# Insurance (GIN)

## Title 5. Assets, Liabilities, Reserves, and Investments of Insurers

### Subtitle 5. Investments of Life Insurers

#### Section 5-501

Except for Sec. 5-502 of this subtitle, this subtitle applies only to domestic life insurers.

#### Section 5-502

(a) For purposes of this section, the domicile in the United States of an alien insurer, other than an insurer formed under the laws of Canada, is deemed to be the state where the alien insurer maintains its largest deposit of trusteed assets.

(b) The investment portfolio of a foreign life insurer or alien life insurer shall be:

  (1) as allowed by the laws of its domicile; and

  (2) of a quality substantially as high as that required under this subtitle for similar funds of like domestic life insurers.

(c) The Commissioner may deny or refuse to renew a certificate of authority to a foreign life insurer or alien life insurer if:

  (1) the foreign life insurer or alien life insurer has investments in one person in excess of the limit provided in Sec. 5-507 of this subtitle; or

  (2) the Commissioner finds that its investments do not comply in substance with the investment requirements and limitations of this subtitle for domestic life insurers transacting the same kind of insurance business.

#### Section 5-503

(a) The eligibility of an investment shall be determined as of the date of the making or acquisition of the investment.

(b) An investment limitation that is based on the amount of assets or particular funds of a life insurer shall relate to those assets or funds as shown by:

  (1) the annual statement of the life insurer as of the December 31 immediately preceding the date of acquisition of the investment by the life insurer; or

  (2) a current financial statement of the life insurer that reflects the result of merger or consolidation with another insurer, bulk reinsurance, or change in capitalization.

#### Section 5-504

(a) A life insurer may not purchase an investment or security at a price above its market value.

(b) Subsection (a) of this section does not prohibit a life insurer from acquiring control of another insurer.

(c) This subtitle does not prohibit a life insurer from acquiring other or additional securities or property that is received:

  (1) as a dividend;

  (2) as a lawful distribution of assets; or

  (3) under a lawful and bona fide agreement of bulk reinsurance, merger, or consolidation.

#### Section 5-505

(a)

  (1) In this section the following words have the meanings indicated.

  (2) "Board" means the board of directors of a life insurer.

  (3) "Committee" means a committee authorized by the board of directors of a life insurer.

(b)

  (1) The board shall adopt a written plan for:

    (i) acquiring and holding investments; and

    (ii) engaging in investment practices.

  (2) The plan required under paragraph (1) of this subsection shall specify guidelines for the:

    (i) quality, maturity, and diversification of investments; and

    (ii) investment strategies that assure that investments and investment practices are appropriate for:

      (1) the business conducted by the life insurer;

      (2) the liquidity needs of the life insurer; and

      (3) the capital and surplus requirements of the life insurer.

  (3) Before adopting the plan required under paragraph (1) of this subsection, the board shall review and assess the life insurer's technical investment and administrative capabilities and investment expertise.

(c)

  (1) The board shall supervise and direct any investments acquired and held under this subtitle.

  (2) At least annually, the board by formal resolution shall determine whether all investments have been made in accordance with delegations, standards, limitations, and investment objectives prescribed by the board or committee charged with the responsibility of directing the life insurer's investments.

(d) In order to determine whether the investment activity of the life insurer is consistent with the plan required under subsection (b) of this section, on at least a quarterly basis, the board or committee shall:

  (1) receive and review a summary report on the life insurer's investment portfolio, investment activities, and investment practices engaged in under delegated authority; and

  (2) review and revise as needed the plan required under subsection (b) of this section.

(e) In the discharge of duties under this section:

  (1) the board shall require that the following be made available on a regular basis to the board:

    (i) the records of any authorizations or approvals;

    (ii) the reports of any action taken under the authority delegated under the plan required under subsection (b) of this section; and

    (iii) any other documentation as the board may require; and

  (2) each director shall perform their duties as a director, including any duties as a member of a committee:

    (i) in good faith;

    (ii) in a manner reasonably believed to be in the best interests of the insurer; and

    (iii) with that degree of care that an ordinarily prudent person in a like position would use under similar circumstances.

(f) If a life insurer does not have a board, all references to the board in this section shall be deemed to be references to the governing body of the life insurer having authority equivalent to that of a board.

#### Section 5-506

(a) In addition to investments otherwise excluded under this article, a life insurer may not directly or indirectly invest in or lend its funds on the security of:

  (1) an investment or security that the Commissioner finds is designed to evade a prohibition of this article; or

  (2) issued shares of the life insurer's capital stock, except:

    (i) for the purpose of mutualization under Title 3, Subtitle 1 of this article; or

    (ii) in connection with a plan approved by the Commissioner for purchase of the shares by employees or insurance producers of the life insurer.

(b) A life insurer may not directly or indirectly make a loan to an officer or director of the life insurer, except:

  (1) a policy loan; or

  (2) a bona fide mortgage loan on the principal residence of the officer or director that has been approved or ratified by the board of directors of the life insurer.

#### Section 5-507

(a) This section does not apply to:

  (1) policy loans made under this subtitle; or

  (2) general obligations of the United States, Canada, or a state.

(b) Unless the Commissioner approves, a life insurer may not have at one time any combination of investments in or loans on the security of the obligations, property, or securities of one person in an aggregate amount exceeding 10% of the admitted assets of the life insurer.

#### Section 5-508

(a) A life insurer may lend to its policyholder on the policy as collateral security an amount not exceeding the cash surrender value of the policy.

(b) A policy loan is an eligible reserve investment of a life insurer.

#### Section 5-509

(a) The definitions in Sec. 5-511 of this subtitle apply in this section.

(b) This section does not apply to Canadian securities and investments that are eligible for investment under other provisions of this subtitle.

(c) Subject to the limitations of Sec. 5-511 of this subtitle, a life 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 a life insurer is allowed to acquire under this subtitle, other than those of the type prohibited under Sec. 5-506 of this subtitle if, as a result of and after giving effect to the investment:

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

  (2) the aggregate amount of foreign investments then held by the life insurer under this subsection in a single foreign jurisdiction does not exceed:

    (i) 10% of its admitted assets for a foreign jurisdiction that has a sovereign debt rating of investment grade or higher by a nationally recognized statistical rating organization; or

    (ii) 3% of its admitted assets for any other foreign jurisdiction.

(d)

  (1) Subject to the limitations of Sec. 5-511 of this subtitle, a life insurer may acquire investments or engage in investment practices denominated in foreign currencies, whether or not they are foreign investments acquired under subsection (c) 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:

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

    (ii) the aggregate amount of investments then held by the life insurer under this subsection denominated in the foreign currency of a single foreign jurisdiction does not exceed:

      (1) 10% of its admitted assets for a foreign jurisdiction that has a sovereign debt rating of investment grade or higher by a nationally recognized statistical rating organization; or

      (2) 3% of its admitted assets for any other foreign jurisdiction.

  (2) Notwithstanding paragraph (1) of this subsection, an investment is not considered denominated in foreign currency if the acquiring insurer enters into one or more contracts in derivative transactions and the business entity counterparty agrees under the contract or contracts to exchange all payments made on the foreign currency denominated investment for United States currency at a rate that effectively insulates the investment cash flows against future changes in currency exchange rates during the period the contract or contracts are in effect.

(e)

  (1) In addition to investments allowed under subsections (c) and (d) of this section, a life 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 the foreign currency of that jurisdiction, may acquire foreign investments with respect to that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction, subject to the limitations of Sec. 5-511 of this subtitle.

  (2) Notwithstanding paragraph (1) of this subsection, investments made under this subsection in obligations of foreign governments, their political subdivisions, and government sponsored enterprises are not subject to the limitations of Sec. 5-511 of this subtitle if those investments carry a rating of investment grade or higher by a nationally recognized statistical rating organization.

  (3) The aggregate amount of investments acquired by the life insurer under this subsection may not exceed the greater of:

    (i) the amount that the life insurer is required by the law of the foreign jurisdiction to invest in the foreign jurisdiction; and

    (ii) 115% 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.

(f)

  (1) In addition to investments allowed under subsections (c) and (d) of this section, a life 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 the foreign currency of that jurisdiction, may acquire foreign investments with respect to that foreign jurisdiction, and may acquire investments denominated in the currency of that jurisdiction, subject to the limitations of Sec. 5-511 of this subtitle.

  (2) Notwithstanding paragraph (1) of this subsection, investments made under this subsection in obligations of foreign governments, their political subdivisions, and government sponsored enterprises are not subject to the limitations of Sec. 5-511 of this subtitle if those investments carry a rating of investment grade or higher by a nationally recognized statistical rating organization.

  (3) The aggregate amount of investments acquired by the life insurer under this subsection may 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.

(g)

  (1) Investments acquired under this section shall be aggregated with investments of the same type made under all other provisions of this subtitle, and in a similar manner, for purposes of determining compliance with the limitations, if any, contained in the other provisions of this subtitle.

  (2) Investments in obligations of foreign governments, their political subdivisions, and government sponsored enterprises, except for those exempted under subsections (e) and (f) of this section, are subject to the limitations of Sec. 5-511 of this subtitle.

#### Section 5-510

(a) Before investing in other classes or types of investment, each life insurer shall invest and maintain invested, in cash and securities of the classes described in subsection (b) of this section, funds in an amount not less than the minimum paid-in capital stock required under this article for authority to engage in the life insurance business.

(b) The investments required by subsection (a) of this section may be made only in cash or the following classes of securities:

  (1) bonds or other evidences of indebtedness of the United States or an agency of the United States if the obligation is guaranteed as to principal and interest by the United States;

  (2) bonds or other evidences of indebtedness that are the direct obligations of the State or of a county, district, or municipal corporation of the State; or

  (3) bonds or other evidences of indebtedness that are direct obligations of another state.

(c) After satisfying the minimum investment requirements of subsection (a) of this section, each life insurer shall invest and maintain invested additional funds, to bring its investments up to an amount not less than 100% of the life insurer's required reserves, in cash or the classes of securities or investments authorized under Sec. 5-511 of this subtitle.

(d) A life insurer shall maintain the minimum investments required by this section free and clear from any lien or pledge, other than as a deposit required or allowed under Sec. 4-106 of this article.

(e) After satisfying the minimum investment requirements of this subtitle, a life insurer may invest any excess funds without limitation in investments not otherwise prohibited under this subtitle.

#### Section 5-511

(a)

  (1) In this section and in Sec. 5-509 of this subtitle the following words have the meanings indicated.

  (2) "Acceptable collateral" means:

    (i)

      (1) as to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and

      (2) as to lending foreign securities, sovereign debt rated I by the Securities Valuation Office of the National Association of Insurance Commissioners;

    (ii) as to repurchase transactions, cash, cash equivalents, and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and

    (iii) as to reverse repurchase transactions, cash and cash equivalents.

  (3)

    (i) "Asset-backed security" means a security or other instrument, excluding a mutual fund, evidencing an interest in, or the right to receive payments from, or payable from distributions on, an asset, a pool of assets, or specifically divisible cash flows that are legally transferred to a trust or another special purpose bankruptcy-remote business entity, on the following conditions:

      (1) the trust or other business entity is established solely for the purpose of acquiring specific types of assets or rights to cash flows, issuing securities and other instruments representing an interest in or right to receive cash flows from those assets or rights, and engaging in activities required to service the assets or rights and any credit enhancement or support features held by the trust or other business entity; and

      (2) the assets of the trust or other business entity consist solely of interest bearing obligations or other contractual obligations representing the right to receive payment from the cash flows from the assets or rights.

    (ii) However, the existence of credit enhancements, such as letters of credit or guarantees, or support features such as swap agreements, do not cause a security or other instrument to be ineligible as an asset-backed security.

  (4) "Business entity" includes a sole proprietorship, corporation, association, general or limited partnership, limited liability company, joint-stock company, joint venture, trust, or any other form of business organization, whether for profit or nonprofit.

  (5)

    (i) "Cash equivalent" means a highly liquid investment or security with an original term to maturity of 90 days or less that is:

      (1) readily convertible to a known amount of cash without penalty;

      (2) so near maturity that it presents an insignificant risk of change in value; and

      (3) rated:

      (A) "P-1" by Moody's Investors Services, Inc.;

      (B) "A-1" by Standard and Poor's Division of the McGraw Hill Companies, Inc.; or

      (C) equivalently by a nationally recognized statistical rating organization recognized by the Securities Valuation Office of the National Association of Insurance Commissioners.

    (ii) "Cash equivalent" includes a government money market mutual fund and a Class One Money Market Mutual Fund.

  (6)

    (i) "Counterparty exposure amount" means:

      (1) for an over-the-counter derivative instrument not entered into pursuant to a written master agreement that provides for netting of payments owed by the respective parties:

      (A) the market value of the over-the-counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or

      (B) zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer;

      (2) for over-the-counter derivative instruments entered into pursuant to a written master agreement that provides for netting of payments owed by the respective parties, and the domiciliary jurisdiction of the counterparty is either within the United States or, if not within the United States, is within a foreign (not United States) jurisdiction listed in the purposes and procedures manual of the Securities Valuation Office as eligible for netting, the greater of zero or the net sum payable to the insurer in connection with all derivative instruments subject to the written master agreement upon their liquidation in the event of default by the counterparty pursuant to the master agreement (assuming no conditions precedent to the obligations of the counterparty to make such a payment and assuming no setoff of amounts payable pursuant to any other instrument or agreement).

    (ii) For purposes of this paragraph, market value or the net sum payable, as the case may be, shall be determined at the end of the most recent quarter of the insurer's fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer's behalf.

  (7)

    (i) "Derivative instrument" means an agreement, option, instrument, or a series or combination thereof:

      (1) to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or

      (2) that has a price, performance, value, or cash flow based primarily upon the actual or expected price, level, performance, value, or cash flow of one or more underlying interests.

    (ii) "Derivative instrument" includes options, warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures, and any other agreements, options, or instruments substantially similar thereto or any series or combination thereof and any agreements, options, or instruments permitted under regulations adopted under this section.

    (iii) "Derivative instrument" does not include collateralized mortgage obligations, other asset-backed securities, principal-protected structured securities, floating rate securities, or instruments that an insurer is otherwise permitted to invest in or receive under this article other than under this subsection, and any debt obligations of the insurer.

  (8) "Derivative transaction" means a transaction involving the use of one or more derivative instruments.

  (9) "Dollar roll transaction" means two simultaneous transactions with different settlement dates no more than 96 days apart, so that in the transaction with the earlier settlement date, an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:

    (i) asset-backed securities issued, assumed or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation or their respective successors; and

    (ii) other asset-backed securities referred to in Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. Sec. 77r-1), as amended.

  (10) "Domestic jurisdiction" means the United States, Canada, a state, a province of Canada, or a political subdivision of the United States, Canada, a state, or a province of Canada.

  (11) "Foreign currency" means a currency other than that of a domestic jurisdiction.

  (12)

    (i) "Foreign investment" means an investment in a foreign jurisdiction, or an investment in a person, real estate, or asset domiciled in a foreign jurisdiction, that is substantially of the same type as those eligible for investment under this section.

    (ii) An investment may not be deemed to be foreign if the issuing person, qualified primary credit source, or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction, unless:

      (1) the issuing person is a shell business entity; and

      (2) the investment is not assumed, accepted, guaranteed, or insured or otherwise backed by a domestic jurisdiction or a person, that is not a shell business entity, domiciled in a domestic jurisdiction.

  (13) "Foreign jurisdiction" means a jurisdiction other than a domestic jurisdiction.

  (14) "Hedging transaction" means a derivative transaction that is entered into and maintained to reduce:

    (i) the risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or

    (ii) the currency exchange rate risk or the degree of exposure as to assets or liabilities that an insurer has acquired or incurred or anticipates acquiring or incurring.

  (15) "Lower grade investment" means an investment obligation that is rated four, five, or six by the Securities Valuation Office of the National Association of Insurance Commissioners.

  (16) "Medium grade investment" means an investment obligation that is rated three by the Securities Valuation Office of the National Association of Insurance Commissioners.

  (17) "Qualified guarantor" means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.

  (18) "Qualified primary credit source" means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction.

  (19)

    (i) "Replication transaction" means a derivative transaction that is intended to replicate the performance of one or more assets that a life insurer is authorized to acquire under this section.

    (ii) "Replication transaction" does not include a derivative transaction entered into as a hedging transaction.

  (20) "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the business entity at a specified price, either within a specified period of time or on demand.

  (21) "Reverse repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or on demand.

  (22) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or on demand.

  (23) "Shell business entity" means a business entity having no economic substance, except as a vehicle for owning interests in assets issued, owned, or previously owned by a person domiciled in a foreign jurisdiction.

(a-1) Each life insurer shall have and continually maintain an amount equal to its entire reserves, as required by this article, in any combination of the types of assets authorized by subsections (c) through (p) of this section subject to the limit, if any, set for each type or class of investment.

(b)

  (1) For purposes of this section, the entire reserves of a life insurer is the sum of the amounts listed in paragraph (2) of this subsection less the amount of net uncollected and deferred premiums.

  (2) The sum to be used in paragraph (1) of this subsection consists of:

    (i) the net present value of all outstanding policies in force, less reinsurance;

    (ii) reserves for accidental death benefits and total and permanent disability benefits, less reinsurance;

    (iii) the present value of supplementary contracts, including dividends left with the life insurer to accumulate at interest;

    (iv) liabilities on canceled policies that are not included in net reserve and on which a surrender value may be demanded, and outstanding policy claims and losses; and

    (v) any additional reserves that the Commissioner reasonably requires for the life insurance.

(c) The reserve investments of a life insurer may include:

  (1) cash or deposits in checking or savings accounts, under certificates of deposit, or in any other form in a national or State bank or trust company; or

  (2) shares or deposits in a savings and loan association or building and loan association to the extent that the investment or account is insured by the Federal Deposit Insurance Corporation.

(d)

  (1) The reserve investments of a life insurer may include:

    (i) interest bearing bonds, notes, certificates of indebtedness, bills, or other direct interest bearing obligations of the United States or Canada or other interest bearing obligations fully guaranteed both as to principal and interest by the United States or Canada;

    (ii) interest bearing bonds of a state, a province of Canada, a county or incorporated city of a state, or a municipality of Canada;

    (iii) interest bearing bonds of a commission, instrumentality, authority, or political subdivision with legal authority to issue interest bearing bonds, of the United States, Canada, a state, a province of Canada, a county or incorporated city of a state, or a municipality of Canada;

    (iv) interest bearing bonds, notes, or other interest bearing obligations of a corporation incorporated under the laws of the United States, Canada, a state, or a province of Canada;

    (v) subject to paragraph (2) of this subsection, obligations of the African Development Bank, Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development, or International Finance Corporation;

    (vi) asset-backed securities rated investment grade by at least one of the nationally recognized statistical rating organizations, and which either trade on a regulated nationally recognized exchange or are traded by a minimum of two registered broker-dealers. To the extent necessary to satisfy the reserve requirements of this subtitle, a life insurer may not have more than 3% of its total admitted assets in the asset-backed securities of any one issuer; and

    (vii) interest bearing bonds, notes, or other interest bearing obligations of real estate investment trusts rated investment grade by at least one of the nationally recognized statistical rating organizations, and which either trade on a regulated nationally recognized exchange or are traded by a minimum of two registered broker-dealers. To the extent necessary to satisfy the reserve requirements of this subtitle, a life insurer may not have more than 3% of its total admitted assets in the bonds, notes, or other interest bearing obligations of any one real estate investment trust.

  (2) A life insurer may not invest more than 5% of its total admitted assets in obligations of the African Development Bank, Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development, or International Finance Corporation.

  (3) A life insurer may not acquire directly or indirectly through an investment subsidiary an investment under subsection (d), (e), or (f) of this section or Sec. 5-509 of this subtitle, or counterparty exposure under subsection (o) of this section, if as a result of and after giving effect to the investment:

    (i) the aggregate amount of medium grade investments and lower grade investments then held by the life insurer would exceed 20% of the life insurer's admitted assets;

    (ii) the aggregate amount of lower grade investments then held by the life insurer would exceed 10% of the life insurer's admitted assets;

    (iii) the aggregate amount of investments rated five or six by the Securities Valuation Office of the National Association of Insurance Commissioners then held by the life insurer would exceed 3% of the life insurer's admitted assets;

    (iv) the aggregate amount of investments rated six by the Securities Valuation Office of the National Association of Insurance Commissioners then held by the life insurer would exceed 1% of the life insurer's admitted assets;

    (v) the aggregate amount of medium grade investments and lower grade investments then held by the life insurer that receive as cash income less than the equivalent yield for United States Department of the Treasury issues with a comparative average life, would exceed 1% of the life insurer's admitted assets;

    (vi) the following would exceed 1% of the life insurer's admitted assets:

      (1) the aggregate amount of medium grade investments and lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person; or

      (2) any asset-backed securities secured by or evidencing an interest in a single asset or pool of assets; or

    (vii) the following would exceed one-half of one percent of the life insurer's admitted assets:

      (1) the aggregate amount of lower grade investments issued, assumed, guaranteed, accepted, or insured by any one person; or

      (2) any asset-backed securities secured by or evidencing an interest in a single asset or pool of assets.

(e) The reserve investments of a life insurer may include equipment trust obligations or certificates or other secured instruments that evidence:

  (1) an interest in transportation or other equipment located wholly or partly within the United States or Canada; and

  (2) a right to receive determined parts of rental, purchases, or other fixed obligatory payments received for the use or purchase of the transportation or other equipment.

(f)

  (1) Subject to paragraph (2) of this subsection, the reserve investments of a life insurer may include dividend-paying stock of a corporation created or existing under the laws of the United States, Canada, a state, or a province of Canada.

  (2) To the extent necessary to satisfy the reserve requirements of this subtitle, a life insurer may not have more than:

    (i) 10% of its total admitted assets in preferred stock;

    (ii) 10% of its total admitted assets in common stock; or

    (iii) 5% of its total admitted assets in the stock of any one corporation.

(g)

  (1) The reserve investments of a life insurer may include loans secured by first mortgages, or deeds of trust, on unencumbered fee-simple or improved leasehold real estate in a state or a province of Canada in an amount not exceeding 85% of the fair market value of the real estate.

  (2) A life insurer may not include an amount from an investment made under paragraph (1) of this subsection that exceeds 75% of the fair market value of the real estate in reserve and capital stock investments under this subtitle unless:

    (i) the real estate:

      (1) is primarily improved by a residence; or

      (2) is farm property used for farming purposes and the loan amount on any one farm property does not exceed $500,000; and

    (ii) the loan on the real estate provides for the amortization of principal over a period of not more than 30 years, with payments to be made at least annually.

  (3)

    (i) Notwithstanding paragraph (1) of this subsection, but subject to subparagraph (ii) of this paragraph, a life insurer may include an amount from an investment made under paragraph (1) of this subsection not exceeding 95% of the fair market value of the real estate if:

      (1) the real estate is improved by a dwelling primarily intended for occupancy by not more than four families; and

      (2) a mortgage insurance company authorized to do business in this State and not affiliated with the entity making the loan guarantees or insures that part of the loan in excess of 85% of the fair market value of the real estate.

    (ii) A life insurer may not place more than 3% of its admitted assets in loans in which the amount of the loan exceeds 90% of the fair market value of the security of the loan.

  (4)

    (i) If a loan is made on real estate improved by a building, the improvements must be insured against loss by fire.

    (ii) The fire insurance policy required by subparagraph (i) of this paragraph shall:

      (1) contain the New York or Massachusetts standard mortgage clause or its equivalent; and

      (2) be delivered to the mortgagee as additional security for the loan.

    (iii) A policy that insures against loss by fire and other coverages satisfies the requirements of this subsection.

  (5) The requirements of this section and any other law of the State that require security on a loan, prescribe the nature, amount, or form of security on a loan, or limit the interest rate on a loan do not apply if the reserve investments consist of bonds, notes, or other evidences of indebtedness secured by mortgages or deeds of trust that are guaranteed or insured by an instrumentality of the United States under the National Housing Act, Servicemen's Readjustment Act of 1944, or Bankhead-Jones Farm Tenant Act.

(h)

  (1) Subject to paragraphs (2) and (3) of this subsection, the reserve investments of a life insurer may include ground rents in any state.

  (2) For unexpired redeemable ground rents, any premiums paid must be:

    (i) amortized over the period between the date of acquisition and the earliest redemption date; or

    (ii) charged off before the redemption date.

  (3) For expired redeemable ground rents, any premiums paid must be charged off when acquired.

  (4) A life insurer shall carry redeemable ground rents purchased at a discount at an amount not greater than the cost of acquisition.

(i)

  (1) The reserve investments of a life insurer may include collateral loans secured by pledge of any security listed in subsections (c) through (h) of this section if the current market value of the pledged security at all times during the term of the loan is at least 10% more than the unpaid balance of the loan amount.

  (2) Each collateral loan is subject to the power of the life insurer to terminate it if the pledged security depreciates below 10% of the unpaid balance of the loan amount.

(j)

  (1) For purposes of this subsection, real estate sold under a contract of sale in which title is retained in the life insurer shall be classified as real estate.

  (2) Subject to paragraph (3) of this subsection, the reserve investments of a life insurer may include:

    (i) real estate for the office and business purposes only of the life insurer, except as authorized by subsections (g) and (h) of this section; or

    (ii) property primarily for the use of employees or customers of the life insurer for parking with or without charge.

  (3) The equity value of all real estate held under paragraph (2) of this subsection may not exceed 20% of the life insurer's total admitted assets.

  (4) A life insurer may purchase and hold real estate under a foreclosure of its own mortgages or a deed in lieu of mortgage foreclosure for not more than 5 years.

  (5) Subject to paragraph (6) of this subsection, the Commissioner may grant extensions for periods not exceeding 5 years each of the period within which real estate may be held under paragraph (4) of this subsection, if the Commissioner considers the extensions necessary to serve the best interest of the life insurer and its policyholders.

  (6) Before the Commissioner may refuse to grant extensions under paragraph (5) of this subsection, an appraisal of the real estate shall be obtained. If the appraisal shows that the appraised value of the real estate equals or exceeds the book value of the real estate, the Commissioner shall grant extensions for periods not exceeding 5 years each.

  (7) With the written approval of the Commissioner, a life insurer may acquire property as partial payment of the consideration for the sale of real estate owned by the life insurer if the transaction causes a net reduction in the investment of the life insurer in real estate.

  (8) With the approval of the Commissioner, a life insurer may acquire other real estate if necessary or convenient to enhance the market value of real estate previously acquired or held by the life insurer in accordance with this subsection.

(k) The reserve investments of a life insurer may include interest, rents, or other fixed income due and accrued on:

  (1) an investment authorized under subsections (c) through (e) and (g) through (j) of this section; or

  (2) policy loans of the life insurer.

(l)

  (1) The real estate authorized by this subsection to be held as a reserve investment by a life insurer does not include property to be used primarily for mining, recreational, amusement, hotel, or club purposes.

  (2) Subject to paragraphs (3) through (6) of this subsection, the reserve investments of a life insurer may include fee-simple or improved leasehold real estate or interests in limited partnerships formed for the development or ownership of fee-simple or improved leasehold real estate, if acquired:

    (i) as an investment for the production of income; or

    (ii) to be improved or developed as an investment for the production of income.

  (3) The cost of each parcel of fee-simple or improved leasehold real estate or each limited partnership interest acquired under this subsection, including the cost to the life insurer of improving or developing the real estate, may not exceed:

    (i) 15% of the admitted assets of the life insurer, when added to the book value of all other fee-simple or improved leasehold real estate or limited partnership interests then held by the life insurer under this subsection; and

    (ii) 20% of the total admitted assets of the life insurer, when added to the value of all real estate however acquired or held for investment by the life insurer, including home office and branch office properties.

  (4) The cost of each parcel of fee-simple or improved leasehold real estate or each limited partnership interest acquired under this section, including the cost to the life insurer of improving or developing the real estate, may not exceed 1% of the admitted assets of the life insurer.

  (5)

    (i) Except as otherwise required by the Commissioner, each parcel of fee-simple or improved leasehold real estate held by a life insurer directly or through a limited partnership under this subsection shall be valued on the books of the life insurer as of December 31 of each year at an amount that includes a write-down of the cost of the property, excluding the land cost, but including all improvements or development costs, at a rate that averages not less than 2% per year of the cost of the property for each year or part of a year that the property is held.

    (ii) The admitted values of each parcel of fee-simple or improved leasehold real estate held under this subsection may not exceed the depreciated value of the property.

  (6) A life insurer may not count towards its cash reserves any more than the lesser of:

    (i) 75% of the investment value of any limited partnership interest; and

    (ii) 75% of the current book value of that limited partnership interest.

  (7)

    (i) Interests in limited partnerships under this subsection shall be valued at the actual cost of the investment adjusted by any additional capital contributions or capital withdrawals.

    (ii) The valuation of a limited partnership interest may not exceed the life insurer's proportionate share of the equity of the real estate asset owned by the limited partnership.

(m) The reserve investments of a life insurer may include those investments permitted under Sec. 5-509 of this subtitle.

(n)

  (1) The reserve investments of a life insurer may include securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities, subject to the requirements of paragraphs (2) through (9) of this subsection.

  (2)

    (i) The insurer's board of directors shall adopt a written plan 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) operational procedures to manage interest rate risk, 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.

    (ii) The insurer shall file with the Commissioner the written plan including all changes and amendments to the written plan for use in the State on or before the date the plan becomes effective.

  (3)

    (i) The insurer shall enter into a written agreement for all transactions authorized under this subsection other than dollar roll transactions.

    (ii) The written agreement shall require that each transaction terminate no more than 1 year from its inception or on the earlier demand of the insurer.

    (iii) The agreement shall be with the business entity counterparty, but for securities lending transactions, the agreement may be with an agent acting on behalf of the insurer, if the agent is a qualified business entity, and if the agreement:

      (1) requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this section; and

      (2) prohibits securities lending transactions under the agreement with the agent or its affiliates.

  (4)

    (i) Cash received in a transaction under this subsection shall be invested in accordance with this subtitle and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes.

    (ii) For so long as the transaction remains outstanding, the insurer, its agent, or custodian shall maintain, as to acceptable collateral received in a transaction under this subsection, 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 the United States, title to, or rights of a secured creditor to, the acceptable collateral.

  (5)

    (i) The limitations of Sec. 5-507 of this subtitle do not apply to the business entity counterparty exposure created by transactions under this subsection.

    (ii) For purposes of calculations made to determine compliance with this subsection, no effect will 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.

    (iii) An insurer may not enter into a transaction under this subsection if, as a result of and after giving effect to the transaction:

      (1)

        (A) the aggregate amount of securities then loaned, sold to, or purchased from any one business entity counterparty under this subsection would exceed 5% of its admitted assets; and

      (B) 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, sold to, or purchased from all business entities under this subsection would exceed 40% of its admitted assets.

  (6)

    (i) 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.

    (ii) 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 then held in connection with the transaction, at least equals 102% of the market value of the loaned securities.

  (7)

    (i) 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.

    (ii) If at any time the market value of the acceptable collateral is less than 95% of the market value of the securities so 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 then held in connection with the transaction, at least equals 95% of the market value of the transferred securities.

  (8) 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.

  (9)

    (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.

    (ii) 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 then held in connection with the transaction, at least equals 102% of the purchase price.

    (iii) Securities acquired by an insurer in a repurchase transaction may not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.

(o)

  (1) The reserve investments of a life insurer may include derivative transactions under this subsection, whether entered into directly or indirectly through an investment subsidiary, under the conditions of paragraphs (2) through (6) of this subsection.

  (2)

    (i) An insurer may use derivative instruments under this subsection to engage in hedging transactions.

    (ii) Prior to entering into any derivative transaction, the board of directors of the insurer shall approve a derivative use plan that:

      (1) describes investment objectives and risk constraints, such as counterparty exposure amounts and collateral arrangements supporting derivative transactions;

      (2) defines permissible transactions identifying the risks to be hedged, the assets or liabilities being replicated; and

      (3) requires compliance with internal control procedures that demonstrate 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.

    (iii) Whenever the derivative transactions entered into under this subsection are not in compliance with this subsection or, if continued, may now or subsequently, create a hazardous financial condition to the insurer that affects its policyholders, creditors, or the general public, the Commissioner may, after notice and an opportunity for a hearing, order the insurer to take any action as may be reasonably necessary to:

      (1) rectify a hazardous financial condition; or

      (2) prevent an impending hazardous financial condition from occurring.

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

    (i) 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;

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

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

  (4) An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of Sec. 5-507 of this subtitle.

  (5) Each derivative instrument shall be:

    (i) traded on a securities exchange;

    (ii) entered into with, or guaranteed by, a business entity;

    (iii) issued or written by or entered into with the issuer of the underlying interest on which the derivative instrument is based; or

    (iv) in the case of futures, traded through a broker that is registered as a futures commission merchant under the Commodity Exchange Act or that has received exemptive relief from registration under Rule 30.10 adopted under the Commodity Exchange Act.

  (6) Any asset being replicated is subject to all of the provisions and limitations on the investment as if the replication transaction constituted a direct investment by the life insurer in the replicated asset.

(p)

  (1) The reserve investments of a life insurer may include money market mutual funds as defined by 17 C.F.R. 270.2A-7 under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) that may be either of the following:

    (i) Government Money Market Mutual Fund, which is a money market mutual fund that:

      (1) invests only in obligations issued, guaranteed, or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and

      (2) qualifies for investment without a reserve under the purposes and procedures of the Securities Valuation Office or any successor publication; or

    (ii) Class One Money Market Mutual Fund, which is a money market mutual fund that qualifies for investment using the bond class one reserve factor under the purposes and procedures of the Securities Valuation Office or any successor publication.

  (2) For purposes of determining whether a money market mutual fund is to be classified as an equity interest or within this subsection, money market funds qualifying for listing within this subsection must conform to the purposes and procedures of the Securities Valuation Office or any successor publication.

#### Section 5-512

(a) A life insurer may allocate to one or more separate investment accounts in accordance with a written agreement any amounts paid to the life insurer that are to be invested by the life insurer in accordance with the agreement and applied to the purchase of guaranteed income benefits under the life insurer's individual or group policies or annuity contracts or to provide other guaranteed benefits incidental to those policies or annuity contracts.

(b) Any income and gains and losses, realized or unrealized, on each separate investment account shall be credited to or charged against the amounts allocated to the account in accordance with the agreement without regard to other income, gains, or losses of the life insurer.

(c)

  (1) Amounts allocated to separate investment accounts and accumulations on the accounts may be invested and reinvested in any class of investments authorized under this article as life insurance reserve investments.

  (2) Preferred and common stock investments of amounts allocated to separate investment accounts may not be included in applying the 10% limitations on investments under Sec. 5-511(f) of this subtitle.

  (3) A separate investment account may invest in any investments contractually permitted for the separate investment account and specified in a plan of operation, and the restrictions, limitations, and other provisions of this article relating to investments shall not apply to the investments contained in the separate investment account, provided that prior to delivery or issuance for delivery in the State, the form of the policy or annuity contract and the plan of operation have been filed with and approved by the Commissioner.

(d) Unless a life insurer limits its liability under the guarantee to the interest of the contract holder in the investments, a life insurer may not guarantee:

  (1) the value of amounts allocated to a separate investment account; or

  (2) the value of investments of the amounts allocated to the separate investment account or the income from the investments.

(e)

  (1) A life insurer owns the amounts that the life insurer allocates to a separate investment account under this section.

  (2) A life insurer may not be or hold itself out to be a trustee of the amounts allocated to the separate investment account.

  (3) To the extent provided under the applicable contracts, the part of the assets of the separate investment account equal to the reserves and other contract liabilities with respect to the account may not be chargeable with liabilities arising out of any other business that the insurer may conduct.

(f) At all times, the investments and liabilities of each separate investment account shall be clearly identifiable and distinguishable on the books of the life insurer from other investments and liabilities of the life insurer.

(g) Unless the Commissioner approves, a life insurer may not transfer by sale, exchange, substitution, or otherwise from one investment account to another investment account an investment in any separate investment account or in the general investment account of the life insurer.

(h)

  (1) In connection with the allocation of investments or expenses or in any other manner, a life insurer may not discriminate unfairly between:

    (i) separate investment accounts; or

    (ii) a separate investment account and the life insurer's general investment account.

  (2) This subsection does not require a life insurer to follow uniform investment policies for its accounts.

(i)

  (1) Investments made with respect to separate investment accounts shall be valued for the purpose of any valuation required by this article:

    (i) at the market value of the investment on the date of the valuation; or

    (ii) if there is no readily available market, in accordance with the terms of the written agreement referred to in subsection (a) of this section.

  (2)

    (i) If a separate investment account provides a fixed guaranteed return that is not subject to market value adjustment, the life insurer shall hold assets that equal or exceed the reserve amount that would be required if the separate investment account was an obligation of the life insurer's general account.

    (ii) An asset held under subparagraph (i) of this paragraph shall be valued in accordance with Sec.Sec. 5-401 and 5-402 of this title.

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Md. Code Ann., Ins. (as displayed at mgaleg.maryland.gov, October 16, 2026)