You asked for a discussion on the state and federal laws restricting insurance company investments, particularly with regard to investments in real estate, real estate trust, and mortgage-secured debts. It does not appear that there are any federal restrictions that apply specifically to insurance company investments, although there are laws of general applicability, such as Securities and Exchange Commission regulations, that may be relevant.

Connecticut statutes permit domestic insurance companies to make or acquire investments that are prudent given their business and diversification considerations. However, the statutes also impose certain limitations and prohibitions, as provided under CGS §§ 38a-102 to 38a-102h, inclusive (enclosed).

Under CGS § 38a-102c a domestic insurer (one organized under Connecticut law) may invest (1) up to 5% of its admitted assets in any single real estate investment or other tangible investment and (2) up to 10% of admitted assets in the aggregate in (A) tangible investments and non-income-producing real estate and (B) that portion of any loan secured by mortgages or other interests in real estate that have a loan-to-value ratio of more than 75% (CGS § 38a-102c(f)). Admitted assets are total investments of up to 150% of the limits set in CGS §§ 38a-102 to 38a-102h. A "real estate investment" is any interest in real estate including, among other things, a direct equity, joint venture, or partnership interest, or an interest in obligations secured by a mortgage or deed of trust. Real estate investments do not include investments in subsidiaries. (Under CGS § 38a-82, a domestic life insurance company may improve any real estate obtained in conformity to law whether it is located in Connecticut or another state.)

There are additional restrictions on the proportion of assets that are invested in (1) corporate and government obligations; (2) foreign investments, including foreign real estate; and (3) common and preferred stock and other equity investments (CGS § 38a-102c(a) –(e)). The eligibility of a specific investment is determined when it is made or acquired and any applicable limitation is based on the company's annual financial statement as of the preceding December 31^st.

The Insurance commissioner can create exemptions from these limitations and prohibitions, consistent with the preservation of the financial integrity of insurance companies for their policyholders. Any instrument or collateral taken by a domestic insurer as a result of adverse financial circumstances affecting an investment is not considered a new investment for purposes of these limitations and prohibitions (CGS § 38a-102).

Every insurer domiciled in this state must file a report with the commissioner disclosing material acquisitions and dispositions of assets unless they have been submitted to the commissioner for review, approval or information purposes under other provisions of the law. For this purpose, acquisitions include purchases, leases, and other transactions, but not the construction or development of real property by or for the reporting insurer. The report must be made within 15 days after the end of the month when the transactions occurred (CGS § 38a-67).

CGS § 38a-92i requires financial guaranty insurance corporations to maintain capital, surplus and contingency reserve in certain types and amounts of assets. Among these, are that at least 3% of the total net liability under guaranties must be in non-investment grade obligations secured by first mortgages on commercial real estate and having loan-to-value ratios of 80% or less. (Commercial real estate is income-producing real property other than residential property consisting of fewer than five units.) But, no more than 10% of corporation's aggregate of its capital, surplus, and contingency reserve can come from the insured unpaid principal of obligations that do not meet the definition of asset-based securities, are issued by a single entity, and secured by commercial real estate, less 50% of the appraised value of the underlying real estate (CGS § 38a-92(j)(3)).

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