Ins. Code, § 1196.1

(a) No domestic insurer shall acquire, directly or indirectly, any medium grade or lower grade obligation of any institution if, after giving effect to any such acquisition, the aggregate amount of all medium grade and lower grade obligations then held by the domestic insurer would exceed 20 percent of its admitted assets, provided that, (1) no more than 10 percent of its admitted assets consists of obligations rated four, five, or six by the Securities Valuation Office; (2) no more than 3 percent of its admitted assets consist of obligations rated five or six by the Securities Valuation Office; and (3) no more than 1 percent of its admitted assets consists of obligations rated six by the Securities Valuation Office. Attaining or exceeding the limit of any one category shall not preclude an insurer from acquiring obligations in other categories subject to the specific and multicategory limits.

(b) No domestic insurer may invest more than an aggregate of 1 percent of its admitted assets in medium grade obligations issued, guaranteed, or insured by any one institution nor may it invest more than one-half of 1 percent of its admitted assets in lower grade obligations issued, guaranteed, or insured by any one institution. In no event, however, may a domestic insurer invest more than 1 percent of its admitted assets in any medium or lower grade obligations issued, guaranteed, or insured by any one institution.

(c) Notwithstanding subdivision (a) or (b), a domestic insurer may acquire an obligation of an institution in which the insurer already has one or more obligations if the obligation is acquired in order to protect an investment previously made in the obligations of the institution; provided that all of those acquired obligations shall not exceed one-half of 1 percent of the insurer’s admitted assets.

(d) Nothing contained in this section; (1) shall prohibit a domestic insurer from acquiring an obligation as a result of a restructuring of a medium or lower grade obligation already held; or (2) shall require a domestic insurer to sell or otherwise dispose of any obligation legally acquired prior to the effective date of this section.

(e) The board of directors of any domestic insurer that acquires or invests, directly or indirectly, more than 2 percent of its admitted assets in medium grade and lower grade obligations, shall adopt a written plan for the making of that investment. The plan, in addition to guidelines with respect to the quality of the issues invested in, shall contain diversification standards including, but not limited to, standards for issuers, industry duration, liquidity, and geographic location.

(f) As used in this section:

(1) “Medium grade obligations” means obligations which are rated three by the Securities Valuation Office of the National Association of Insurance Commissioners.

(2) “Lower grade obligations” means obligations which are rated four, five, or six by the Securities Valuation Office of the National Association of Insurance Commissioners.

(3) “Admitted assets” means the amount shown as of the last day of the most recently concluded annual statement year, computed in the manner prescribed by the commissioner.

(4) “Aggregate amount of medium grade and lower grade obligations” means the aggregate statutory statement value of the obligation.

(5) “Institution” means (A) any corporation, business trust, or limited partnership organized under the laws of any state of the United States, District of Columbia, the Dominion of Canada, any province of the Dominion of Canada or (B) an authority established pursuant to the California Industrial Development Financing Act, Title 10 (commencing with Section 91500) of the Government Code.