A) The loan balance at the end of the initial term of the lease will not exceed the original appraised value of the real estate;

(B) The lease payments equal or exceed the total debt service over the term of the loan;

(C) A tenant or its affiliated entity whose rated credit instruments have a SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO is obligated to make the lease payments;

(D) The insurer holds, or is the beneficial holder of, a first mortgage on the real estate;

(E) The expenses of the maintenance and operation of the real estate, excluding exterior repairs, structural repairs, parking, and heating, ventilation and air conditioning replacement expenses, are passed through to the tenant, or annual escrow contributions from the lease payments equal or exceed any deficiency in such expenses; and

(F) There is a perfected assignment of the rents due under the lease to, or for the benefit of, the insurer.

(b)(1) An insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction, directly or indirectly, through limited partnership interests and general partnership interests not otherwise prohibited by § 31-1371.05, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income-producing or intended for improvement or development for investment purposes under an existing program.

(2) The real estate may be subject to mortgages, liens, or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens, or encumbrances are nonrecourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection (d)(2) and (d)(3) of this section.

(c)(1) An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the business operations, including home office, branch office, and field office operations of the insurer, its affiliates, or subsidiaries.

(2) Real estate acquired under this subsection may include excess space for rent to others if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection (b) of this section and is so qualified by the insurer.

(3) The real estate acquired under this subsection may be subject to one or more mortgages, liens, or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens, or encumbrances are nonrecourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection (d)(4) of this section.

(4) For purposes of this subsection, business operations shall not include that portion of real estate used for the direct provision of health care services by an accident and health insurer for its insureds. An insurer may acquire real estate used for these purposes under subsection (b) of this section.

(d)(1) An insurer shall not acquire an investment under subsection (a) of this section if, as a result of and after giving effect to the investment, the aggregate amount of all investments held by the insurer under subsection (a) of this section would exceed:

(A) One percent of its admitted assets in mortgage loans covering any one secured location;

(B) One quarter of one percent of its admitted assets in construction loans covering any one secured location; or

(C) Two percent of its admitted assets in construction loans in the aggregate.

(2) An insurer shall not acquire an investment under subsection (b) of this section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments held by the insurer under subsection (b) of this section and the guarantees then outstanding would exceed:

(A) One percent of its admitted assets in one parcel or group of contiguous parcels of real estate; provided, that this limitation shall not apply to that portion of real estate used for the direct provision of health care services by an accident and health insurer for its insureds, such as hospitals, medical clinics, medical professional buildings, or other health facilities used for the purpose of providing health services; or

(B) Fifteen percent of its admitted assets in the aggregate, but not more than 5% of its admitted assets, as to properties that are to be improved or developed.

(3) An insurer shall not acquire an investment under subsection (a) or (b) of this section if, as a result of and after giving effect to the investment and any guarantees made by the insurer in connection with the investment, the aggregate amount of all investments held by the insurer under subsections (a) and (b) of this section and the guarantees then outstanding would exceed 45% of its admitted assets; provided, that an insurer may exceed this limitation by no more than 30% of its admitted assets if:

(A) This increased amount is invested only in residential mortgage loans;

(B) The insurer has not more than 10% of its admitted assets invested in mortgage loans other than residential mortgage loans;

(C) The loan-to-value ratio of each residential mortgage loan does not exceed 60% at the time the mortgage loan is qualified and the fair market value is supported by an appraisal no more than 2 years old, prepared by an independent appraiser;

(D) A single mortgage loan qualified does not exceed 0.5% of its admitted assets;

(E) The insurer receives approval from the Commissioner for a plan that is designed to result in a portfolio of residential mortgage loans that is sufficiently geographically diversified; and

(F) The insurer agrees to file annually with the Commissioner records that demonstrate that its portfolio of residential mortgage loans is geographically diversified in accordance with the plan.

(4) The limitations of § 31-1372.02 shall not apply to an insurer’s acquisition of real estate under subsection (c) of this section. An insurer shall not acquire real estate under subsection (c) of this section if, as a result of and after giving effect to the acquisition, the aggregate amount of real estate held by the insurer under subsection (c) of this section would exceed 10% of its admitted assets. With the permission of the Commissioner, additional amounts of real estate may be acquired under subsection (c) of this section.


(Apr. 11, 2003, D.C. Law 14-297, § 207, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.03, § 31-1371.06, and § 31-1372.05.


§ 31–1372.08. Securities lending, repurchase, reverse repurchase, and dollar roll transactions.

(a) An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the requirements of this section.

(b) The insurer’s board of directors shall adopt a written plan that is consistent with the requirements of the written plan in § 31-1371.04(a) that specifies guidelines and objectives to be followed, such as:

(1) A description of how cash received will be invested or used for general corporate purposes of the insurer;

(2) Operations procedures to manage interest rate risk and counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business, and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and

(3) The extent to which the insurer may engage in these transactions.

(c) The insurer shall enter into a written agreement for all transactions authorized in this section other than dollar roll transactions. The written agreement shall require that each transaction terminate no more than one year from its inception or upon the earlier demand of the insurer. The agreement shall be with the business entity counterparty; provided, that for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer if:

(1) The agent is a qualified business entity; and

(2) The agreement:

(A) Requires the agent to enter into separate agreement with each counterparty that are consistent with the requirements of this section; and

(B) Prohibits securities lending transactions under the agreement with the agent or its affiliates.

(d) Cash received in a transaction under this section shall be invested in accordance with this chapter and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. As long as the transaction remains outstanding, the insurer, its agent, or custodian shall maintain, as to acceptable collateral received in a transaction under this section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or other securities depositories approved by the Commissioner:

(1) Possession of the acceptable collateral;

(2) A perfected security interest in the acceptable collateral; or

(3) In the case of a jurisdiction outside of the United States, title, or rights of a secured creditor, to the acceptable collateral.

(e) The limitations of §§ 31-1372.02 and 31-1372.09 shall not apply to the business entity counterparty exposure created by transactions under this section. For purposes of calculations made to determine compliance with this subsection, no effect shall be given to the insurer’s future obligation to resell securities in the case of a repurchase transaction or to repurchase securities in the case of a reverse repurchase transaction. An insurer shall not enter into a transaction under this section if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of securities loaned to, sold to, or purchased from any one business entity counterparty under this section would exceed 5% of its admitted assets; provided, that in calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or

(2) The aggregate amount of all securities then loaned to, sold to, or purchased from all business entities under this section would exceed 40% of its admitted assets.

(f) In a securities lending transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 102% of the market value of the securities loaned by the insurer in the transaction as of that date. If at any time the market value of the acceptable collateral is less than the market value of the loaned securities, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral held in connection with the transaction, at least equals 102% of the market value of the loaned securities.

(g) In a reverse repurchase transaction, other than a dollar roll transaction, the insurer shall receive acceptable collateral having a market value as of the transaction date at least equal to 95% of the market value of the securities transferred by the insurer in the transaction as of that date. If at any time the market value of the acceptable collateral is less than 95% of the market value of the securities transferred, the business entity counterparty shall be obligated to deliver additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral held in connection with the transaction, equals at least 95% of the market value of the transferred securities.

(h) In a dollar roll transaction, the insurer shall receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.

(i) In a repurchase transaction, the insurer shall receive as acceptable collateral transferred securities having a market value at least equal to 102% of the purchase price paid by the insurer for the securities. If at any time the market value of the acceptable collateral is less than 100% of the purchase price paid by the insurer, the business entity counterparty shall be obligated to provide additional acceptable collateral, the market value of which, together with the market value of all acceptable collateral held in connection with the transaction, equals at least 102% of the purchase price. Securities acquired by an insurer in a repurchase transaction shall not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.


(Apr. 11, 2003, D.C. Law 14-297, § 208, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.02, § 31-1371.03, § 31-1371.06, § 31-1372.04, and § 31-1372.12.


§ 31–1372.09. Foreign investments and foreign currency exposure.

(a) Subject to the limitations of § 31-1372.02, an insurer may acquire foreign investments, or engage in investment practices with persons of or in foreign jurisdictions, of substantially the same types as those that an insurer is permitted to acquire under this chapter, other than of the type permitted under § 31-1372.04, if, as a result and after giving effect to the investment:

(1) The aggregate amount of foreign investment held by the insurer under this subsection does not exceed 20% of its admitted assets; and

(2) The aggregate amount of foreign investments held by the insurer under this subsection in a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3% of its admitted assets as to any other foreign jurisdiction.

(b)(1) Subject to the limitations of § 31-1372.02, an insurer may acquire investments, or engage in investment practices denominated in foreign currencies, whether or not they are foreign investments acquired under subsection (a) of this section, or additional foreign currency exposure as a result of the termination or expiration of a hedging transaction with respect to investments denominated in a foreign currency, if:

(A) The aggregate amount of investments held by the insurer under this subsection denominated in foreign currencies does not exceed 10% of its admitted assets; and

(B) The aggregate amount of investments held by the insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed 10% of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 or 3% of its admitted assets as to any other foreign jurisdiction.

(2) For the purposes of this section, an investment shall not be considered denominated in a foreign currency if the acquiring insurer enters into one or more contracts in transactions permitted under § 31-1372.10 and the business entity counterparty agrees under the contract to exchange all payments made on the foreign currency denominated investment for United States currency at a rate which insulates the investment cash flow against future changes in currency exchange rates.

(c) In addition to investment permitted under subsections (a) and (b) of this section subject to the limitations of § 31-1372.02, an insurer that is authorized to do business in a foreign jurisdiction and that has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in foreign currency of that jurisdiction may acquire foreign investments respecting that foreign jurisdiction and investments denominated in the currency of that jurisdiction; provided, that investments made under this subsection in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises shall not be subject to the limitations of § 31-1372.02 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer under this subsection shall not exceed the greater of:

(1) The amount the insurer is required by the law of the foreign jurisdiction to invest in the foreign jurisdiction; or

(2) One hundred fifteen percent of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.

(d) In addition to investments permitted under subsections (a) and (b) of this section, subject to t he limitations of § 31-1372.02, an insurer that is not authorized to do business in a foreign jurisdiction, but which has outstanding insurance, annuity, or reinsurance contracts on lives or risks resident or located in that foreign jurisdiction and denominated in foreign currency of that jurisdiction, may acquire foreign investments respecting that foreign jurisdiction and investments denominated in the currency of that jurisdiction; provided, that investments made under this subsection in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises shall not be subject to the limitations of § 31-1372.02 if those investments carry an SVO rating of 1 or 2. The aggregate amount of investments acquired by the insurer under this subsection shall not exceed 105% of the amount of its reserves, net of reinsurance, and other obligations under the contracts on lives or risks resident or located in the foreign jurisdiction.

(e) Investments acquired under this section shall be aggregated with investments of the same types made under all other sections of this chapter, and in a similar manner, for purposes of determining compliance with the limitations, if any, contained in the other sections. Investments in obligations of foreign governments, their political subdivisions, and government-sponsored enterprises of these persons, except for those exempt under subsections (c) and (d) of this section, shall be subject to the limitations of § 31-1372.02.


(Apr. 11, 2003, D.C. Law 14-297, § 209, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.02, § 31-1372.02, and § 31-1372.08.


§ 31–1372.10. Derivative transactions.

(a) An insurer may, directly or indirectly through an investment subsidiary, engage in derivative transactions under this section, subject to the requirements of this section.

(b)(1) An insurer may use derivative instruments under this section to engage in hedging transactions and certain income generation transactions, as these terms may be further defined in regulations promulgated by the Commissioner.

(2) An insurer shall be able to demonstrate to the Commissioner the intended hedging characteristics and the ongoing effectiveness of the derivative transaction, or combination of the transactions, through cash flow testing or other appropriate analyses.

(c) An insurer may enter into hedging transactions under this section if, as a result of and after giving effect to the transaction:

(1) The aggregate statement value of options, caps, floors, and warrants not attached to another financial instrument purchased and used in hedging transactions does not exceed 7.5% of its admitted assets;

(2) The aggregate statement value of options, caps, and floors written in hedging transactions does not exceed 3% of its admitted assets; and

(3) The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions does not exceed 6.5% of its admitted assets.

(d) An insurer may enter into the following types of income generation transactions if, as a result of and after giving effect to the transactions, the aggregate statement value of the fixed income assets that are subject to call or that generate the cash flow for payments under the caps or floors, the face value of fixed income securities underlying a derivative instrument subject to call, and the amount of the purchase obligations under the puts, do not exceed 10% of its admitted assets:

(1) Sales of covered call options on non-callable fixed income securities, callable fixed income securities if the option expires by its terms prior to the end of the noncallable period, or derivative instruments based on fixed income securities;

(2) Sales of covered call options on equity securities if the insurer holds in its portfolio, or can immediately acquire through the exercise of options, warrants, or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold;

(3) Sales of covered puts on investments that the insurer is permitted to acquire under this chapter if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold; or

(4) Sales of covered caps or floors if the insurer holds in its portfolio the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding.

(e) An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of § 3-1372.02.

(f) Under regulations promulgated under § 31-1375.01, the Commissioner may approve additional transactions involving the use of derivative instruments in excess of the limits of subsection (c) of this section or for other risk management purposes under regulations promulgated by the Commissioner; provided, that the replication transactions shall not be permitted for other than risk management purposes.


(Apr. 11, 2003, D.C. Law 14-297, § 210, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.02, § 31-1371.03, § 31-1372.02, § 31-1372.09, and § 31-1372.12.


§ 31–1372.11. Policy loans.

A life insurer may lend to a policyholder on the security of the cash surrender value of the policyholder’s policy a sum not exceeding the legal reserve that the insurer is required to maintain on the policy.


(Apr. 11, 2003, D.C. Law 14-297, § 211, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.06.


§ 31–1372.12. Additional investment authority.

(a) Solely for the purpose of acquiring investments that exceed the quantitative limitations of §§ 31-1372.02 through 31-1372.09, an insurer may acquire under this subsection an investment, or engage in investment practices, described in § 31-1372.08; provided, that an insurer shall not acquire and investment, or engage in investment practices, described in § 31-1372.08 under this subsection if, as a result of and after giving effect to the transaction:

(1) The aggregate amount of investments held by an insurer under this subsection would exceed 3% of its admitted assets; or

(2) The aggregate amount of investments as to one limitation in §§ 31-1372.02 through 31-1372.09 held by the insurer under this subsection would exceed 1% of its admitted assets.

(b)(1) In addition to the authority provided under subsection (a) of this section, subject to paragraph (2) of this subsection, an insurer may acquire under this subsection an investment of any kind, or engage in investment practices described in § 31-1372.08, that are not specifically prohibited by this chapter without regard to the categories, conditions, standards, or other limitations of §§ 31-1372.02 through 31-1372.09 if, as a result of and after giving effect to the transaction, the aggregate amount of investments held under this subsection would not exceed the lesser of:

(A) Ten percent of its admitted assets; or

(B) Seventy-five percent of its capital and surplus.

(2) An insurer shall not acquire any investment or engage in any investment practice under this subsection if, as a result of and after giving effect to the transaction, the aggregate amount of all investments in any one person held by the insurer under this subsection would exceed 3% of its admitted assets.

(c) In addition to the investments acquired under subsections (a) and (b) of this section, an insurer may acquire under this subsection an investment of any kind, or engage in investment practices described in § 31-1372.08, that are not specifically prohibited by this chapter without regard to any limitations of §§ 31-1372.02 through 31-1372.09 if:

(1) The Commissioner grants prior approval;

(2) The insurer demonstrates that its investments are being made in a prudent manner and that the additional amounts will be invested in a prudent manner; and

(3) As a result of and after giving effect to the transaction, the aggregate amount of investments held by the insurer under this subsection does not exceed the greater of:

(A) Twenty-five percent of its capital and surplus; or

(B) One hundred percent of capital and surplus, less 10% of its admitted assets.

(d) An investment prohibited under § 31-1371.05 or § 31-1372.10 or additional derivative instruments acquired under § 31-1372.10 shall not be acquired under this section.


(Apr. 11, 2003, D.C. Law 14-297, § 212, 50 DCR 330.)

Section References

This section is referenced in § 31-1371.03.