2023 Arizona Revised Statutes › Title 20 - Insurance › § 20-481.01 - Investment limitations; exemptions

20-481.01.
Investment limitations;  exemptions
A. Any domestic insurer,  either by itself or in cooperation with one or more persons,  may organize or acquire one or more subsidiaries subject to the limitations of this article. Such subsidiaries may conduct any kind of business or businesses and the authority to do so shall not be limited by reason of the fact that such subsidiaries are subsidiaries of a domestic insurer.
B. In addition to investments in common stock,  preferred stock,  debt obligations and other securities permitted under all other sections of this title,  a domestic insurer,  pursuant to subsection A of this section,  may:
1. Invest in common stock,  preferred stock,  debt obligations and other securities of one or more subsidiaries in amounts that do not exceed the lesser of ten per cent of such insurer's assets or fifty per cent of such insurer's surplus as regards policyholders,  provided that after such investments the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs. In calculating the amount of such investments,  investments in domestic or foreign insurance subsidiaries and health care service organizations shall be excluded,  and there shall be included total net monies or other consideration expended and obligations assumed in the acquisition or formation of a subsidiary including all organizational expenses and contributions to capital and surplus of such subsidiary whether or not represented by the purchase of capital stock or issuance of other securities,  and all amounts expended in acquiring additional common stock,  preferred stock,  debt obligations,  and other securities and all contributions to the capital or surplus,  of a subsidiary subsequent to its acquisition or formation.
2. Invest any amount in common stock,  preferred stock,  debt obligations and other securities of one or more subsidiaries that is engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if each subsidiary agrees to limit its investments in any asset so that such investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations specified in paragraph 1 of this subsection or in chapter 3,  article 2 of this title,  applicable to the insurer. For the purpose of this paragraph,  " the total investment of the insurer"  includes any direct investment by the insurer in an asset and the insurer's proportionate share of the investment in an asset by any subsidiary of the insurer,  which shall be calculated by multiplying the amount of the subsidiary's investment by the percentage of the insurer's ownership of such subsidiary.
3. With the approval of the director,  invest any greater amount in common stock,  preferred stock,  debt obligations or other securities of one or more subsidiaries,  provided that after such investment the insurer's surplus as regards policyholders will be reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs.
C. Investments in common stock,  preferred stock,  debt obligations or other securities of subsidiaries made pursuant to subsection B of this section are not subject to any of the otherwise applicable restrictions or prohibitions contained in this title applicable to such investment of insurers.
D. Whether any investment pursuant to subsection B of this section meets the applicable requirements is to be determined before the investment is made by calculating the applicable investment limitations as if the investment had already been made,  taking into account the then outstanding principal balance on all previous investments in debt obligations,  and the value of all previous investments in equity securities as of the date they were made,  net of any return of capital invested,  not including dividends.
E. If an insurer ceases to control a subsidiary,  it shall dispose of any investment in the subsidiary made pursuant to this section within three years from the time of the cessation of control or within such further times as the director may prescribe,  unless at any time after such investment has been made,  such investment has met the requirements for investment under any other section of this title,  and the insurer has so notified the director.
F. For the purposes of this section,  in determining whether an insurer's surplus as regards policyholders is reasonable in relation to the insurer's outstanding liabilities and adequate to its financial needs,  the following factors shall be considered:
1. The quality and liquidity of investments in affiliates. The director may treat any investment as a disallowed asset for purposes of determining the adequacy of surplus as regards policyholders if in the judgment of the director the investment warrants it.
2. The size of the insurer as measured by its assets,  capital and surplus,  reserves,  premium writings,  insurance in force and other appropriate criteria.
3. The extent to which the insurer's business is diversified among the several lines of insurance.
4. The number and size of risks insured in each line of business.
5. The extent of the geographical dispersion of the insurer's insured risks.
6. The nature and extent of the insurer's reinsurance program.
7. The quality,  diversification and liquidity of the insurer's investment portfolio.
8. The recent past and projected future trend in the size of the insurer's surplus as regards policyholders.
9. The surplus as regards policyholders maintained by other comparable insurers.
10. The adequacy of the insurer's reserves.