Insurance regulation in a nutshell

Section III.9.Regulation of Investments

An insurer’s liabilities are not backed exclusively by cash but by invested assets – bonds, stocks, mortgages, real estate, foreign investments. In order to assure that an insurer’s investments are appropriate to support its liabilities, state insurance laws generally regulate the kinds and amounts of investments in which an insurer may invest. Most state insurance laws regulate the investments of domestic insurers but some also regulate the investments of foreign licensed insurers.³⁵
While many areas of state insurance regulation have been implemented using very similar rules (based on NAIC model laws that were adopted in the 1970s and 1980s or earlier), state insurance regulation of investments is not particularly uniform. This is due in large part to the fact that the NAIC has two model laws relating to insurer investments that were adopted in 1996 and 1997. These are the NAIC Investments of Insurers Model Act (Defined Limits Version) and the Investments of Insurers Model Act (Defined Standards Version).
The Insurers Model Act (Defined Limits Version) includes general standards for investments (general qualifications, authorization, prohibited investments and valuation of investments) and includes detailed rules on the kinds and amounts of permitted investments for life and property/casualty insurers.³⁶ The Investments of Insurers Model Act (Defined Standards Version) sets out general standards for investments (authorization and prudence) and provides for very broad classes of permitted investments subject to aggregate (and some individual) limitations for some categories.³⁷
Under New York law, life and property/casualty insurers have different investment authority for both non-subsidiary investments³⁸ and subsidiary investments.³⁹ The New York investment law for life insurers is generally viewed as more flexible than the investment law for property/casualty insurers.