Virginia Law

Article 2. Category 1 Investments.

This article sets forth requirements for qualifying as a Category 1 investment. If an investment or portion thereof does not comply either with this article or Article 3 (§ 38.2-1443 et seq.) of this chapter, then that investment or portion of it shall be classified as a Category 2 investment or a prohibited investment, as provided in this chapter.

1983, c. 457, § 38.1-217.15; 1986, c. 562.

A. No domestic insurer shall have at any one time any combination of investments in or loans upon the security of the property and securities of any one obligor or issuer aggregating an amount exceeding the lesser of five percent of the insurer's total admitted assets or twenty percent of the insurer's surplus to policyholders. The limitations prescribed by this section shall not apply to the following:

1. Investments in or loans upon the security of general obligations of the United States;

2. Investments in foreign securities made eligible by subsection A of § 38.2-1433;

3. Investments in mortgage pass-through securities made eligible by § 38.2-1437.1;

4. Deposits in institutions insured by a federal deposit insuring agency to the extent of coverage by such deposit insuring agency;

5. Investments in subsidiaries made eligible by § 38.2-1427.3;

6. Investments in obligations of an agency or instrumentality of the United States made eligible by subsection B of § 38.2-1415; provided that at no time shall the insurer invest pursuant to subsection B of § 38.2-1415 in excess of ten percent of its total admitted assets in any one obligor or issuer of such obligations; or

7. Other assets defined or classified by the National Association of Insurance Commissioners accounting practices and procedure manual, or any successor publication, as cash or cash equivalents or as a short term investment that is rated "AAA" or better or the equivalent rating by Moody's Investors Service, Inc., Standard & Poor's or Fitch IBCA, or any successor to the rating business of any of them, provided that at no time shall the amount of any such asset placed for or by the insurer in or with any one depository, issue, obligor, or issuer exceed the lesser of ten percent of the insurer's total admitted assets or twenty percent of the insurer's surplus to policyholders.

B. No domestic insurer shall invest in excess of one percent of its total admitted assets in any one issue of any obligations made eligible for investment under § 38.2-1423 or § 38.2-1424.

C. No domestic insurer shall invest in excess of one-half of one percent of its total admitted assets in any one loan made eligible by subdivision 3 of § 38.2-1434.

D. The principal loan amount disbursed, excluding advances made to enforce or protect the security for the loan, by a domestic insurer under any single wrap-around mortgage made pursuant to § 38.2-1435 shall not exceed one percent of its total admitted assets.

E. The amount loaned under § 38.2-1430 shall be subject to the limitations of this section applicable to the kinds of securities or obligations pledged in connection with the loan.

1983, c. 457, § 38.1-217.16; 1986, c. 562; 1990, c. 893; 1992, c. 588; 1995, c. 60; 1998, c. 414; 2002, c. 73.

A. The portion of a domestic insurer's total admitted assets in the following types of investments shall not exceed:

1. Ten percent for the aggregate of investments made eligible by §§ 38.2-1416 and 38.2-1417;

2. Five percent for the investments in each agency made eligible by § 38.2-1418, and 10 percent for the aggregate of investments made eligible by § 38.2-1418;

3. Ten percent for the investments made eligible by § 38.2-1419;

4. Ten percent for the investments made eligible by § 38.2-1420;

5. For the aggregate of investments made eligible under §§ 38.2-1421 and 38.2-1422, (i) 90 percent for any life insurer and (ii) 40 percent for all other insurers;

6. Ten percent for the investments made eligible by subsection B of § 38.2-1421; and two percent for the investments made eligible by subsection C of § 38.2-1421;

7. Twenty percent for the investments made eligible by § 38.2-1422;

8. Ten percent for the investments made eligible by § 38.2-1423;

9. Five percent for the investments made eligible by § 38.2-1424;

10. Five percent for the investments made eligible by § 38.2-1425;

11. The lesser of 15 percent or the amount by which an insurer's surplus to policyholders exceeds its minimum capital and surplus for the aggregate of investments made eligible by §§ 38.2-1427, 38.2-1427.1 and 38.2-1427.2, of which no more than five percent of the total admitted assets shall be in investments made eligible by § 38.2-1427.1;

12. For the aggregate of investments made eligible by § 38.2-1427.3, when combined with the insurer's total investment in affiliates, the lesser of 10 percent of the insurer's admitted assets or 50 percent of the insurer's surplus to policyholders in excess of its minimum capital and surplus, provided that total investments in affiliates do not include investments made by the insurer in money market mutual funds made eligible by § 38.2-1432;

13. Fifteen percent for investments made eligible by subsection B of § 38.2-1433, and an amount equal to its deposit and reserve obligations incurred in a foreign country for the investments made eligible by subsection A of § 38.2-1433;

14. Two percent for the investments made eligible (including those that the insurer is obligated to make as well as those made) by subdivision 3 of § 38.2-1434;

15. Two percent for the investments made eligible by § 38.2-1435;

16. Ten percent for the investments made eligible by § 38.2-1436;

17. For the aggregate of investments made eligible by § 38.2-1437.1, when combined with the insurer's investments in mortgages under §§ 38.2-1434 through 38.2-1436 and § 38.2-1439, (i) 60 percent for any life insurer and (ii) 30 percent for all other insurers;

18. Two percent for the investments made eligible by § 38.2-1440; and

19. Twenty-five percent for the total of investments made eligible by § 38.2-1441, of which no more than five percent of the total admitted assets shall be in investments in real property to be used primarily for hotel purposes.

B. The amount loaned under § 38.2-1430 shall be subject to the limitations of this section applicable to the kinds of securities or obligations pledged in connection with the loan.

1983, c. 457, § 38.1-217.17; 1986, c. 562; 1992, c. 588; 1993, c. 47; 1995, c. 60; 1998, c. 414; 2014, cc. 159, 206.

A. United States obligations. A domestic insurer may invest in any bonds, notes, warrants, and other evidences of indebtedness which are direct obligations of the United States or for which the full faith and credit of the United States are pledged for the payment of principal and interest.

B. United States agencies obligations. A domestic insurer may invest in any bonds, notes, warrants and other evidence of indebtedness which are direct obligations for the payment of money, issued by an agency or instrumentality of the United States, or obligations for the payment of money to the extent guaranteed or insured as to the payment of principal and interest by an agency or instrumentality of the United States.

C. State government obligations. A domestic insurer may invest in direct, general obligations of any state of the United States for the payment of money, or obligations for the payment of money to the extent guaranteed or insured as to the payment of principal and interest by any state of the United States, on the following conditions:

1. The state has the power to levy taxes for the prompt payment of the principal and interest of its obligations;

2. The state is not in default in the payment of principal or interest on any of its direct, guaranteed or insured obligations as of the date of investment;

3. An insurer shall not invest under this subsection more than five percent of its admitted assets in obligations issued or guaranteed by any one state; and

4. An insurer shall not invest under this subsection more than thirty percent of its admitted assets.

D. Local government obligations. A domestic insurer may invest in direct, general obligations of any political subdivision, of any state of the United States, for the payment of money, or obligations for the payment of money, to the extent guaranteed as to the payment of principal and interest, by any such political subdivision, on the following conditions:

1. The obligations are payable or guaranteed from ad valorem taxes;

2. Such political subdivision is not in default in the payment of principal or interest on any of its direct or guaranteed obligations;

3. No investment shall be made under this subsection in obligations which are secured only by special assessments for local improvements;

4. An insurer shall not invest more than five percent of its admitted assets in obligations issued or guaranteed by any one such political subdivision; and

5. An insurer shall not invest more than thirty percent of its admitted assets under this subsection.

E. Anticipation obligations. An insurer may invest in the anticipation obligations of any political subdivision of any state, all within the United States, including but not limited to bond anticipation notes, tax anticipation notes, preliminary loan anticipation notes, revenue anticipation notes and construction anticipation notes, for the payment of money within twelve months from the issuance of the obligation, on the following conditions:

1. The anticipation notes must be a direct obligation of the issuer under conditions set forth in subsection D of § 38.2-1415;

2. The political subdivision is not in default in the payment of the principal or interest on any of its direct general obligations or any obligation guaranteed by such political subdivision;

3. The anticipation funds shall be specifically pledged to secure the obligation;

4. An insurer shall not invest more than two percent of its admitted assets in the anticipation obligations issued by any one such political subdivision; and

5. An insurer shall not invest more than ten percent of its admitted assets under this subsection.

F. State or municipal revenue obligations. A domestic insurer may invest in obligations of any state of the United States, a political subdivision thereof, or a public instrumentality of any one or more of the foregoing, for the payment of money, on the following conditions:

1. The obligations are payable from revenues or earnings of a public utility of such state, political subdivision, or public instrumentality which are specifically pledged therefor;

2. The law under which the obligations are issued requires that rates for service shall be charged and collected at all times such that they will produce sufficient revenue or earnings which, together with any other revenues or moneys pledged, are sufficient to pay all operating and maintenance charges of the public utility and all principal and interest on such obligations;

3. No prior or parity obligations payable from the revenues or earnings of that public utility are in default as of the date of the investment;

4. An insurer shall not invest under this subsection more than two percent of its admitted assets in the revenue obligations issued in connection with any one facility;

5. An insurer shall not invest under this subsection more than two percent of its admitted assets in revenue obligations payable from revenue or earning sources which are the contractual responsibility of any one single credit risk; and

6. An insurer shall not invest under this subsection more than twenty-five percent of its admitted assets.

G. Other revenue obligations of state and local governments. A domestic insurer may invest in other state and local government revenue obligations of any state of the United States, a political subdivision thereof, or a public instrumentality of any of the foregoing, for the payment of money, on the following conditions:

1. The obligations are payable from revenues or earnings, excluding revenues or earnings from public utilities, specifically pledged therefor by such state, political subdivision, or public instrumentality;

2. An insurer shall not invest under this subsection more than two percent of its admitted assets in the revenue obligations issued in connection with any one facility;

3. No prior or parity obligation of the same issuer payable from revenues or earnings from the same source has been in default as to principal or interest during the five years next preceding the date of such investment, but the issuer need not have been in existence for that period, and obligations acquired under this subsection may have been newly issued;

4. An insurer shall not invest under this subsection more than two percent of its admitted assets in revenue obligations payable from sources which are the contractual responsibility of any one single credit risk; and

5. An insurer shall not invest under this subsection more than twenty-five percent of its admitted assets.

1983, c. 457, § 38.1-217.18; 1986, c. 562; 1992, c. 588; 1998, c. 414.

A. Obligations of Canada. -- A domestic insurer may invest in bonds, notes, warrants, and other evidences of indebtedness which are direct obligations of the government of Canada or for which the full faith and credit of the government of Canada are pledged for the payment of principal and interest.

B. No domestic insurer shall invest in any obligation under this section unless the obligation is payable both as to principal and interest in lawful money of the United States or of Canada.

C. Obligations of provinces. -- A domestic insurer may invest in direct, general obligations of any province of Canada for the payment of money, or obligations for the payment of money to the extent guaranteed or insured as to the payment of principal and interest by any province of Canada, on the following conditions:

1. The province has the power to levy taxes for the prompt payment of the principal and interest of its obligations;

2. The province is not in default in the payment of principal or interest on any of its direct, guaranteed or insured obligations as of the date of investment; and

3. An insurer shall not invest under this subsection more than five percent of its admitted assets in obligations issued or guaranteed by any one province.

D. Local government obligations. -- A domestic insurer may invest in direct, general obligations of any political subdivision of any province of Canada for the payment of money, or obligation for the payment of money, to the extent guaranteed as to the payment of principal and interest, by any such political subdivision, on the following conditions:

1. The obligations are payable or guaranteed from ad valorem taxes;

2. Such political subdivision is not in default in the payment of principal or interest on any of its direct or guaranteed obligations;

3. No investment shall be made under this subsection in obligations which are secured only by special assessments for local improvements; and

4. An insurer shall not invest more than two percent of its admitted assets in obligations issued or guaranteed by any one such political subdivision.

1983, c. 457, § 38.1-217.19; 1986, c. 562; 1992, c. 588.

A domestic insurer may invest in obligations issued, assumed or guaranteed by any solvent corporation created or existing under the laws of Canada, or any province of Canada. However, those obligations shall meet the standards specified in § 38.2-1421 for obligations of any business entity created or existing under the laws of the United States or any state.

1983, c. 457, § 38.1-217.20; 1986, c. 562; 1992, c. 588.

A domestic insurer may invest in valid and legally authorized high grade obligations issued, assumed or guaranteed by an international development bank of which the United States is a member.

1983, c. 457, § 38.1-217.21; 1985, c. 370; 1986, c. 562; 1992, c. 588.

A domestic insurer may invest in obligations secured by first mortgages, first deeds of trust or other similar liens upon terminal, depot or tunnel property, including lands, buildings and appurtenances, used in the service of transportation by one or more railroad corporations whose obligations are eligible as investments under § 38.2-1421. However, these obligations shall be (i) the direct obligation of the corporation or corporations, or (ii) guaranteed by endorsement by, or guaranteed by endorsement assumed by the corporation for the payment of principal and interest of those obligations. If the guarantee or assumption of guarantee is by two or more of the corporations, it shall be joint and several as to each. No such investment shall be made if there has been any default in the payment of principal or interest since the issuance of the obligations but not to exceed five years from the date of investment.

1983, c. 457, § 38.1-217.22; 1986, c. 562.

A domestic insurer may invest in adequately secured equipment trust certificates or other adequately secured instruments evidencing (i) an interest in transportation equipment wholly or partly within the United States and (ii) a right to receive determined portions of rental, purchase or other fixed obligatory payments for the use or purchase of the transportation equipment.

1983, c. 457, § 38.1-217.23; 1986, c. 562.

A. High grade. A domestic insurer may invest in any high grade obligations issued, assumed or guaranteed by any solvent business entity that is not in default as to principal or interest on the date of investment and which is created or existing under the laws of the United States or any state.

B. Medium grade. A domestic issuer may invest in medium grade obligations issued, assumed or guaranteed by any solvent business entity that is not in default as to principal or interest on the date of investment and which is created or existing under the laws of the United States or any state.

C. Lower grade. A domestic insurer may invest in lower grade obligations rated 4 by the Securities Valuation Office of the National Association of Insurance Commissioners or, if not rated by the Securities Valuation Office, rated in an equivalent grade by a national rating agency recognized by the Commission that are issued, assumed or guaranteed by any solvent business entity that is not in default as to principal or interest on the date of investment and which is created or existing under the laws of the United States or any state.

D. As used in this section, "business entity obligations" shall not include any mortgage pass-through securities described in § 38.2-1437.1.

1983, c. 457, § 38.1-217.24; 1986, c. 562; 1992, c. 588; 1998, c. 414.

A. A domestic insurer may invest in obligations of any solvent company other than companies referred to in § 38.2-1419, incorporated under the laws of the United States or of any state if:

1. The obligations are secured by an assignment to the insurer of a lease, and the rents payable under the lease, of real or personal property or both to (i) a domestic governmental entity; (ii) Canada, or any province of Canada; or (iii) one or more companies incorporated under the laws of the United States, any state, Canada or any province of Canada;

2. The rentals assigned are sufficient to repay the indebtedness within the unexpired term of the lease, excluding any term that may be provided by an enforceable option of renewal;

3. The lessee on any lease securing an obligation under this section, or the guarantor of the lease, is an entity whose obligations would be eligible for investment by an insurer in accordance with §§ 38.2-1415, 38.2-1421 or § 38.2-1425;

4. The lessee or guarantor has not defaulted in payment of interest or principal on any of its obligations during the five fiscal years immediately preceding the date of investment; and

5. A first lien on the interest of the lessor in the unencumbered leased property is obtained as additional security for any obligation acquired pursuant to this section.

B. No domestic insurer shall invest under this section more than two percent of the insurer's admitted assets in the obligations of any one business entity or in the obligations secured by leases to any one business entity.

1983, c. 457, § 38.1-217.25; 1986, c. 562; 1992, c. 588.

A domestic insurer may invest in preferred stocks of any company incorporated under the laws of the United States or any state if:

1. a. The preferred stock under consideration is not in arrears as to dividends if cumulative, or

b. Full dividends on the preferred stock under consideration have been paid in the last three years, or since issue if issued less than three years before the date of investment, if noncumulative;

2. Required sinking fund payments are on a current basis; and

3. The preferred stock is rated highest quality, high quality, or medium quality by the Securities Valuation Office of the National Association of Insurance Commissioners, or if not rated by the Securities Valuation Office, is rated in an equivalent grade by a national rating agency recognized by the Commission.

1983, c. 457, § 38.1-217.26; 1986, c. 562; 1998, c. 414; 2008, c. 93.

A domestic insurer may invest in stocks guaranteed by a solvent company incorporated under the laws of the United States or of any state if for the past three years the guarantor's net earnings available for meeting fixed charges is at least 1 1/4 times the sum of (i) the fixed charges of the guarantor and (ii) the dividends on the guaranteed stock.

1983, c. 457, § 38.1-217.27; 1986, c. 562.

A. A domestic insurer may invest in the common capital stock of any bank or trust company that is a member of the Federal Deposit Insurance Corporation.

B. No domestic insurer shall invest in more than ten percent of the actually issued and outstanding common capital stock of any one such bank or trust company.

C. For the purpose of this section, the term "bank" includes a registered bank holding company as defined by the Federal Bank Holding Act of 1956, as amended, and a registered bank holding company shall be considered a member of the Federal Deposit Insurance Corporation if all its subsidiary banks are members of the Federal Deposit Insurance Corporation.

1983, c. 457, § 38.1-217.28; 1986, c. 562; 2000, c. 155.

If the issuing, assuming or guaranteeing business entity has not been in operation for the entire period for which earnings are being applied pursuant to § 38.2-1424, the earnings tests shall be based upon pro forma statements incorporating statements of any predecessor or constituent business entity for that portion of the earnings tests period that the current business entity was not in operation, if:

1. The current business entity was formed as a consolidation or a merger of two or more business entities, at least one of which was in operation at the beginning of the period; or

2. The current business entity has acquired all of the assets of a business entity or any division or other unit of a business entity that was in operation at the beginning of the test period.

1983, c. 457, § 38.1-217.29; 1986, c. 562; 1992, c. 588; 2000, c. 155; 2002, c. 147.

A. A domestic insurer may invest in the common capital stock of any company incorporated under the laws of the United States or any state, if the common capital stock of the corporation is traded on a securities exchange or on an over-the-counter market regulated under the Securities Exchange Act of 1934, as amended.

B. A domestic insurer also may write exchange-traded, covered call options on shares of common capital stock it owns.

C. No domestic insurer shall invest, pursuant to this section, in more than ten percent of the issued and outstanding common capital stock of any one corporation or issuer.

1983, c. 457, § 38.1-217.30; 1986, c. 562; 1992, c. 588.

A domestic insurer may become a limited partner in a partnership organized and governed under the laws of the United States or any state for the purpose of making or participating in investments otherwise permissible for domestic insurers under the provisions of this chapter.

1992, c. 588.

A domestic insurer may invest in shares of common stock or units of beneficial interest issued by any solvent business corporation or trust incorporated or organized under the laws of the United States, or of any state of the United States, under the following conditions:

1. If the issuing corporation or trust is advised by an investment advisor which is the insurer or an affiliate of the insurer, the issuing corporation or trust shall have assets of $100,000 or more (which may be provided by the insurer or affiliate), or if the issuing corporation or trust has an unaffiliated investment advisor, the issuing corporation or trust shall have net assets of ten million dollars or more, and

2. The issuing corporation or trust is registered as an investment company with the Federal Securities and Exchange Commission under the Investment Company Act of 1940, as amended.

1992, c. 588; 2002, c. 147.

A domestic insurer may invest in common stock, preferred stock, debt obligations, and other securities of a subsidiary.

For investments in subsidiary corporations made prior to July 1, 1995, July 1, 1995, may be deemed the date of investment.

1992, c. 588; 1993, c. 47; 1995, c. 60.

A. A domestic insurer may engage in derivative transactions under this section subject to the following general conditions:

1. A domestic insurer may use derivative instruments under this section to engage in hedging transactions and replication transactions.

2. Each domestic insurer utilizing derivative instruments shall establish written guidelines with respect to derivative transactions stating the insurer's objectives for engaging in derivative transactions and derivative strategies, permissible derivative strategies and the relationship of those strategies to the insurer's operations, and such other details as the Commission may from time to time require. The insurer's board of directors or committee thereof charged with the responsibility of overseeing investments shall approve the written guidelines and any amendment thereto and shall establish a procedure to determine, at least annually, that all derivative transactions were made in accordance with such guidelines. The guidelines established pursuant to this section, and any amendment thereto, shall be submitted to the Commission for prior approval. The Commission shall, in writing, either approve the guidelines or amendment, request any additional information needed to approve the guidelines or amendment, or deny the guidelines or amendment within (i) 90 days of receipt of the guidelines or (ii) 60 days of receipt of any amendment; otherwise the guidelines or amendment shall be deemed approved.

3. The Commission may adopt reasonable rules and regulations for derivative transactions including, but not limited to, rules and regulations that impose financial solvency standards, valuation standards, and reporting requirements.

B. A domestic insurer may enter into hedging transactions if:

1. The domestic insurer is able to demonstrate to the Commission 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; and

2. As a result of and after giving effect to the hedging transaction:

a. The aggregate statement value of options, caps, floors, and warrants not attached to another financial instrument purchased and used in hedging transactions then engaged in by the domestic insurer does not exceed 7.5 percent of its admitted assets;

b. The aggregate statement value of options, caps, and floors written in hedging transactions then engaged in by the domestic insurer does not exceed 3 percent of its admitted assets; and

c. The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions then engaged in by the domestic insurer does not exceed 6.5 percent of its admitted assets.

C. A domestic insurer may enter into replication transactions if the asset being replicated shall comply with all of the provisions and limitations specified in this article with respect to investments by the insurer, as if such replicated asset constituted a direct investment by the insurer in the asset being replicated. The aggregate statement value of all assets being replicated shall not exceed 10 percent of the insurer's admitted assets.

D. The counterparty exposure amount under a derivative instrument entered into pursuant to this section shall be deemed an obligation of a business entity to which the insurer is exposed to credit risk for the purpose of determining compliance with the limitations of §§ 38.2-1411.2 and 38.2-1413.

E. Pursuant to rules promulgated under § 38.2-223, the Commission may approve additional transactions involving the use of derivative instruments in excess of the limits set forth in this section or for other risk management purposes.

1983, c. 457, § 38.1-217.31; 1985, c. 36; 1986, c. 562; 2001, c. 387; 2011, c. 198.

A. A domestic insurer may lend securities held by it pursuant to §§ 38.2-1415 through 38.2-1427.2 if:

1. Simultaneously with the delivery of the securities, the insurer receives collateral from the borrower consisting of cash or consisting of securities issued, assumed or guaranteed by the United States, an agency of the United States or any state. The securities shall have a present market value of at least 102 percent of the market value of the securities loaned;

2. The securities are loaned only for the purpose of making delivery of securities in the case of short sales, in the case of failure to receive securities requested for delivery or in other similar cases;

3. Prior to the loan, the borrower furnishes the insurer with the most recent statement of the borrower's financial condition and a representation by the borrower that there has been no material adverse change in its financial condition since the date of that statement;

4. The insurer receives a reasonable fee related to the value of the borrowed securities and to the duration of the loan;

5. The loan is made pursuant to a written loan agreement; and

6. The borrower is required to furnish by the close of each business day during the term of the loan a report of the market value of all collateral and the market value of all borrowed securities as of the close of trading on the previous business day. If at the close of any business day the market value of the collateral is less than 102 percent of the market value of the securities loaned, then the borrower shall deliver by the close of the next business day an additional amount of cash or securities. The market value of these additional securities, together with the market value of all previously delivered collateral, shall equal at least 102 percent of the market value of the securities loaned.

B. For the purposes of this section, "market value" includes accrued interest.

1983, c. 457, § 38.1-217.32; 1986, c. 562; 1992, c. 588.

A domestic insurer may make loans secured by securities eligible for investment under this article. At the date of investment, the loan shall not exceed eighty percent of the market value of the collateral pledged. However, if the collateral consists of obligations issued, assumed or guaranteed by the United States, the loan may equal the market value of the collateral pledged.

1983, c. 457, § 38.1-217.33; 1986, c. 562.

A domestic insurer issuing life insurance policies or annuities may loan any sum not exceeding the cash surrender value specified in the policy to its policyholder upon the pledge of the policy as collateral.

1983, c. 457, § 38.1-217.34; 1986, c. 562.

A domestic insurer may invest in any of the following:

1. Interest-bearing checking or savings accounts, certificates of deposit, or other short-term investments made available or issued by any solvent bank or trust company that is a member of the Federal Deposit Insurance Corporation;

2. Interest-bearing savings or share accounts, certificates of deposit or any other short-term investments made available or issued by any solvent building and loan or savings institution insured by the Federal Deposit Insurance Corporation or other federal insurance agency;

3. Bankers acceptances of the kinds and maturities made eligible by law for rediscount with Federal Reserve Banks, provided that these securities are accepted by a bank or trust company that is a member of the Federal Reserve System;

4. Money market mutual funds, provided that the Commission has granted prior written approval to the insurer with respect to its investment in any money market mutual fund sponsored by affiliates of the insurer and that such money market fund sponsored by affiliates meets the requirements set forth in subdivisions 1 and 2 of § 38.2-1427.2; or

5. United States government bond mutual funds.

1983, c. 457, § 38.1-217.35; 1986, c. 562; 1990, c. 3; 1995, c. 60; 1996, c. 77.

A. A domestic insurer transacting the business of insurance in a foreign country may invest in securities of or issued in that country of substantially the same kinds, classes, and investment grades as the insurer may acquire in the United States.

B. A domestic insurer may invest in securities of or issued in a foreign country of substantially the same kinds, classes and investment grades as the insurer may acquire in the United States, provided (i) all such securities are rated medium grade or higher by the Securities Valuation Office of the National Association of Insurance Commissioners or by a national rating agency recognized by the Commission and no more than one percent of the insurer's admitted assets are invested in such securities which are rated medium grade, and (ii) the aggregate amount of foreign investment held by the insurer under this section for a single foreign jurisdiction does not exceed (a) five percent of the insurer's admitted assets as to a foreign jurisdiction that has a sovereign debt rating of SVO 1 by the Securities Valuation Office of the National Association of Insurance Commissioners or (b) three percent of the insurer's admitted assets as to any other foreign jurisdiction.

C. Investments made eligible by this section shall be payable in lawful currency of the United States, except (i) where payment in other lawful currencies is required to match obligations denominated in such other lawful currencies or (ii) if the investment is denominated in other lawful currency, the investment is effectively hedged, substantially in its entirety, against the lawful currency of the United States in accordance with § 38.2-1428.

1983, c. 457, § 38.1-217.36; 1986, c. 562; 1998, c. 414; 2014, cc. 159, 206.

Subject to the provisions of § 38.2-1437, a domestic insurer may invest in:

1. Obligations secured by first mortgages or first deeds of trust on improved unencumbered real property located in the United States;

2. Obligations secured by first mortgages or first deeds of trust upon leasehold estates on improved and otherwise unencumbered real property where:

a. The leasehold interest lasts for a term of not less than ten years beyond the maturity of the loan as made or as extended; and

b. The mortgagee is subrogated to all the rights of the lessee on foreclosure or on taking a deed in lieu of foreclosure; or

3. Obligations secured by first mortgages or first deeds of trust on unimproved and unencumbered real property in the United States for the purpose of financing the construction of a building or other improvements on the real property subject to the mortgage or deed of trust, if:

a. These obligations mature not more than sixty months from the effective date of the mortgage or deed of trust and are the unlimited and unconditional liability of the obligor;

b. The obligor provides the insurer with a completion bond for the building or improvements at the time of making the loan; and

c. The insurer at or prior to the making of the loan (i) enters into an agreement with another party to provide permanent financing or (ii) agrees to provide permanent financing upon completion of the building or other improvement.

1983, c. 457, § 38.1-217.37; 1986, c. 562.

A domestic insurer may invest in obligations secured by second mortgages or second deeds of trust on real property encumbered only by a first mortgage or first deed of trust complying with §§ 38.2-1434 and 38.2-1437, subject to either of the following conditions:

1. The insurer also owns the obligation secured by the first mortgage or first deed of trust, and the aggregate value of both loans does not exceed the applicable loan-to-value ratio specified in § 38.2-1437; or

2. The obligation is secured by a wrap-around mortgage where:

a. Only one preexisting mortgage or deed of trust encumbers the real property;

b. The mortgage or deed of trust securing the loan is (i) recorded and (ii) insured for at least the total amount of the obligation of the borrower to the insurer by title insurance; and

c. The insurer agrees to make the payments due under the first mortgage or first deed of trust upon receipt of payments due from the borrower under the wrap-around mortgage.

1983, c. 457, § 38.1-217.38; 1986, c. 562.

Notwithstanding the provisions of §§ 13.1-627 and 13.1-826, a domestic insurer may acquire or sell participation interests in any loans secured by a mortgage or deed of trust qualifying under § 38.2-1434 if the insurer has all or substantially all the rights of a first mortgagee.

1983, c. 457, § 38.1-217.39; 1986, c. 562.

A. The amount of any loan secured by a mortgage or deed of trust referred to in §§ 38.2-1434 through 38.2-1436 shall not exceed the following percentages of the fair market value of the real estate:

1. Seventy-five percent for a leasehold loan made pursuant to subdivision 2 of § 38.2-1434;

2. Ninety percent for a loan made to an employee of the insurer, other than a director or trustee thereof, whether such loan be made in connection with the initial employment of the employee or in connection with the transfer of the place of employment of the employee; or

3. Eighty percent for all other loans.

However, the percentage limits specified in this subsection may be exceeded if the excess is (i) insured or guaranteed or is to be insured or guaranteed by the United States, any state or any agency of either or (ii) insured by an insurer licensed to insure mortgage guaranty risks in this Commonwealth.

B. Any loan made pursuant to §§ 38.2-1434 through 38.2-1436 not in compliance with the requirements of subsection A of this section shall be classified as a Category 2 investment in its entirety.

C. The fair market value of the real estate interest mortgaged shall be determined by a written appraisal of at least one competent real estate appraiser as of the date of the initial loan commitment, which appraiser shall not be an employee of the insurer nor an employee of any company controlled by or under common control with the insurer. If the loan commitment is revised to reflect a change in the value of the real estate, the fair market value shall be determined as of the date of that revision.

D. Buildings and other improvements on the mortgaged premises shall be insured against fire loss for the benefit of the mortgagee in an amount not less than the lesser of their insurable value or the unpaid principal balance of the obligation.

E. The maximum term of any mortgage or deed of trust referred to in §§ 38.2-1434 through 38.2-1436 secured by real property primarily improved by a single-family residence shall not exceed thirty years.

F. A domestic insurer shall not invest, under §§ 38.2-1434 through 38.2-1436, more than two percent of its admitted assets, directly or indirectly, in mortgages covering any one secured location, nor more than four percent in the mortgages of any one obligor.

1983, c. 457, § 38.1-217.40; 1986, c. 562; 1992, c. 588.

A domestic insurer may invest in mortgage pass-through securities backed by a pool of mortgages of the kind, class and investment quality as those eligible for investment under §§ 38.2-1434 through 38.2-1437, under the following conditions:

1. The servicer of the pool of mortgages shall be a business entity created under the laws of the United States or any state;

2. The pool of mortgages is assigned to a business entity, other than a sole proprietorship, having a net worth of at least five million dollars, as trustee for the benefit of the holders of the securities;

3. A domestic insurer shall not invest under this section more than two percent of its admitted assets in securities backed by any single mortgage pass-through pool;

4. All mortgage pass-through securities acquired by a domestic insurer under this section shall provide for flow-through of both principal and interest payments payable on the underlying mortgage loan assets; mortgage pass-through securities promising principal-only, interest-only or residual interests-only in the underlying mortgage assets shall not be acquired; and

5. The securities on the date of investment shall be high grade obligations.

1992, c. 588; 1999, c. 483.

Nothing in this chapter shall prohibit a domestic insurer from renewing or extending, or consenting to the renewal or extension of, evidences of indebtedness secured by real property or leasehold estates for the original or a lesser amount when a decrease in value of the property or estate causes the indebtedness to exceed the applicable loan-to-value ratio specified by § 38.2-1437. Nothing in this chapter shall prohibit a domestic insurer from accepting as part payment for any real property or leasehold estate sold by it, a mortgage or other lien on the real property or leasehold estate securing a loan that exceeds the applicable loan-to-value ratio specified in § 38.2-1437.

1983, c. 457, § 38.1-217.41; 1986, c. 562.

A. In connection with a mortgage loan on the security of real property designed and used primarily for residential purposes and acquired pursuant to § 38.2-1434, a domestic insurer may make a loan on the security of a chattel mortgage, deed of trust or other appropriate lien. The chattel mortgage or other lien may be created separately or in combination with the mortgage loan on the real estate. It shall not exceed five years and shall constitute a first and prior lien, except for taxes not then delinquent, on personal property comprised of durable equipment owned by the mortgagor and kept and used on the mortgaged premises.

B. The term "durable equipment" includes only mechanical refrigerators, mechanical laundering machines, heating and cooking stoves and ranges, mechanical kitchen aids, vacuum cleaners, and fire extinguishing devices; and, for apartment houses and hotels, may also include room furniture and furnishings.

C. Before any loan or investment is made under this section, the items of property included in the security shall be separately appraised by a competent appraiser and the fair market value of the items determined. No loan made under this section shall exceed the lesser of (i) an amount obtained by multiplying the loan to the value ratio applicable to the companion loan on the real property by the fair market value of the personal property or (ii) an amount equal to twenty percent of the amount secured by the lien on the real property.

1983, c. 457, § 38.1-217.42; 1986, c. 562.

A. A domestic insurer may invest in interests in tangible personal property for the production of income, evidenced by trust certificates or other instruments.

B. The investments shall be accompanied by (i) a right to receive rental, charter hire, purchase or other payments for the use or purchase of the personal property, (ii) a valid, binding and enforceable contract or lease for the purchase or use of the tangible personal property, and (iii) a provision for contractual payments to be made that will return the cost of the property and provide earnings on the investments within the anticipated useful life of the property which shall be at least three years.

C. The payments must be made payable or guaranteed by one or more domestic governmental entities or business entities whose obligations would qualify for investment under § 38.2-1421.

D. The unit cost of such property shall not be less than $25,000, and the cost of all property covered by any single contract or lease shall not be less than $100,000.

E. The tangible personal property shall not include furniture or fixtures.

1983, c. 457, § 38.1-217.43; 1986, c. 562; 1992, c. 588.

A. A domestic insurer may invest in real estate, as set forth in subsections B, C and D of this section, unless the property is to be used primarily for agricultural, horticultural, ranch, recreational, amusement or club purposes. The term "real estate" as used in this section shall include a leasehold of real estate having an unexpired term of not less than twenty years.

B. A domestic insurer may invest in dwellings, offices and other properties (including leasehold estates) for the production of income, other than real estate which is the subject of subsection C, situated in the United States, and the construction thereon of improvements, under the following conditions:

1. The insurer shall either directly or through a land trust own the entire property, except that it may share ownership with one or more insurers authorized to do business in this state, or other business entities, excluding sole proprietorships, having a net worth of at least five million dollars under agreements that will assume concerted action in management and control of the property in case of the insolvency of any participating company, provided that each investment made pursuant to this subsection by the insurer and by each participant shall not be less than $100,000;

2. The insurer alone or in conjunction with participants qualified under subdivision B 1 may let contracts for construction and pay costs of construction and leasing, hold, maintain, lease, and manage the property, collect rents and other income therefrom, and sell the property in whole or in part;

3. The property may be encumbered by lease to tenants and by rights-of-way, easements, mineral reservations, building restrictions, and restrictive covenants, provided none of them can interfere substantially with the use of the property or result in a forfeiture of the property, unless a policy of title insurance, issued by a responsible title insurer qualified to do business in the state wherein the property is located, insures the insurer against loss or damage arising from such encumbrances or reversionary rights; and

4. An insurer shall not invest under this subsection more than four percent of its admitted assets in any one property or in any one grouping of contiguous properties.

C. A domestic insurer may invest in real estate, including leasehold estates, for the convenient accommodation of the insurer's business operations, including home office, branch office and field office operations, under the following conditions:

1. Any parcel of real estate acquired under this subsection may include excess space for rent to others if it is reasonably anticipated that the excess will be required by the insurer for expansion or if the excess is reasonably required in order to have one or more buildings that will function as an economic unit;

2. The real estate may be subject to a mortgage;

3. An insurer shall not invest under this subsection more than ten percent of the insurer's admitted assets, except with the permission of the Commission if it is found that such percentage of the insurer's admitted assets is insufficient to provide convenient accommodation for the insurer's business; and

4. The permission of the Commission shall be obtained by an insurer prior to the purchase of any real estate under this subsection if the insurer has been authorized in this Commonwealth for a period of less than five years.

D. Real property serving as the residence of an employee of any domestic insurer, other than a director or trustee of the insurer, may be acquired only in connection with the (i) relocation by the insurer of the place of employment of the employee, or (ii) any relocation in connection with the initial employment of the employee. The purchase price shall not exceed the fair market value of the property as determined by written appraisals of at least two competent independent real estate appraisers for the purpose of the acquisition. The employee shall have made reasonable efforts otherwise to dispose of the property for a period of not less than one month immediately prior to the acquisition.

1983, c. 457, § 38.1-217.44; 1986, c. 562; 1992, c. 588.

A domestic insurer may invest in any obligation not in default of the Virginia Life, Accident and Sickness Insurance Guaranty Association issued pursuant to subdivision L 3 of § 38.2-1704 or the Virginia Property and Casualty Insurance Guaranty Association issued pursuant to subdivision 2 of subsection B of § 38.2-1606.

1986, c. 562; 2010, c. 510.