Federal regulators want to help keep fluctuations in operating profits from turning managed care companies into accidental investment companies.[@@]
The U.S. Securities and Exchange Commission reports it has received an application for relief from a group of 7 health maintenance organizations owned by PacifiCare Health Systems Inc., Cypress, Calif.
The Investment Company Act of 1940 normally requires the SEC to treat companies that get more than 45% of their net income from investments in stock and corporate bonds and invest more than 45% of their assets in stock and corporate bonds as investment companies.
Investment companies must comply by publishing detailed reports about their investment holdings.
PacifiCare says its HMOs have a hard time staying out of the investment company classification because they experience wide swings in earnings and need large investment portfolios to protect against underwriting risk.
The Investment Company Act of 1940 excludes insurance companies with large stock and corporate bond holdings from the investment company category.
The HMOs are not insurance companies, but their investment portfolios are similar to insurance company investment portfolios, PacifiCare says.