I was recently asked to look into investment and disclosure requirements for health insurance companies authorized to issue policies in Hawaii. A summary follows:
Hawaii Law
Investment requirements for all insurance companies are addressed in the Article VI of the Hawaii Insurance Code, Haw. Rev. Stat. §431:6-101-6-602. Generally, any security or other investment purchased by an insurer must be interest bearing, a dividend or income paying; not in default; and purchased at or below its fair value. Haw. Rev. Stat. §431:6-104. Other than investments in general obligations of the United States or any State government, an insurer shall not hold any combination of investments or loans upon the security of obligations, property, and securities of any one entity aggregating an amount exceeding ten percent of the insurer’s assets. Haw. Rev. Stat. §431:6-105.
An incorporated insurer must invest its funds aggregating in amounts not less than sixty percent of its minimum required capital in cash or public obligations and in mortgage loans on real property. Haw. Rev. Stat. §431:6-201(a). Further, an insurer shall invest its funds aggregating not less than one hundred percent of its reserves required by the Insurance Code in cash or premiums in course of collection, or in investments eligible in accordance with Article VI. Haw. Rev. Stat. §431:6-201(b).
Permitted investments by the insurer are addressed in Haw. Rev. Stat. §§431:6-301 - 6:324. These include such items as public and corporate obligations, preferred or guaranteed stocks, common stocks, evidences of debt secured by mortgages or deeds of trust guaranteed or insured by the United States, security agreements, real property, savings accounts, and certificates of deposit, etc.
The insurer can also invest in "investment pools" with other insurers. Haw. Rev. Stat. §431:6-601. The statute sets forth the types of investments permitted by an investment pool. Haw. Rev. Stat. §431:6-601(b).
Prohibited investments include a company's own stock, securities issued by an insolvent corporation, or any investment which is determined by the commissioner to be designed to evade any prohibitions of Article VI. Haw. Rev. Stat. §431:6-401.
Finally, any investment must be approved by the insurance company's board of directors. Haw. Rev. Stat. §431:6-404.
Insurers file an annual report with the Insurance Commissioner that gives detailed information on investments. These reports are available to the public.
Employment Retirement Income Security Act (ERISA)
ERISA provides further regulation of the investment of funds held by a health insurer.
Under ERISA, a person is a fiduciary with respect to an employee benefit plan to the extent the person exercises any authority or control over the management or disposition of the plan's assets. 29 U.S.C. §1002(21). A plan fiduciary must discharge its duties with respect to an employee-benefit plan solely in the interest of the plan's participants and beneficiaries. 29 U.S.C. §1104(a)(1). This means the fiduciary must act:
- for the exclusive purpose of providing benefits to participants and beneficiaries, and defraying the reasonable expenses of administering the plan. 29 U.S.C. §1104(a)(1)(A).
- with the care, skill, prudence, and diligence that a prudent person acting in like capacity and familiar with such matters would use. 29 U.S.C. §1104(1)(1)(B).
- by diversifying the investments of the plan to minimize the risk of large losses, unless, under the particular circumstance, it is not prudent to diversify. 29 U.S.C. §1104(a)(1)(C).
- in accordance with the documents and instruments governing the plan to the extent those documents and instruments are consistent with the provisions of ERISA. 29 U.S.C. §1104(a)(1)(D).
ERISA does not establish any specific limitations on the amount or percentage of plan assets that may be invested in securities. However, the basic fiduciary standards impose restrictions on the amount of plan assets that may be invested in securities by establishing diversification requirements. 29 U.S.C. §1104(a)(1)(C).
ERISA prohibits some transactions, including transactions between a plan and a party in interest with respect to the plan. 29 U.S.C. §1106(a)(1). Further, a fiduciary may not deal with the assets of the plan in his or her own interest or for his or her own account. 29 U.S.C. §1106(b).
