2023 District of Columbia Code › Title 31 - Insurance and Securities › Chapter 13A - Investments of Insurers › Subchapter III - Fire, Casualty, and Marine Insurers › § 31–1373.08. Mortgage loans and real estate

§ 31–1373.08. Mortgage loans and real estate.
(a)(1) Subject to the limitations of § 31-1373.03, an insurer may acquire, directly or indirectly, through limited partnership interests and general partnership interests not otherwise prohibited by § 31-1371.05, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by a first mortgage on real estate situated within a domestic jurisdiction; provided, that a mortgage loan which is secured by a subordinate lien shall not be acquired unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority, shall not, at the time of acquisition of the obligation, exceed:
(A) Ninety percent of the fair market value of the real estate if the mortgage loan is secured by a purchase money mortgage or like security received by the insurer upon disposition of the real estate;
(B) Eighty percent of the fair market value of the real estate if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period not exceeding 30 years, periodic payments made no less frequently than annually; provided, that:
(i) Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall be not greater than the outstanding principal balance which would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period;
(ii) Mortgage loans permitted under this paragraph shall be permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan;
(iii) For residential mortgage loans, the 80% limitation shall be 97% if acceptable private mortgage insurance has been obtained; or
(C) Seventy-five percent of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraphs (A) or (B) of this paragraph.
(2) For purposes of paragraph (1) of this subsection, the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.
(3) A mortgage loan that is held by an insurer under § 31-1371.03(f) or acquired under this section and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual, or successor publication, shall continue to qualify as a mortgage loan.
(4) Subject to the limitations of § 31-1373.03, credit lease transactions that do not qualify for investment under § 31-1373.04 shall be exempt from the provisions of paragraph (1) of this subsection if their terms are as follows:
(A) The loan balance at the end of the initial term of the lease will not exceed the original appraised value of the real estate;
(B) The lease payments equal or exceed the total debt service over the term of the loan;
(C) A tenant or its affiliated entity whose rated credit instruments have a SVO 1 or 2 designation or a comparable rating from a nationally recognized statistical rating organization recognized by the SVO is obligated to make the lease payments;
(D) The insurer holds, or is the beneficial holder of, a first lien mortgage on the real estate;
(E) The expenses of the maintenance and operation of the real estate, excluding exterior, structural, parking, and heating, ventilation and air conditioning replacement expenses, are passed through to the tenant, or annual escrow contributions from the lease payments equal or exceed the deficiencies in any such expense; and
(F) There is a perfected assignment of the rents due under the lease to, or for the benefit of, the insurer.
(b)(1) An insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction, directly or indirectly, through limited partnership interests and general partnership interests not otherwise prohibited by § 31-1371.05, joint ventures, stock of an investment subsidiary, membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income-producing or intended for improvement or development for investment purposes under an existing program.
(2) The real estate may be subject to mortgages, liens, other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens, or encumbrances are nonrecourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection (d)(2) and (d)(3) of this section.
(c)(1) An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the business operations, including home office, branch office, and field office operations of the insurer, its affiliates, or subsidiaries.
(2) Real estate acquired under this subsection may include excess space for rent to others if the excess space, valued at its fair market value, would otherwise be a permitted investment under subsection (b) of this section and is so qualified by the insurer.
(3) The real estate acquired under this subsection may be subject to one or more mortgages, liens, or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens, or encumbrances are nonrecourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with subsection (d)(4) of this section.
(4) For purposes of this subsection, business operations shall not include that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively. An insurer may acquire real estate used for these purposes under subsection (b) of this section.
(d)(1) An insurer shall not acquire an investment under subsection (a) of this section if, as a result of and after giving effect to the investment, the aggregate amount of all investments held by the insurer under subsection (a) of this section would exceed:
(A) One percent of its admitted assets in mortgage loans covering any one secured location;
(B) One quarter of one percent of its admitted assets in construction loans covering any one secured location; or
(C) One percent of its admitted assets in construction loans in the aggregate.
(2) An insurer shall not acquire an investment under subsection (b) of this section if, as a result of and after giving effect to the investment and any outstanding guarantees made by the insurer in connection with the investment, the aggregate amount of investments held by the insurer under subsection (b) of this section plus the guarantees then outstanding would exceed:
(A) One percent of its admitted assets in one parcel or group of contiguous parcels of real estate; provided, that this limitation shall not apply to that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, such as hospitals, medical clinics, medical professional buildings, or other health facilities used for the purpose of providing health services; or
(B) The lesser of 10% of its admitted assets or 40% of its surplus as regards policyholders in the aggregate as to properties that are to be improved or developed; provided, that for an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95% of total premium considerations or total statutory required reserves, respectively, this limitation shall be increased to 15% of its admitted assets in the aggregate.
(3) An insurer shall not acquire an investment under subsection (a) or (b) of this section if, as a result of and after giving effect to the investment and any guarantees it has made in connection with the investment, the aggregate amount of all investments held by the insurer under subsections (a) and (b) of this section, and the guarantees then outstanding would exceed 25% of its admitted assets.
(4) The limitations of § 31-1373.03 shall not apply to an insurer’s acquisition of real estate under subsection (c) of this section. An insurer shall not acquire real estate under subsection (c) of this section if, as a result of and after giving effect to the acquisition, the aggregate amount of all real estate held by the insurer under subsection (c) of this section would exceed 10% of its admitted assets. With the permission of the Commissioner, additional amounts of real estate may be acquired under subsection (c) of this section.
(Apr. 11, 2003, D.C. Law 14-297, § 308, 50 DCR 330.)
Section References
This section is referenced in § 31-1371.03 and § 31-1373.06.