Section 376.292

Title XXIV BUSINESS AND FINANCIAL INSTITUTIONS

Chapter 376

Effective - 28 Aug 2007   

  376.292.  Definitions. — As used in sections 376.291 to 376.307, the following terms mean:

  (1)  "Acceptable collateral", as to securities lending repurchase and reverse repurchase transactions, any financial assets of a type for which, when taken as collateral by an insurer in such transactions, would permit the subject securities or repurchase agreements, as the case may be, to constitute admitted assets of the insurer under the relevant statutory accounting principles promulgated from time to time by the NAIC as adopted by the director;

  (2)  "Acceptable private mortgage insurance", insurance written by a private insurer protecting a mortgage lender against loss occasioned by a mortgage loan default and issued by a licensed mortgage insurance company with an SVO "1" designation or a rating issued by a nationally recognized statistical rating organization equivalent to an SVO "1" designation that covers losses to an eighty percent loan-to-value ratio;

  (3)  "Accident and health insurance", protection that provides payment of benefits for covered sickness or accidental injury, excluding credit insurance, disability insurance, accidental death and dismemberment insurance, and long-term care insurance;

  (4)  "Accident and health insurer", a licensed life or health insurer or health service corporation whose insurance premiums and required statutory reserves for accident and health insurance constitute at least ninety-five percent of total premium considerations or total statutory required reserves, respectively;

  (5)  "Admitted assets", assets permitted to be reported as admitted assets on the statutory financial statement of the insurer most recently required to be filed with the director but excluding assets of separate accounts;

  (6)  "Affiliate", as to any person, another person that, directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the person;

  (7)  "Asset-backed security", a security or other instrument, excluding shares in a mutual fund, evidencing an interest in or the right to receive payments from, or payable from distributions on an asset, a pool of assets, or specifically divisible cash flows which are legally transferred to a trust or another special purpose bankruptcy-remote business entity on the following conditions:

  (a)  The trust or other business entity is established solely for the purpose of acquiring specific types of assets or rights to cash flows, issuing securities and other instruments representing an interest in or right to receive cash flows from those assets or rights, and engaging in activities required to service the assets or rights and any credit enhancement or support features held by the trust or other business entity; and

  (b)  The assets of the trust or other business entity consist solely of interest-bearing obligations or other contractual obligations representing the right to receive payment from the cash flow from the assets.  However, the existence of credit enhancements, such as letters of credit or guarantees or support features, such as swap agreements, shall not cause a security or other instrument to be ineligible as an asset-backed security;

  (8)  "Business entity", a sole proprietorship, limited liability company, association, partnership, joint stock company, joint venture, mutual fund, trust, joint tendency, or other similar form of business organization, whether organized for profit or not for profit;

  (9)  "Capital and surplus", the sum of the capital and surplus of the insurer required to be shown on the statutory financial statement of the insurer most recently required to be filed with the director;

  (10)  "Cash equivalents", short-term, highly rated, and highly liquid investments or securities readily convertible to known amounts of cash without penalty and so near maturity that they present insignificant risk of change in value.  Cash equivalents include government money market mutual funds and class one money market mutual funds.  For purposes of this subdivision:

  (a) "Short-term" means investments with a remaining term to maturity of ninety days or less; and

  (b)  "Highly rated" means an investment rated "P-1" by Moody's Investors Service, Inc., or "A-1" by Standard and Poor's division of The McGraw Hill Companies, Inc., or its equivalent rating by a nationally recognized statistical rating organization recognized by the SVO;

  (11)  "Class one bond mutual fund", a mutual fund that at all times qualifies for investment using the bond class one reserve factor under the Purpose and Procedures of the Securities Valuation Office or any successor publication;

  (12)  "Class one money market mutual fund", a money market mutual fund that at all times qualifies for investment using the bond class one reserve factor under the Purpose and Procedures of the Securities Valuation Office or any successor publication;

  (13)  "Code", this chapter and chapters 374, 375, and 382;

  (14)  "Commercial mortgage loan", a loan secured by a mortgage other than a residential mortgage loan;

  (15)  "Construction loan", a loan less than three years in term made for financing the cost of construction of a building or other improvement to real estate that is secured by the real estate;

  (16)  "Control", the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, other than a commercial contract for goods or nonmanagement service, or otherwise, unless the power is the result of an official position with or corporate office held by the person.  Control shall be presumed to exist if a person, directly or indirectly, owns, controls, holds with power to vote, or holds proxies representing ten percent or more of the voting securities of another person.  This presumption may be rebutted by a showing that control does not exist in fact.  The director may determine after furnishing all interested persons notice and an opportunity to be heard and making specific findings of fact to support the determination that control exists in fact, notwithstanding the absence of a presumption to that effect;

  (17)  "Credit tenant loan", a mortgage loan which is made primarily in reliance on the credit standing of a major tenant, structured with an assignment of the rental payments to the lender with real estate pledged as collateral in the form of a first lien;

  (18)  "Direct" or "directly", in connection with an obligation, the designated obligor primarily liable on the instrument representing the obligation;

  (19)  "Dollar-roll transaction", two simultaneous transactions with different settlement dates no more than ninety-six days apart so that in the transaction with the earlier settlement date an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase, from the same business entity, substantially similar securities of the following types:

  (a)  Asset-backed securities issued, assumed or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation or their respective successors; and

  (b)  Other asset-backed securities referred to in section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. 77r-1), as amended;

  (20)  "Domestic jurisdiction", the United States, Canada, any state, any province of Canada, or any political subdivision of the foregoing;

  (21)  "Equity interest", any of the following that are not rated credit instruments:

  (a)  Common stock;

  (b)  Preferred stock;

  (c)  Trust certificate;

  (d)  Equity investment in an investment company other than a money market mutual fund or a class one bond mutual fund;

  (e)  Investment in a common trust fund of a bank regulated by a federal or state agency;

  (f)  An ownership interest in mineral, oil, or gas to which the rights have been separated from the underlying fee interest in the real estate where the mineral, oil, or gas are located;

  (g)  Instruments which are mandatorily, or at the option of the issuer, convertible to equity;

  (h)  Limited partnership interests and those general partnership interests authorized under subdivision (4) of section 376.294;

  (i)  Member interests in limited liability companies;

  (j)  Warrants or other rights to acquire equity interests that are created by the person that owns or would issue the equity to be acquired; or

  (k)  Instruments that would be rated credit instruments except for the provisions under subdivision (47) of this section;

  (22)  "Foreign currency", currency other than that of a domestic jurisdiction;

  (23)  (a)  "Foreign investment", an investment in a foreign jurisdiction or an investment in a person, real estate, or asset domiciled in a foreign jurisdiction that is substantially of the same type as those eligible for investment under this chapter other than under section 376.304.  An investment shall not be deemed foreign if the issuing person, qualified primary credit source, or qualified guarantor is a domestic jurisdiction or a person domiciled in a domestic jurisdiction unless:

  a.  The issuing person is a shell business entity; and

  b.  The investment is not assumed, accepted, guaranteed, or insured or otherwise backed by a domestic jurisdiction, or a person that is not a shell business entity domiciled in a domestic jurisdiction;

  (b)  For purposes of this definition:

  a.  "Shell business entity" means a business entity having no economic substance except as a vehicle for owning interests in assets issued, owned, or previously owned by a person domiciled in a foreign jurisdiction;

  b.  "Qualified guarantor" means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction;

  c.  "Qualified primary credit score" means the credit score to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction;

  (24)  "Foreign jurisdiction", a jurisdiction other than a domestic jurisdiction;

  (25)  "Government money market mutual fund", a money market mutual fund that at all times:

  (a)  Invests only in obligations issued, guaranteed, or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and

  (b)  Qualifies for investment without a reserve under the Purposes and Procedures of the Securities Valuation Office or any successor publication;

  (26)  "Government sponsored enterprise", a:

  (a)  Government agency; or

  (b)  Corporation, limited liability company, association, partnership, joint stock company, joint venture, trust, or other entity or instrumentality organized under the laws of any domestic jurisdiction to accomplish a public policy or other governmental purpose;

  (27)  "Guaranteed" or "insured", in connection with an obligation acquired under this chapter, the guarantor or insurer has agreed to:

  (a)  Perform or insure the obligation of the obligor or purchase the obligation; or

  (b)  Be unconditionally obligated until the obligation is repaid to maintain in the obligor a minimum net worth, fixed charge coverage, stockholders' equity or sufficient liquidity to enable the obligor to pay the obligation in full;

  (28)  "High-grade investment", a rated credit instruments rated "1", "2", "P1", "P2", "PSF1", or "PSF2" by the SVO;

  (29)  "Investment company", an investment company as defined in Section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-1), as amended, and a person described in Section 3(c) of that act;

  (30)  "Investment company series", an investment portfolio of an investment company that is organized as a series company and to which assets of the investment company have been specifically allocated;

  (31)  "Investment subsidiary", a subsidiary of an insurer engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if such subsidiary limits its investment in any asset so that its investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitation or avoid any other provisions of this chapter applicable to the insurer.  As used in this subdivision, the total investment insurer shall include:

  (a)  Direct investment by the insurer in an asset; and

  (b)  The insurer's proportionate share of an investment in an asset by an investment subsidiary of the insurer which shall be calculated by multiplying the amount of the subsidiary's investment by the percentage of the insurer's ownership interest in the subsidiary;

  (32)  "Investment strategy", the techniques and methods used by an insurer to meet its investment objectives, such as active bond portfolio management, passive bond portfolio management, interest rate anticipation, growth investing, and value investing;

  (33)  "Letter of credit", a clean, irrevocable, and unconditional letter of credit issued or confirmed by and payable and presentable at a financial institution on the list of financial institutions meeting the standards for issuing letters of credit under the Purposes and Procedures of the Securities Valuation Office or any successor publication.  To constitute applicable collateral for the purposes of section 376.303, a letter of credit shall have an expiration date beyond the term of the subject transaction;

  (34)  "Limited liability company", a business organization, excluding partnerships and ordinary business corporations, organized or operating under the laws of the United States or any state thereof that limits the personal liability of investors to the equity investment of the investor in the business entity;

  (35)  "Lower grade investment", a rated credit instrument rated "4", "5", "6", "P4", "P5", "P6", "PSF4", "PSF5", or "PSF6" by the SVO;

  (36)  "Market value":

  (a)  As to cash and credit, the amounts thereof; and

  (b)  As to a security as of any date, the price for the security in that date obtained from a generally recognized source or the most recent quotation from a source, or to the extent no generally recognized source exists, the price for the security reasonably as determined by the insurer plus accrued but unpaid income thereon to the extent not included in the price as of that date;

  (37)  "Medium grade investment", a rated credit instrument rated "3", "P3", or "PSF3" by the SVO;

  (38)  "Money market mutual fund", a mutual fund that meets the conditions of 17 C.F.R. 270.2a-7 under the Investment Company Act of 1940 (15 U.S.C.  80a-1, et seq.), as amended or renumbered;

  (39)  "Mortgage loan", an obligation secured by a mortgage, deed of trust, trust deed, or other consensual lien on real estate;

  (40)  "Multilateral development bank", an international development organization of which the United States is a member;

  (41)  "Mutual fund", an investment company or in the case of an investment company that is organized as a series company, an investment company series, that in either case is registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C.  80a-1, et seq.), as amended;

  (42)  "NAIC", the National Association of Insurance Commissioners;

  (43)  "Obligation", a bond, note, debenture, trust certificate, including an equipment trust certificate, production payment, negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, loan secured by financing net leases, and other evidence of indebtedness for the payment of money, or participations, certificates, or other evidence of an interest in any of the foregoing, whether constituting a general obligation of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment;

  (44)  "Person", an individual, a business entity, a multilateral development bank, or a government or quasigovernment body, such as a political subdivision or a government sponsored enterprise;

  (45)  "Preferred stock", preferred, preference, or guaranteed stock of a business entity authorized to issue the stock that has a preference in liquidation over the common stock of the business entity;

  (46)  "Qualified business entity", a business entity that is:

  (a)  An issuer of obligations or preferred stock that are rated "1" or "2" by the SVO or an issuer of obligations, preferred stock, or derivative instruments that are rated the equivalent of "1" or "2" by the SVO or the equivalent by a nationally recognized statistical rating organization recognized by the SVO;

  (b)  A primary dealer in the United States government securities recognized by the Federal Reserve Bank of New York; or

  (c)  With respect to section 376.303, an affiliate of an entity that is a qualified business entity under paragraph (a) or (b) of this subdivision whose arrangement with the insurer is guaranteed by the affiliated entity that is a qualified business entity under paragraph (a) or (b) of this subdivision;

  (47)  "Rated credit instrument":

  (a)  An obligation or other instrument which gives its holder a contractual right to receive cash or another rated credit instrument from another entity if the instrument:

  a.  Is rated or required to be rated by the SVO;

  b.  In the case of an instrument with a maturity of three hundred ninety-seven days or less, is issued, guaranteed, or insured by an entity that is rated by or another instrument of such entity is rated by the SVO or by a nationally recognized statistical rating organization recognized by the SVO;

  c.  In the case of an instrument with a maturity of ninety days or less, is issued, assumed, accepted, guaranteed, or insured by a qualified bank;

  d.  Is a share of a class one bond mutual fund; or

  e.  Is a share of a money market mutual fund;

  (b)  "Rated credit instrument" shall not mean:

  a.  An instrument that is mandatorily, or at the option of the issuer, convertible to an equity interest; or

  b.  A security that has a par value and whose terms provide that the issuer's net obligation to repay all or part of the security's par value is determined by reference to the performance of an equity, a commodity, a foreign currency, or an index of equities, commodities, foreign currencies, or combination thereof;

  (48)  "Real estate":

  (a)  Real property;

  (b)  Interests in real property, such as leaseholds, mineral, oil, and gas that have not been separated from the underlying fee interest;

  (c)  Improvements and fixtures located on or in real property; and

  (d)  The seller's equity in a contract providing for a deed of real estate;

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As to a mortgage on a leasehold estate, real estate shall include the leasehold estate only if it has an unexpired term, including renewal options exercisable at the option of the lessee extending beyond the scheduled maturity date of the obligation that is secured by a mortgage on a leasehold estate by a period equal to at least twenty percent of the original term of the obligation or ten years, whichever is greater;

  (49)  "Repurchase transaction", a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or substantially the same securities from the insurer at a specified price within a specified period of time or on demand;

  (50)  "Required liabilities", total liabilities required to be reported on the statutory financial statement of the insurer most recently required to be filed with the director;

  (51)  "Residential mortgage loan", a loan primarily secured by a mortgage on real estate improved with a one-to-four family residence;

  (52)  "Reverse repurchase transaction", a transaction in which an insurer sells substantially the same securities to a business entity and is obligated to repurchase the sold securities or substantially the same securities from the business entity at a specified price within a specified period of time or upon demand;

  (53)  "Secured location", the contiguous real estate owned by one person;

  (54)  "Securities lending transaction", a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or substantially the same securities to the insurer within a specified period of time or upon demand;

  (55)  "Series company", an investment company that is organized as series company, as defined in Rule 18f-2 under the Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq.), as amended;

  (56)  "Sinking fund stock", preferred stock that:

  (a)  Is subject to a mandatory sinking fund or similar arrangement that will provide for the redemption or open market purchase of the entire issue over a period not longer than forty years from the date of acquisition; and

  (b)  Provides for mandatory sinking fund installments or open market purchases commencing not more than ten and one-half years from the date of issue with the sinking fund installments providing for the purchase or redemption on a cumulative basis commencing ten years from the date of issue of at least two and one-half percent per year of the original number of shares of that issue of preferred stock;

  (57)  "Special rated credit instrument", a rated credit instrument that is:

  (a)  Structured so that if it is held until retired by or on behalf of the issuer, its rate of return based on its purchase cost and any cash flow stream possible under the structure of the transaction may become negative due to reasons other than the credit risk associated with the issuer of the instrument; however, a rated credit instrument shall not be a special rated credit instrument under this paragraph if it is:

  a.  A share in a class one bond mutual fund;

  b.  An instrument other than an asset-backed security with payments of par value fixed as to an amount and timing or callable but in any event payable only at par value or greater and interest or dividend cash flows that are based on a fixed or variable rate determined by reference to a specified rate or index;

  c.  An instrument other than an asset-backed security that has a par value and is purchased at a price no greater than one hundred ten percent of par;

  d.  An instrument, including an asset-backed security, whose rate of return would become negative only as a result of prepayment due to casualty, condemnation, or economic obsolescence of collateral or change of law;

  e.  An asset-backed security that relies on collateral that meets the requirements of subparagraph b.  of this paragraph and the par value of which collateral:

  (i)  Is not permitted to be paid sooner than one-half of the remaining term to maturity from the date of acquisition;

  (ii)  Is permitted to be paid prior to maturity only at a premium sufficient to provide a yield to maturity for the investment, considering the amount of prepaid and reinvestment rates at the time of early repayment, at least equal to the yield to maturity of the initial investment; or

  (iii)  Is permitted to be paid prior to maturity at a premium at least equal to the yield of a treasury issue of comparable remaining life; or

  f.  An asset-backed security that relies on cash flow from assets that are not prepayable at any time at par but is not otherwise governed by subparagraph e.  of this paragraph if the asset-backed security has a par value reflecting principal payments to be received if held until retired by or on behalf of the issuer and is purchased at a price no greater than one hundred five percent of such par amount;

  (b)  An asset-backed security that:

  a.  Relies on cash flow from assets that are prepayable at par at any time;

  b.  Does not make payments of par that are fixed as to amount and timing; and

  c.  Has a negative rate of return at the time of acquisition if a prepayment threshold assumption is used with such prepayment threshold assumption defined as either:

  (i)  Two times the prepayment expectation reported by a recognized publicly available source as being the median of expectations contributed by broker dealers or other entities except insurers engaged in the business of selling or evaluating such securities or assets.  At the insurer's election, the prepayment expectation used in this calculation shall be the prepayment expectation for pass-through securities of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, or for other assets of the same type of assets that underlie the asset-backed security in a gross weighted average coupon comparable to the gross weighted average coupon of the assets that underlie the asset-backed security; or

  (ii)  Another prepayment threshold assumption specified by the director by regulation;

  (c)  For purposes of paragraph (b) of this subdivision, if the asset-backed security is purchased in combination with one or more other asset-backed securities that are supported by identical underlying collateral, the insurer may calculate the rate of return for these specific combined asset-backed securities in combination.  The insurer shall maintain documentation demonstrating that such securities were acquired and are continuing to be held in combination;

  (58)  "State", a state, territory, or possession of the United States, District of Columbia, or the Commonwealth of Puerto Rico;

  (59)  "Substantially the same securities", securities that meet all criteria for substantially the same securities specified in the NAIC Accounting Practices and Procedures Manual, as amended, as adopted by the director;

  (60)  "Subsidiary", as to any person, an affiliate controlled by such person, directly or indirectly, through one or more intermediaries;

  (61)  "SVO", the Securities Valuation Office of the NAIC or any successor office established by the NAIC;

  (62)  "Unrestricted surplus", the amount by which total admitted assets exceed one hundred and twenty-five percent of the insurer's required liabilities.

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(L. 2007 S.B. 66)