§ 1401 — Definitions and rules of general application

§ 1401. Definitions and rules of general application. (a) In this\narticle: (1) "Invested assets" means the admitted assets of an insurer\nthat conform to the requirements of paragraphs one and two of subsection\n(a) of section one thousand three hundred one of this chapter, but\nexcluding the income due or accrued thereon.\n (2) "Mortgage-related security" means an obligation that is rated AA\nor higher (or the equivalent thereto) by a nationally recognized\nsecurities rating agency and either:\n (A) represents ownership of one or more promissory notes or\ncertificates of interest or participation in such notes (including any\nrights designed to assure servicing of, or the receipt or timeliness of\nreceipt by the holders of such notes, certificates, or participation of\namounts payable under, such notes, certificates, or participation),\nwhich notes:\n (i) are directly secured by a first lien on a single parcel of real\nestate, including stock allocated to a dwelling unit in a residential\ncooperative housing corporation, upon which is located a dwelling or\nmixed residential and commercial structure, or on a residential\nmanufactured home as defined in section 5402(6) of Title 42 of the\nU.S.C.A., whether such manufactured home is considered real or personal\nproperty under the laws of the state in which it is to be located; and\n (ii) were originated by a savings and loan association, savings bank,\ncommercial bank, credit union, insurance company, or similar institution\nwhich is supervised and examined by a federal or state authority, or by\na mortgage approved by the secretary of housing and urban development\npursuant to sections 1709 and 1715-b of Title 12 of the U.S.C.A., or,\nwhere such notes involve a lien on the manufactured home, by any such\ninstitution or by any financial institution approved for insurance by\nthe secretary of housing and urban development pursuant to section 1703\nof Title 12 of the U.S.C.A.; or\n (B) is secured by one or more promissory notes or certificates of\ninterest or participations in such notes (with or without recourse to\nthe issuer thereof) and, by its terms, provides for payments of\nprincipal in relation to payments, or reasonable projections of\npayments, or notes meeting the requirements of items (i) and (ii) of\nsubparagraph (A) of this paragraph or certificates of interest or\nparticipation in promissory notes meeting such requirements.\n For the purpose of this paragraph the term "promissory note", when\nused in connection with a manufactured home, shall also include a loan,\nadvance or credit sale as evidence by a retail installment sales\ncontract or other instrument.\n (3) "Partnership interests" when used in connection with the\npermissible types of investments made by any domestic insurer, other\nthan a domestic life insurer, means, an interest as a limited partner in\na limited partnership. A "limited partnership" means a partnership\nformed by two or more persons pursuant to the provisions of the\napplicable law, having as members one or more general partners and one\nor more limited partners. The limited partners as such shall not be\nbound by the obligations of the partnership.\n (4) "United States" means, when used to signify place, only the states\nof the United States, the Commonwealth of Puerto Rico, the District of\nColumbia and includes lands and waters adjacent to the foregoing and\nunder the jurisdiction of the United States.\n (5) "Cap" means an agreement obligating the seller to make payments to\nthe buyer with each payment based on the amount by which a reference\nprice or level or the performance or value of one or more underlying\ninterests exceeds a predetermined number, sometimes called the strike\nrate or strike price.\n (6) "Collar" means an agreement to receive payments as the buyer of an\noption, cap or floor and to make payments as the seller of a different\noption, cap or floor.\n (7) "Derivative instrument" means an agreement, option, instrument or\na series or combination thereof:\n (A) to make or take delivery of, or assume or relinquish, a specified\namount of one or more underlying interests, or to make a cash settlement\nin lieu thereof; or\n (B) that has a price, performance, value or cash flow based primarily\nupon the actual or expected price, level, performance, value or cash\nflow of one or more underlying interests.\n The term "derivative instrument" includes options, warrants, caps,\nfloors, collars, swaps, swaptions, forwards, and futures.\n (8) "Derivative transaction" means a transaction involving the use of\none or more derivative instruments.\n (9) "Floor" means an agreement obligating the seller to make payments\nto the buyer in which each payment is based on the amount by which a\npredetermined number, sometimes called the floor rate or price, exceeds\na reference price, level, performance or value of one or more underlying\ninterests.\n (10) "Forward" means an agreement (other than a future) to make or\ntake delivery in the future of one or more underlying interests, or\neffect a cash settlement, based on the actual or expected price, level,\nperformance or value of such underlying interests, but shall not mean or\ninclude spot transactions effected within customary settlement periods,\nwhen-issued purchases, or other similar cash market transactions.\n (11) "Future" means agreement traded on a futures exchange, to make or\ntake delivery of, or effect a cash settlement based on the actual or\nexpected price, level, performance or value of, one or more underlying\ninterests.\n (12) "Hedging transaction" means a derivative transaction which is\nentered into and at all times maintained to reduce:\n (A) the risk of economic loss due to a change in the value, yield,\nprice, cash flow or quantity of assets or liabilities which the insurer\nhas acquired or incurred or anticipates acquiring or incurring; or\n (B) the risk of economic loss due to changes in the currency exchange\nrate or the degree of exposure as to assets or liabilities denominated\nin a foreign currency which an insurer has acquired or incurred or\nanticipates acquiring or incurring.\n (13) "Option" means an agreement giving the buyer the right to buy or\nreceive (a "call option"), sell or deliver (a "put option"), enter into,\nextend or terminate or effect a cash settlement based on the actual or\nexpected price, spread, level, performance or value of one or more\nunderlying interests.\n (14) "Swap" means an agreement to exchange or to net payments at one\nor more times based on the actual or expected price, yield, level,\nperformance or value of one or more underlying interests.\n (15) "Swaption" means an option to purchase or sell a swap at a given\nprice and time or at a series of prices and times. A swaption does not\nmean a swap with an embedded option.\n (16) "Underlying interest" means the assets, liabilities, other\ninterests, or a combination thereof, underlying a derivative instrument,\nsuch as any one or more securities, currencies, rates, indices,\ncommodities or derivative instruments.\n (17) "Warrant" means an instrument that gives the holder the right to\npurchase or sell the underlying interest at a given price and time or at\na series of prices and times outlined in the warrant agreement.\n (18) "Replication transaction" means a derivative transaction or\ncombination of derivative transactions effected either separately or in\nconjunction with cash market investments included in the insurer's\ninvestment portfolio in order to replicate the investment characteristic\nof another authorized transaction, investment or instrument and/or\noperate as a substitute for cash market transactions. A derivative\ntransaction entered into by the insurer as a hedging transaction or\nincome generation transaction authorized pursuant to this section shall\nnot be considered a replication transaction.\n (b) All financial tests and other requirements for the making of any\ninvestment are satisfied if complied with on the date of acquisition by\nthe insurer, except as otherwise permitted by this chapter or by\nregulation.\n (c) None of the financial tests or other requirements for the making\nof any investment under this article, or as otherwise required by this\nchapter or by regulation promulgated pursuant thereto, are preempted by\nthe provisions of section 106 of Title I of the Secondary Mortgage\nMarket Enhancement Act of 1984 (15 U.S.C. § 77r-1)("SMMEA"). The\nprovisions of this chapter and any regulation promulgated pursuant\nthereto that pertain to investments in the categories of securities\nspecified in paragraphs one and two of subsection (a) of section 106 of\nsuch act shall remain in full force and effect notwithstanding the\nenactment of SMMEA.\n