CHAPTER 165

AN ACT to amend and reenact §§ 88-897, 38-898 and 88-412
of the Code of Virginia of 1950, relating to investment of
funds by domestic life insurance companies. rH

136

Approved March 11, 1950

Be it enacted by the General Assembly of Virginia:
1. That Sections 38-397, 38-398 and 38-412 of the Code of Vir-
ginia of 1950 be amended and re-enacted as follows:

§ 38-397. Investment of funds.—No domestic stock life
insurance company shall invest its funds or assets, exclusive of
its capital in excess of one hundred thousand dollars and its sur-
plus in excess of fifty thousand dollars, nor shall any domestic
mutual life insurance company invest its funds or assets, except

(1) In bonds, or other evidences of indebtedness, not in
default as to principal or interest, which are valid and legally
authorized obligations issued, assumed or guaranteed by the
United States or by any state thereof or by any territory or pos-
session of the United States or by the District of Columbia or
by any county, city, town, village, municipality or district there-
in or by any political subdivision thereof or by any civil division
or public instrumentality of one or more of the foregoing, if, by
statutory or other legal requirements applicable thereto, such
obligations of such civil division or public instrumentality are
payable, as to both principal and interest, from taxes levied or
by such law required to be levied upon all taxable property or
all taxable income within the jurisdiction of such governmental
unit or from adequate special revenues pledged or otherwise
appropriated or by such law required to be provided for the
purpose of such payment, but not including any obligations
payable solely out of special assessments on properties benefited
by local improvements ;
(2) In bonds of the Dominion of Canada or of any prov-
ince thereof or of any municipality thereof having a population
of at least one hundred thousand, or bonds fully guaranteed as
to payment of principal and interest by the Dominion of Canada,
provided such bonds are payable both as to principal and in-
terest in lawful money of the United States, and provided that
the total investments under this paragraph (2) shall not exceed
ten per centum of the investing company’s assets;

(2a) In obligations issued or guaranteed by the Inter-
national Bank for Reconstruction and Development, provided
that the total investments under this paragraph (2a) shall not
exceed five per centum of the investing company’s assets ;

(3) In interest bearing bonds of any solvent institution
which is incorporated under the laws of the United States, or
of any state thereof, or the Dominion of Canada or any province
thereof when:

(a) Such bonds are secured by adequate security or col-
lateral, at least two-thirds in value of which security or collateral
shall be other than common stock,

(b) Such corporation has not during any time within five
years next preceding such investment defaulted in the payment
of interest on such bonds,

(c) For the five fiscal years preceding such investment the
average net annual income of such corporation, before interest
charges but after taxes, including income taxes, and after
deducting proper charges for replacements, depreciation and
obsolescence, has been at least one and one-half times the aver-
age annual interest for the same period on such issue of bonds,
on prior obligations and on obligations of equal rank, or, in the
case of issuance of new bonds such average net annual income
for the five years preceding such investment has been at least
one and one-half times the pro forma annual interest on the new
bonds, on prior obligations and on bonds of equal rank,

(d) The total investment in any one issue of bonds under
this paragraph (3) does not exceed two per centum of the in-
vesting company’s assets,

(e) Such bonds, if issued by a Canadian corporation, are
payable both as to principal and interest in lawful money of the
United States, and

(f) The total investments under this paragraph (3) in
bonds of Canadian corporations do not exceed ten per centum
of the investing company’s assets;

(4) In adequately secured equipment trust certificates or
other adequately secured instruments evidencing an interest in
railroad transportation equipment, wholly or in part within the
United States, and a right to receive determined portions of
rental, purchase or other fixed obligatory payments for the use
or purchase of such transportation equipment;

(5) In the bonds, debentures or notes of any solvent in-
stitution incorporated under the laws of the United States, or
of any state thereof (though such bonds, debentures or notes be
not secured as provided by paragraph (8) of this section) when:

(a) Such institution, after taxes, including income taxes,
and after deducting proper charges for replacements, deprecia-
tion and obsolescence, has not failed in any one of the three fiscal
years next preceding such investment, to have earned a sum
applicable to interest on its outstanding indebtedness equal at
least to twice the amount of interest due for that year, or in
the case of new issues such earnings applicable to interest are
equal to at least twice the amount of pro forma annual interest
on such institution’s obligations after giving effect to such new
financing, and

(b) The total investment in any issue of bonds, debentures
or notes under paragraph * (5) of this section does not exceed
two per centum of the investing company’s assets;

(6) In bonds secured by first mortgage upon terminal,
depot or tunnel property, including lands, buildings and appur-
tenances, used in the service of transportation by one or more
railroad corporations the bonds, debentures or notes of which
are eligible as investments under either paragraph (3) or para-
graph (5) of this section, provided that such bonds be the
direct obligation of, or that payment of principal and interest
thereof be guaranteed by endorsement by, or guaranteed by en-
dorsement which guaranty has been assumed by, one or more
railroad corporations whose bonds, debentures or notes are eligi-
ble as investments under either paragraph (3) or paragraph (5)
of thts section; and provided, further, that if the guarantee or
assumption of guarantee is by two or more railroad corporations
it shall be joint and several as to each;

(7) In preferred stock of any solvent institution incorpo-
rated under the laws of the United States, or of any state thereof,
when:

(a) Such institution has not failed in any one of the three
fiscal years next preceding such investment, to have earned a
sum applicable to dividends on such preferred stock equal at
least to three times the amount of dividends due in that year,
or, in case of issuance of new preferred stock, such earnings ap-
plicable to dividends are equal at least to three times the amount
of pro forma annual dividend requirements after giving effect
to such new financing,

(b) The bonds, debentures or notes, if any, of such insti-
tution, are eligible as investments under the provisions of para-
graph (5) of this section, and
(c) The total investment in any one issue of such preferred
stock does not exceed one per centum of the investing company’s
assets ;

(8) In stocks guaranteed by any solvent institution incorpo-
a perplamaeaal the laws of the United States, or any state thereof,
when:

(a) The guaranteeing corporation has not failed in any one
of the three fiscal years next preceding such investment to have
earned a sum applicable to interest on outstanding indebtedness
and dividends on all guaranteed stocks equal to at least twice
the amount of interest and guaranteed dividends due for that
year, and

(b) The total investment in any one issue of such guaran-
teed stock does not exceed one per centum of the investing com-
pany’s assets;

(9) In loans secured by mortgages (including security
deeds, vendors’ liens and deeds of trust) in fee on improved un-
encumbered real estate in the District of Columbia or in any
state of the United States when the amount of any such loan
does not exceed sixty-six and two-thirds per centum of the fair
market value of the real estate securing same as determined by
at least two competent * appraisers, except that any such loan
may exceed sixty-six and two-thirds per centum of such fair
market value to the extent that such loan is guaranteed by the
Administrator of Veterans’ Affairs under the provisions of Title
III of an Act of the Congress of the United States, approved
June twenty-second, nineteen hundred and forty-four, entitled
the “‘Servicemen’s Readjustment Act of nineteen hundred and
forty-four’, as heretofore or hereafter amended; or in mortgage
loans guaranteed or insured by the Federal Housing Adminis-
trator under the terms of an Act of Congress of the United
States of June twenty-seventh, nineteen hundred and thirty-four,
entitled the “National Housing Act” as heretofore or hereafter
amended ; |

(10) In loans secured by mortgages (including security
deeds, vendors’ liens and deeds of trust) upon leaseholds for a
term of ninety-nine years or longer on improved unencumbered
real estate in the District of Columbia or in any state of the
United States when:

(a) The amount loaned on such leasehold does not exceed
fifty per centum of the fair market value of the leasehold estate,
as determined by at least two competent * appraisers, and

(b) At least fifty years of the term is unexpired.

Except that any such loan may exceed fifty per centum of
such fair market value to the extent that such loan is guaranteed
by the Administrator of Veterans’ Affairs under the provisions
of Title III of an Act of the Congress of the United States, ap-
proved June twenty-second, nineteen hundred and forty-four,
entitled the ‘‘SServicemen’s Readjustment Act of nineteen hun-
dred and forty-four”, as heretofore or hereafter amended ;

(11) In loans secured by mortgages (including security
deeds, vendors’ liens and deeds of trust) on real estate or an
interest in real estate, when:

(a) Such real estate is in the District of Columbia or in
any state of the United States and

(b) Such loan is fully guaranteed by the Administrator of
Veterans’ Affairs, pursuant to the provisions of Title III of an
Act of Congress of the United States, approved June twenty-
second, nineteen hundred and forty-four, entitled the ‘‘Service-
men’s Readjustment Act of nineteen hundred and forty-four”
as heretofore or hereafter amended;

(12) In loans to any policyholder upon the security of the
value of his policy, the amount of which loan does not exceed the
lawful reserve which is held thereon;

(13) In securities in conformity to the laws of a foreign
country (including possessions of the United States) in which
it may be doing business, such foreign securities to be substan-
tially of the same kinds, classes and investment grades as such
company is allowed by law to acquire in the United States, and
not to exceed in amount the investing company’s obligations in
such foreign country ; ;

(14) In loans upon the pledge of any of the aforesaid
securities in an amount which does not exceed eighty per centum
of the market value thereof;

(15) In real estate used or held for home office purposes,
or requisite for convenient accommodation in the transaction of
its business, or acquired:

(a) In satisfaction of debts previously owing to the invest-
ing company in the transaction of its business,

(b) At sales on judgments or decrees obtained for such
debts,

(c) Upon foreclosure of mortgage loans owned by it,

(d) When necessary or convenient for the purpose of en-
hancing the sale value of real property theretofore owned by
it, or

(e) In part payment of the consideration of the sale of
other real property owned by it if such transaction shall effect
a net reduction in the amount in dollars of the company’s invest-
ment in real property ;

(16) In real estate acquired by the company on or before
December thirty-first, nineteen hundred and forty-nine, for the
purpose of improving the same to provide decent, safe and sani-
tary dwelling accommodations for persons of low and moderate
income, which will tend to relieve the emergency in the housing
situations in large cities and their environs, such real estate
being located in a state (including in the term “state” the Dis-
trict of Columbia) in which the company is doing the business
of life insurance, and in or within ten miles of a city (including
in the term “city” the District of Columbia) in the United States
having a population according to the last preceding United
States census of one hundred thousand or more, and in the erec-
tion on such real estate of apartment, tenement and other dwell-
ing houses, not including hotels, comprising buildings sufficient
for the accommodation of not less than two hundred and not
more than twenty-five hundred families, and, in conjunction
therewith, in the erection of buildings for the accommodation
of retail stores, shops, offices and other community services rea-
sonably incident to such apartment, tenement and other dwell-
ing houses, when, in any such case:

(a) The total investment of any company under this para-
graph (16) shall not exceed ten per centum of its assets,

The investment made by any company pursuant to
this paragraph (16) will not cause such company’s investment
in all real property owned by it to exceed fifteen per centum of
its assets and all real property owned by such company does
not equal or exceed fifteen per centum of its assets and,

(c) The company shall have applied for and secured from
the Commission an authorization for such investment under the
provisions of Section 38-399; .

(17) In real estate acquired for the purpose of leasing the
same to any person for a period of not less than twenty years, or
in real estate already leased for an unexpired period of not less
than fifteen years of an original period of not less than twenty
years, under the following terms and conditions:

(a) That the lessee shall at his own cost erect, or that there
has already been erected, thereon free of liens a building or
other improvements costing an amount at least equal to the value
of such real estate exclusive of improvements; but if the lease
be entered into simultaneously with the purchase of the real es-
tate, the lessor may agree to erect such improvements on such
real estate;

(b) That such improvements shall remain on such property
during the period of the lease, with provision when such im-
provements are put upon such property at the cost of the lessee
that at the termination of the lease the ownership of such im-
provements free of liens shall vest in the owner of the real
estate;

(c) That the lessee shall during the term of the lease, or
the unexpired period of the lease if the property be bought sub-
ject to the lease, pay to the owner of the real estate rent in such
amount as will enable the owner to write off the investment at
or before the normal termination of the lease, or at or before
the end of fifty years should the lease, or the unexpired period
of the lease, be for a longer period than fifty years; and

(d) That during the term of the lease the tenant shall pay
all taxes and assessments levied on or against such real estate,
including improvements, shall keep and maintain such improve-
ments in good repair and shall provide and maintain for the
benefit of the lessor fire insurance on such improvements at
least equal to the insurable value of the improvements, or at
least equal to the amount invested by the lessor in such real
estate, whichever is less;

(18) In real estate acquired or held as an investment for
the production of income. Such real estate may include real
estate on which there has been completed, in whole or in part,
or 1s to be constructed, any housing development or project to
provide decent, safe and sanitary dwelling accommodations, but
shall not include property to be used primarily for agricultural,
horticultural, ranch, mining, recreational, amusement, hotel or
club purposes. The company may improve or otherwise develop
im any manner such real estate and the improvements thereon.

The term “real estate” as used in this paragraph (18)
shall include a leasehold of real estate having an unexpired term
of not less than twenty years. |

No company shall, in any period of twelve consecutive
months, invest in or agree to pay for real estate, including im-
provements thereon, under the authority of this paragraph (18)
an aggregate amount in excess of two per cent of its assets as
shown on its most recent annual statement; nor shall the total
value of real estate or improvements thereon exclusive of real
estate used or held for home office purposes acquired or held
by a company for the production of income under the provisions
of this paragraph (18) at any time exceed five per cent of its
assets. No investment shall be made by any company pursuant
to this paragraph (18) if such company then owns real estate
having a total value in excess of fifteen per centum of its said
assets or if such investment will cause the company’s aggregate
investment in real estate owned by it to exceed fifteen per
centum of its said assets.

Each investment made under provision of this paragraph
(18) shall be valued on the books of the company as of the 31st
day of December of each year at an amount that will include a
writedoun of the cost of such property including improvements,
ata rate that will average not less than 2 per centum per annum
of such cost for each year or part thereof that the property has
been so held; income produced by an investment in any lease-
hold under the provision of this paragraph (18) shall be applied
by such company in a manner calculated to amortize the amount
invested for acquisition and improvement thereof within a pe-
riod not exceeding eight-tenths of such unexpired term of the
leasehold following such acquisition or improvement, or within a
period of forty years thereafter, whichever is less.

A company may, subject to the limitations and conditions
of this paragraph (18), elect to hold property acquired as speci-
fied in paragraphs (15) and (17), as real estate for the produc-
tion of income as defined in this paragraph (18). Such election
shall be duly authorized and recorded by the board of directors
or by a committee thereof charged with the duty of supervising
loans or investments.

§ 38-398. When real estate, acquired under paragraph (17)
of Section 38-397, an investment.—Real estate acquired pursuant
to the provisions of paragraph (17) of Section 38-397 shall not
be treated as an investment thereunder unless and until the
improvements therein required shall have been constructed and
the lease agreement entered into in accordance with the terms
of such paragraph; but if the lessee be a corporation the bonds,
debentures, notes or preferred stock of which are eligible as in-
vestments under either paragraph (5) or paragraph (7) of such
section, the requirements of such paragraph (17) as to the erec-
tion of improvements by the lessee, the cost of such improve-
ments and the vesting of ownership of such improvements in the
owner of the real estate shall not be applicable.

The amount at which real estate acquired pursuant to said
paragraph (17) shall be treated as an investment thereunder
shall not exceed the amount actually invested reduced each year
by * such amounts as will suffice to write off completely the in-
vestment at the normal termination of the lease or at the end
of fifty years should the term of the lease, or the unexpired pe-
riod of the lease, be for a longer period than fifty years.

The total investments of any company under said paragraph
(17) shall not exceed five per centum of its assets. No
investment shall be made by any company pursuant to said
paragraph (17) which will cause such company’s investment
in all real property owned by it to exceed fifteen per centum of
its assets or when all real property owned by such company
equals or exceeds fifteen per centum of its assets.

§ 38-412. Operation, sale, etc., of property acquired pur-
suant to article—Any company may, subject to any applicable
limitations and restrictions set forth in this article, own, hold,
maintain, manage, operate, lease, collect and receive income
from, sell and convey any property acquired by such company
pursuant to or as permitted by this article.