SECTION 24. Ins 6.20 (6) (f) 3. to 5. are created to read:
Ins 6.20 (6) (f) 3. More than 10% of assets in any single mutual fund.
4. More than 10% of assets in any single exchange-traded fund.
5. More than 20% of assets in investments sponsored or managed by any single issuer or its affiliates with respect to mutual funds and exchange-traded funds.
SECTION 25. Ins 6.20 (6) (g) is repealed and recreated to read:
Ins 6.20 (6) (g) Transition and divestment. Except as provided under par. (e), a town mutual insurer shall comply with all of the following:
1. A town mutual insurer that holds investments permitted under par. (d) but no longer meets the minimum asset test of par. (c) may continue to hold such investments so long as the town mutual insurer holds investments in accordance with par. (b) in an amount that is no less than the sum of its liabilities plus the greatest of any of the following:
a. 75% of the net written premiums and assessments for the 12−month period ending December 31.
b. 33% of the direct written premiums and assessments for the 12−month period ending December 31.
c. $300,000.
2. A town mutual insurer shall divest of any investment which does not meet the requirements of pars. (b) to (f) due to decline in the rating of a bond, the insurer’s size, limitations on investments or any other reason, within three years of its noncompliance.
3. If at the time of purchase a town mutual insurer investment did not meet the requirements of pars. (b) to (f), then the town mutual insurer shall immediately divest of the investment.
SECTION 26. Ins 6.20 (6) (h) 4. a. to c., and (i) are created to read:
Ins 6.20 (6) (h) 4. a. If a town mutual insurer utilizes the services of an investment advisor, the town mutual shall have, and maintain, a written agreement with the investment advisor, that shall be approved by the board of directors. A separate agreement shall be entered into for each specific arrangement.
b. Each written agreement with an investment advisor shall include a description of the scope and nature of the services to be provided; the standard of care to be provided; how or whether the investment strategy, including asset allocations, and any applicable limitations, incorporates the board approved investment policy; the level of authority the advisor exercises over the insurer’s portfolio, whether discretionary or non-discretionary; a description of all types of compensation to the investment advisor; and a description as to how investment transactions, holdings, and portfolio performance will be communicated to the company’s board of directors, including the frequency, content and means of reporting.
c. An agreement under subpar. b. shall clearly state whether the investment advisor is, or is not, acting as a fiduciary with respect to the town mutual insurer. A fiduciary is someone whose conduct is subject to the fiduciary duty standard, as defined under applicable rules, regulations, or standards of conduct promulgated by the U.S. securities and exchange commission.
(i) Custody. In addition to the requirements of s. 610.23, Stats., the shares of any mutual fund in which a town mutual insurer invests may be held in the direct custody of the town mutual insurer, and the shares must be maintained either in book entry form with the mutual fund’s registrar and transfer agent, or in certificate form. If the town mutual insurer does not have direct custody of the shares, the shares shall be held in the custody of a bank or bank and trust company. SECTION 27. Ins 6.20 (8) (j), (k), (m), and (o) are repealed:
SECTION 28. Ins 6.20 (8g) and (8r) are created to read:
Ins 6.20 (8g) Foreign investments. An insurer, and in the case of insurers that are subject to special restrictions under s. 620.03, Stats., in accordance with any other rules applicable to them, may invest in foreign investments, in addition to investments authorized by s. 620.22 (1) to (7), Stats., that meet the following criteria and limitations: (a) An insurer with assets less than $500,000,000 as of the financial statement filing date may invest up to 1% of assets in direct obligations of foreign governments.
(b) An insurer with assets equal to at least $500,000,000 as of the financial statement filing date may invest up to 4% of assets in direct obligations of foreign governments that at the time of purchase have a 1 or 2 designation from the national association of insurance commissioners, or equivalent ratings by a NRSRO and, in addition, up to 1% of assets in the direct obligations of foreign governments without regard to ratings.
(c) An insurer with assets less than $500,000,000 as of the financial statement filing date may invest up to 2% of assets in loans, securities or investments of foreign issuers which are of substantially the same kinds, classes and investment grades as those eligible for investment under ch. 620, Stats., and supplementary rules. (d) An insurer with assets equal to at least $500,000,000 as of the financial statement filing date may invest up to 8% of assets in loans, securities or investments of foreign issuers which are substantially the same kinds, classes and investment grades as those eligible for investment under ch. 620, Stats, and supplementary rules. (e) All investments in a foreign country, foreign government, and foreign issuers are subject to all of the following aggregate limits:
1. All investments in a single foreign country, 4% of assets.
2. All investments of a single foreign issuer and its foreign issuer affiliates, 3% of assets.
3. All investments denominated in a single foreign currency, 5% of assets excluding investments under par. (f).
(f) An insurer doing business in a foreign country may invest in assets in that foreign country, or in that country’s currency, that are needed to meet the insurer’s obligations, provided the investment would be permitted if made in this state.
(g) An insurer are responsible for monitoring their compliance with individual and aggregate limitations on all investments in a foreign country, foreign government, and foreign issuer, including such investments held indirectly through mutual funds, and must maintain a record of all such investments, which shall be reconciled at least quarterly and be available for production upon the request of the commissioner.
(8r) Derivative instruments. An insurer, and in the case of an insurer that is subject to special restrictions under s. 620.03, Stats., to the extent other rules are applicable to them, may invest in derivative instruments in addition to investments authorized by s. 620.22 (1) to (7), Stats., provided all of the following requirements are met: (a) Derivative instrument contracts shall be entered into to protect the investment portfolio of an insurer against the risk of changing asset values or interest rates, to enhance its liquidity, to aid in cash flow management, as a substitute for cash market transactions, and for any other purpose consistent with the investment objectives for the assets of an insurer stated in s. 620.01, Stats. (b) The aggregate market value of all derivative instruments outstanding may not exceed 10% of the insurer's assets.
(c) An insurer may purchase put options or sell call options only with regard to derivative instruments or financial instruments owned by the insurer, or which may be obtained through the exercise of warrants or conversion rights held by the insurer.
(d) An insurer may purchase call options or sell put options on derivative instruments or financial instruments only if the amount of the instrument, which may be acquired upon exercise of the option, when aggregated with current holdings, would be an authorized investment under s. 620.22 (1) to (7), Stats., or this subsection, and would not exceed the limitations specified in s. 620.23, Stats., or this section. (e) The board of directors or its authorized committee shall first approve the insurer's plan relating to such investments, which plan must contain specific policy objectives and strategies, establish aggregate maximum limits in such investments and internal control procedures, and identify the duties, expertise and limits of authority of personnel authorized by the board of directors to engage in such transactions on behalf of the insurer.
(f) A copy of the insurer's plan shall be filed with the commissioner 30 days prior to its effective date. The commissioner may disapprove the plan within the 30-day period after receipt.
SECTION 29. Effective date. These changes will take effect on the first day of the month following publication in the Wisconsin Administrative Register, as provided in s. 227.22 (2) (intro.), Stats.
Dated at Madison, Wisconsin, this ___ day of June 2020.
Mark V. Afable
Commissioner
