Section 653c - Eligible investments(a) Every domestic stock fire, stock marine or stock fire and marine insurance company shall invest and keep invested all its funds in sound investments enumerated below, except such cash as may be required in the transaction of its business. Such investments shall include: (1) Bonds, notes or obligations issued, assumed, guaranteed or insured by the United States, or by any state, territory or possession thereof, the District of Columbia or by any county, city, town, village, municipality or district therein or by any political subdivision or public instrumentality of one or more of the foregoing, or by any foreign country or political subdivision thereof.(2) Bonds, notes, obligations or stock, issued, assumed, guaranteed or insured by the following agencies of the United States or in which such government is a participant, whether or not such obligations are guaranteed by such government: (ii) Commodity Credit Corporation.(iii) Federal intermediate credit banks.(v) Central bank for cooperatives.(vi) Federal home loan banks and stock thereof.(vii) Federal National Mortgage Association and stock thereof.(viii) International Bank for Reconstruction and Developments.(ix) Inter-American Development Bank.(x) Asian Development Bank.(xi) African Development Bank.(xii) Any other similar agency of, or in which there is participation by, the government of the United States, and the instruments are of similar financial quality.(3) Bonds, notes, obligations or other investments of or in any business unit in or of any foreign country which are of the same kinds, classes and grades as those eligible for investment under this subsection. The cost of investments under this clause shall not exceed thirty per centum (30%) of such company's admitted assets.(4) Business obligations and equity interests:(i) Stock, warrants, rights or other security, bonds, notes or obligations issued, assumed, guaranteed, insured or accepted by any solvent corporation, joint-stock association, business trust, business partnership, business joint venture or other business entity or combination thereof incorporated or existing under the laws of the United States or of any state, district or territory thereof, and any interest in any of the foregoing: Provided, That no domestic company shall invest in any general partnership but may become a limited partner in a partnership in any investment on the following conditions:(A) the partnership must be organized under the Limited Partnership Act of the state of the partnership formation;(B) a company may not invest more than ten per centum (10%) of its capital and surplus in any one such partnership; and(C) the aggregate cost of investment in limited partnerships shall not exceed ten per centum (10%) of the company's admitted assets.(ii) Interest-bearing deposits, or certificates of deposit in banks, bank and trust companies, savings banks, savings associations, savings and loan associations or national banking associations, incorporated or existing under the laws of the United States or any state, district or territory thereof, including branches of any of the foregoing, or foreign banking institutions or branches thereof located in the United States or any state, district or territory thereof: Provided, That investments under this clause in interest-bearing deposits and certificates of deposit issued by institutions incorporated under foreign law, exclusive of such deposits and certificates issued by branches of such institutions located in the United States or any state, district or territory thereof, shall be limited to twenty per centum (20%) of such company's assets, such investments qualifying in addition to those authorized by clause (3).(iii) Obligations which are not issued, assumed, guaranteed or accepted by any person described under subclause (i), but are adequately secured by an assignment of a right to receive rent, purchase or other payment or revenues, for the use or purchase of real or personal property sufficient to repay the investment, and payable or guaranteed by any one or more persons or entities whose bonds, notes or obligations would qualify for investment under this clause or a mortgage, interest in a mortgage pool or mortgage participation or lien or security interest in real or personal property or any interest therein.(5) Obligations or participations therein, secured by liens on real property or interests therein: Provided, That the value of such real property or interest therein, together with such other security as shall secure any such obligation, shall be adequate to secure the investment as well as any lien senior to the lien created by the investment in such real estate. No investment in a single transaction shall exceed an amount equal to five per centum (5%) of such company's admitted assets.(6) Such real estate or interests therein as it is authorized by this act to hold.(7) Tangible personal property or fixtures or interest therein, however evidenced, as an investment for the production of income. Investments under this subsection shall not exceed fifteen per centum (15%) of the company's admitted assets.(8) The investment practice of financial futures contracts issued under terms and conditions regulated by a Federal regulatory agency is authorized on the following conditions: (i) A company shall not enter into financial futures contracts except as a hedging transaction as that term is defined in a rule or regulation promulgated pursuant to this act.(ii) A company shall not have initial or maintenance margin outstanding under this clause of more than ten per centum (10%) of the excess of its capital and surplus over the minimum requirements of a new stock or mutual company to qualify for a certificate of authority to write the kind of insurance which the company is authorized to write.(iii) The Insurance Commissioner may promulgate reasonable rules and regulations for transactions under this clause to include, but not limited to, rules and regulations which impose financial solvency standards, valuation standards and reporting requirements.(9) Put options and call options. The investment practice of put options and call options issued under terms and conditions regulated by, or substantially similar to those terms and conditions required by, a national securities exchange registered under the Securities Exchange Act of 1934 (48 Stat. 881, 15 U.S.C. § 78a et seq.), as amended, or any board of trade designated as a contract market by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (49 Stat. 1491), as amended, is authorized on the following conditions: (i) a company shall not sell a call option on either (A) securities it does not own or (B) in an amount greater than securities which it presently owns: Provided, however, That in the case of financial futures contracts and stock or bond index contracts where it is not feasible to own the underlying security, a company may sell a call option only in connection with a hedging transaction;(ii) a company shall not sell a put option unless its obligations under such put option are fully secured by a deposit by the company with a bank or other custodian of cash or cash equivalents;(iii) a company shall not purchase as opening transactions under this clause more than ten per centum (10%) of the excess of its capital and surplus over the minimum requirements of a new stock or mutual company to qualify for a certificate of authority to write the kind of insurance which the company is authorized to write; and(iv) the Insurance Commissioner may promulgate reasonable rules and regulations for transactions under this clause to include, but not be limited to, rules and regulations which impose financial solvency standards, valuation standards and reporting requirements.(10) Options or futures contracts traded in markets regulated under the laws of the United States or by an agency thereof and other contracts or instruments for the purpose of reducing the insurer's economic risk in connection with potential changes in the value of specifically identified assets which the insurer owns or could reasonably expect to acquire or specifically identified liabilities which the insurer has or reasonably expects to incur. The aggregate cost of investments held under this clause shall not exceed five per centum (5%) of the company's admitted assets. The Insurance Commissioner shall promulgate reasonable rules and regulations for transactions under this clause to include, but not limited to, rules and regulations which impose financial solvency standards, valuation standards and reporting requirements.(11) Lending of securities, repurchase agreements and reverse repurchase agreements. (i) Definitions: (A) "Lending of securities" means an investment other than a repurchase agreement, whereby an agreement is entered into which transfers ownership rights and possession of securities to the borrower of such securities with the agreement providing for a return of ownership rights and possession of the securities to the lender at a specified date or upon demand.(B) "Repurchase agreement" means a bilateral agreement whereby a company purchases securities with a related agreement that the seller will purchase or repurchase at a specified price the equivalent or similar securities within a specified period of time or on demand.(C) "Reverse repurchase agreement" means a bilateral agreement whereby a company (I) sells securities with a related agreement to purchase or repurchase at a specified price the equivalent or similar securities within a specified period of time or upon demand or (II) borrows funds and transfers securities to the lender with a related agreement that equivalent or similar securities will be returned to the company upon repayment of the loan within a specified period of time or on demand.(ii) Lending of securities, repurchase agreements and reverse repurchase agreements transactions are authorized on the following conditions: (A) The agreement for each transaction or the master agreement for a series of transactions shall be reduced to writing.(B) Securities acquired by a company owned subject to reacquisition pursuant to an outstanding repurchase agreement may not be sold pursuant to a reverse repurchase agreement nor lent pursuant to a lending of securities agreement. Consideration, or collateral, received from a reverse repurchase agreement or lending of securities agreement may be used to acquire securities which are equivalent or similar to the securities transferred pursuant to such repurchase agreement or lending of securities agreement; however, such acquired securities may not be sold pursuant to a reverse repurchase agreement nor lent pursuant to a lending of securities agreement.(C) A company is limited to no more than five percentum (5%) of its admitted assets being subject to lending of securities, repurchase agreements or reverse repurchase agreements transactions outstanding with any one business entity under this section.(D) A company may engage in lending its securities or repurchase or reverse repurchase agreements up to forty percentum (40%) of its admitted assets: Provided, however, That such transactions are fully collateralized.(E) The Insurance Commissioner may promulgate reasonable rules and regulations for investments and transactions under this section to include, but not be limited to, rules and regulations which impose financial solvency standards, valuation standards and reporting requirements.(12) Other loans and investments: (i) Loans or investments not authorized by any of the clauses of this section, to an amount not exceeding the aggregate of twenty per centum (20%) of such company's admitted assets. The twenty per centum (20%) limitation provided above shall be increased in the same amount that investments approved by the Insurance Commissioner are made in the following categories of investments provided that their principal operations or locations are located in this Commonwealth: (A) Investments in venture capital limited partnerships or in new and young small businesses which are making an initial public offering of securities or utilizing a limited private placement.(B) Investments in minority-owned-and-operated businesses as domiciles in Pennsylvania, as provided in the act of July 22, 1974 (P.L. 598, No. 206), known as the "Pennsylvania Minority Business Development Authority Act." (C) Investments in businesses located in enterprise zones designated by the Department of Community Affairs.(D) Investments in housing for families and persons of low income or in housing in enterprise zones designated by the Department of Community Affairs.(E) Investments in seed capital funds established pursuant to the provisions of the act of July 2, 1984 (P.L. 555, No. 111) , known as the "Small Business Incubators Act." (F) Investments in business development credit corporations established pursuant to the act of December 1, 1959 (P.L. 1647, No. 606), known as the "Business Development Credit Corporation Law." (G) Investments in small business investment corporations and minority enterprise small business investment companies certified pursuant to applicable Federal laws. However, in no event may the percentage limitation under this clause exceed the aggregate of twenty-five percentum (25%).
(ii) For each one-half percentum (.5%) of such company's admitted assets invested in categories (A) through (G) of subclause (i) of this clause whose principal operations or locations are located in this Commonwealth, investments under other clauses of this section may exceed the volume limitations set forth in such other clauses by an aggregate of two and one-half percentum (2.5%) of the company's admitted assets, but in no event may such excess investments exceed a maximum of five percentum (5%) of admitted assets; however, such excess investments shall be charged against the limitation established in subclause (i) of this clause.(iii) The Insurance Commissioner shall promulgate reasonable rules and regulations for transactions under this clause to include, but not be limited to, rules and regulations which impose financial solvency standards, valuation standards and reporting requirements.(b) No such company shall lend any of its funds on personal security except a loan for defraying, in whole or in part, the expenses of an employe transferred or about to be transferred to a new place of employment with such company.(c) Any such company may, with the approval of its board of directors, acquire, retain, cancel or dispose of shares of its own capital stock, provided that:(1) No such company shall acquire such stock without the prior approval of the Insurance Commissioner.(2) No such company shall effect a reduction in its capital stock without complying with the applicable provisions of law.(3) No such company shall directly or indirectly vote shares of its own stock held by it.1921, May 17, P.L. 682, No. 284, § 518-C, added 1989, Dec. 22, P.L. 755, No. 106, § 2, imd. effective. Amended 1992, Dec. 18, P.L. 1519, No. 178, § 13, effective in 120 days; 2004, Nov. 30, P.L. 1690, No. 216, § 5, imd. effective.