Nevada Administrative Code Chapter 682A - Insurance: Investments
✅ Nevada Administrative Code Chapter 682A – Insurance: Investments
1. Overview and Purpose
NAC Chapter 682A regulates the investment practices of insurance companies licensed to operate in Nevada. It implements provisions of the Nevada Revised Statutes (NRS) Chapter 682A, which governs the standards for how insurance companies may invest their funds.
The primary purposes of this chapter are to:
Ensure insurance companies invest in a safe, sound, and prudent manner.
Protect policyholders by limiting risky or inappropriate investments.
Provide transparency and oversight over insurers’ investment portfolios.
Promote the financial stability and solvency of insurance companies.
The Nevada Division of Insurance oversees enforcement of these investment regulations.
2. Scope and Applicability
Applies to all insurance companies licensed in Nevada.
Covers investments of assets that support insurance liabilities (e.g., reserves, surplus).
Includes both life and property/casualty insurers, though some provisions may vary by insurer type.
3. Key Provisions
a) Permissible Investments
NAC 682A specifies types of investments insurers may hold, which typically include:
Government securities (U.S. Treasury and agencies).
Bonds and other fixed-income securities meeting specified ratings.
Stocks subject to diversification and quality criteria.
Real estate investments under defined conditions.
Investments in affiliated companies are subject to limits.
Investments must comply with prudent person standards, emphasizing safety and liquidity.
b) Investment Limitations and Diversification
Limits on concentration of investments in any one issuer or type to prevent excessive risk.
Restrictions on investing in speculative or high-risk assets.
Requirements to maintain a diversified portfolio to protect policyholders.
c) Valuation and Reporting
Insurers must regularly value investments according to generally accepted accounting principles (GAAP) and regulatory guidelines.
Required to submit detailed reports of investment holdings to the Division of Insurance.
Disclosures include the nature, quality, and risk profile of investments.
d) Affiliated Investments and Transactions
Transactions with affiliates require special disclosure and are subject to limits.
Designed to prevent conflicts of interest and protect insurer assets from imprudent related-party dealings.
e) Compliance and Examinations
The Division conducts periodic examinations and audits to verify compliance with investment rules.
Violations can lead to orders to divest improper investments, fines, or other sanctions.
4. Relevant Case Law and Legal Principles
Nevada-specific case law directly interpreting NAC 682A is limited, but general legal principles from insurance regulation and fiduciary duty cases apply:
📌 Case Principle: Prudent Person Rule
Courts and regulators apply the prudent person standard to insurance investments, requiring insurers to invest with the care, skill, and caution a prudent person would exercise.
Investments must consider safety, liquidity, and yield relative to the insurer's obligations.
📌 Case Principle: Fiduciary Duty and Good Faith
Insurers have a fiduciary duty to policyholders to manage assets responsibly.
Breaches of this duty, including negligent or reckless investments, can result in regulatory penalties and civil liability.
📌 Case Principle: Regulatory Oversight
Courts uphold state insurance regulators’ authority to impose investment restrictions and enforce compliance to ensure solvency and protect consumers.
Decisions by regulators regarding improper investments are given deference if supported by evidence.
5. Practical Implications
| Stakeholder | Responsibilities / Impact |
|---|---|
| Insurance Companies | Must manage investment portfolios prudently, maintain diversification, and comply with reporting and valuation rules. |
| Policyholders | Benefit from the protections ensuring insurer solvency and secure backing of their policies. |
| Division of Insurance | Monitors insurer investments, conducts audits, and enforces compliance to protect the insurance market’s integrity. |
6. Summary
NAC Chapter 682A provides a detailed framework ensuring that insurance company investments in Nevada are conducted prudently, promoting financial stability and protecting policyholder interests. Key features include:
Clear rules on permissible investment types.
Limitations on risky or concentrated investments.
Requirements for valuation and reporting.
Oversight of affiliated transactions.
Enforcement mechanisms to ensure compliance.
Nevada courts support the Division of Insurance’s authority to regulate investments to maintain insurer solvency and market confidence.
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