Section 22:601.1 - DefinitionsAs used in this Subpart, the following terms have the following meanings:
(1) "Acceptable collateral" means any of the following:(a) As to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or any state or territory of the United States or the District of Columbia and as to lending foreign securities, sovereign debt rated one by the SVO.(b) As to reverse repurchase transactions, cash, cash equivalents and direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or an agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or any state or territory of the United States or the District of Columbia.(c) As to reverse repurchase transactions, cash, or cash equivalents.(2) "Admitted assets" means assets permitted to be reported as admitted assets on the statutory financial statement of the insurer most recently required to be filed with the commissioner, but excluding assets of separate accounts, the investments of which are not subject to the provisions of this Subpart.(3) "Affiliate" means, 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.(4) "Asset-backed security" means a security or other instrument, excluding a mutual fund and mortgage-backed securities, 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 both of 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.(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 flows from the assets or rights. 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.(5) "Bonds" means any securities representing a creditor relationship whereby there is a fixed legal maturity date or fixed schedule for one or more future payments. The term "bonds" includes the following:(a) United States Treasury securities.(b) United States government agency securities.(c) Obligations issued by a municipality or political subdivision in this state or any other state or territory of the United States or the District of Columbia.(d) Corporate bonds, including Yankee bonds and zero-coupon bonds.(e) Convertible bonds, including mandatory convertible bonds.(g) Fixed-income instruments specifically identified as follows:(i) Certifications of deposit that have a fixed schedule of payments and a maturity date in excess of one year from the date of acquisition.(ii) Bank loans issued directly by a reporting entity or acquired through a participation, syndication, or assignment.(iii) Hybrid securities, excluding surplus notes, subordinated debt issues which have no coupon deferral features, and traditional preferred stocks.(iv) Debt instruments in a certified capital company.(6) "Business entity" includes a sole proprietorship, corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund, trust, joint tenancy, or other similar form of business organization, whether organized for-profit or not-for-profit.(7) "Cap" means an agreement obligating the seller to make payments to the buyer, with each payment based on the amount by which a reference price or level or the performance or value of one or more underlying interests exceeds a predetermined number, sometimes called the strike rate or strike price.(8) "Capital and surplus" means 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 commissioner.(9) "Cash equivalents" means 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 money market mutual funds. For purposes of this definition: (a) "Highly rated" means an investment rated "P-1" by Moody's Investors Service, Inc., or "A-1" by Standard & Poor's Global Ratings or its equivalent rating by a nationally recognized statistical rating organization recognized by the SVO.(b) "Short-term" means investments with a remaining term to maturity of ninety days or less.(10) "Collar" means an agreement to receive payments as the buyer of an option, cap, or floor and to make payments as the seller of a different option, cap, or floor.(11) "Control" as defined by R.S. 22:691.2.(12) "Counterparty exposure amount" means: (a) The net amount of credit risk attributable to a derivative instrument executed with a business entity other than through a qualified exchange, qualified foreign exchange, or cleared through a qualified clearinghouse, also referred to as an "over-the-counter derivative instrument". The amount of credit risk equals: (i) The market value of the over-the-counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer.(ii) Zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer.(b) If over-the-counter derivative instruments are executed under a written master agreement which provides for netting of payments owed by the respective parties, and the domiciliary jurisdiction of the counterparty is either within the United States or if not within the United States, within a foreign jurisdiction listed in the Purposes and Procedures Manual of the NAIC Investment Analysis Office or any successor publication as eligible for netting, the net amount of credit risk shall be the greater of zero or the net sum of either of the following:(i) The market value of the over-the-counter derivative instruments executed under the agreement, the liquidation of which would result in a final cash payment to the insurer.(ii) The market value of the over-the-counter derivative instruments executed under the agreement, the liquidation of which would result in a final cash payment by the insurer to the business entity.(c) For open transactions, market value shall be determined at the end of the most recent quarter of the insurer's fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or placed in escrow by one or both parties.(13) "Covered" means that an insurer owns or can immediately acquire, through the exercise of options, warrants, or conversion rights already owned, the underlying interest in order to fulfill or secure its obligations under a call option, cap, or floor it has written, or has set aside under a custodial or escrow agreement cash or cash equivalents with a market value equal to the amount required to fulfill its obligations under a put option it has written, in an income generation transaction.(14)(a) "Derivative instrument" means an agreement, option, instrument, or a series or combination thereof:(i) To make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof.(ii) That has a price, performance, value, or cash flow based primarily upon the actual or expected price, level, performance, value, or cash flow of one or more underlying interests.(b) Derivative instruments may include options, or warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures, and any other agreements, options, or instruments substantially similar thereto or any series or combination thereof and any agreements, options, or instruments permitted under regulations adopted pursuant to the Administrative Procedure Act. Derivative instruments shall not include an investment authorized by R.S. 22:601.7 through 601.9, 601.11 through 601.13, and 601.16(3).(15) "Derivative transaction" means a transaction involving the use of one or more derivative instruments.(16) "Direct" or "directly", when used in connection with an obligation, means that the designated obligor is primarily liable on the instrument representing the obligation.(17) "Dollar roll transaction" means 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 any of the following types: (a) Asset-backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or their respective successors.(b) Other asset-backed securities referred to in 15 U.S.C. 77r-1, as amended.(18) "Equity interest" means any of the following that are not bonds: (c) Exchange-traded fund.(d) American Depository Receipt.(e) Real Estate Investment Trust.(g) Investment in a common trust fund of a bank regulated by a federal or state agency.(h) Shares of insured state-chartered building and loan or homestead associations and federal savings and loan associations, if such shares are insured by the Federal Savings and Loan Insurance Corporation as specifically set forth under the terms of Title IV of the National Housing Act, 12 U.S.C. 1701 et seq.(i) Warrants or other rights to acquire equity interests that are created by the person that owns or would issue the equity to be acquired.(19) "Equivalent securities" means: (a) In a securities lending transaction, securities that are identical to the loaned securities in all features including the amount of the loaned securities, except as to the certificate number if held in physical form, but if any different security shall be exchanged for a loaned security by recapitalization, merger, consolidation, or other corporate action, the different security shall be considered to be the loaned security.(b) In a repurchase transaction, securities that are identical to the sold securities in all features including the amount of the sold securities, except as to the certificate number if held in physical form.(c) In a reverse repurchase transaction, securities that are identical to the purchased securities in all features including the amount of the purchased securities, except as to the certificate number if held in physical form.(20) "Exchange-traded fund" means funds registered as open-end investment companies or unit investment trusts under 15 U.S.C. 80a-1 et seq., as amended.(21) "Floor" means an agreement obligating the seller to make payments to the buyer in which each payment is based on the amount by which a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance, or value of one or more underlying interests.(22) "Foreign currency" means a currency other than that of a domestic jurisdiction.(23) "Foreign investment" means 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 pursuant to this Subpart, except as provided in R.S. 22:601.12. An investment shall not be considered to be 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 either of the following applies: (a) The issuing person is a shell business entity.(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.(c) For purposes of this definition:(i) "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.(ii) "Qualified primary credit source" means the credit source 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.(iii) "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.(24) "Foreign jurisdiction" means a jurisdiction other than a domestic jurisdiction.(25) "Forward" means an agreement, other than a future, to make or take delivery of or effect a cash settlement based on the actual or expected price, level, performance, or value of one or more underlying interests.(26) "Future" means an agreement, traded on a qualified exchange or qualified foreign exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance, or value of, one or more underlying interests.(27) "Government money market mutual fund" means a money market mutual fund that at all times does both of the following:(a) Invests only in obligations issued, guaranteed, or insured by the United States or collateralized repurchase agreements composed of these obligations.(b) Qualifies for investment without a reserve under the Purposes and Procedures Manual of the NAIC Investment Analysis Office or any successor publication.(28) "Government sponsored enterprise" means any of the following:(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.(29) "Guaranteed or insured", when used in connection with an obligation acquired pursuant to this Subpart, means that the guarantor or insurer has agreed to one of the following: (a) Perform or insure the obligation of the obligor or purchase the obligation.(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.(30) "Hedging transaction" means a derivative transaction which is entered into and maintained to reduce one of the following:(a) The risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities which the insurer has acquired or incurred or anticipates acquiring or incurring.(b) The currency exchange rate risk or the degree of exposure as to assets or liabilities which an insurer has acquired or incurred or anticipates acquiring or incurring.(31) "Income" means, as to a security, interest, accrual of discount, dividends, or other distributions, such as rights, tax or assessment credits, warrants and distributions in kind.(32) "Income generation transaction" means a derivative transaction involving the writing of covered call options, covered put options, covered caps, or covered floors that is intended to generate income or enhance return.(33) "Insurance future" means a future relating to an index or pool that is based on insurance-related items.(34) "Insurance futures option" means an option on an insurance future.(35) "Investment company" means an investment company as defined in 15 U.S.C. 80a-3, as amended, and a person described in 15 U.S.C. 80a-3.(36) "Investment company series" means 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.(37) "Investment practices" means transactions of the types described in R.S. 22:601.11 and 601.14.(38) "Investment subsidiary" means 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 each subsidiary agrees to limit 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 limitations or avoid any other provisions of this Subpart applicable to the insurer. As used in this Paragraph, the total investment of the insurer shall include all of the following: (a) Direct investment by the insurer in an asset.(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.(39) "Limited liability company" means 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.(40) "Listed bond fund" means a mutual fund, or an exchange-traded fund, that at all times is listed as eligible for reporting as a long-term bond within the Purposes and Procedures Manual of the NAIC Investment Analysis Office or any successor publication.(41) "Market value" means:(a) As to cash and letters of credit, the amounts thereof.(b) As to a security as of any date, the price for the security on that date obtained from a generally recognized source or the most recent quotation from a generally recognized source or, to the extent no generally recognized source exists, the price for the security as determined in good faith by the parties to a transaction, plus accrued but unpaid income thereon to the extent not included in the price as of that date.(42) "Money market mutual fund" means a mutual fund that meets the conditions of 17 CFR 270.2a-7, under 15 U.S.C. 80a-1 et seq., as amended or renumbered.(43) "Mortgage loan" means an obligation secured by a mortgage, deed of trust, trust deed, or other consensual lien on real estate.(44) "Mortgage-backed security" means debt obligations, including collateralized mortgage obligations, which represent claims to the cash flows from pools of mortgage loans made by financial institutions.(45) "Multilateral development bank" means an international development organization of which the United States is a member.(46) "Mutual fund" means 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 15 U.S.C. 80a-1 et seq., as amended.(47) "NAIC" means the National Association of Insurance Commissioners.(48) "Obligation" means a bond, note, debenture, trust certificate including an equipment certificate, production payment, negotiable bank certificate of deposit, bankers' acceptance, and other evidence of indebtedness for the payment of money, or participations, certificates, or other evidences 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.(49) "Option" means an agreement giving the buyer the right to buy or receive, known as a "call option", sell or deliver, known as a "put option", enter into, extend or terminate or effect a cash settlement based on the actual or expected price, level, performance, or value of one or more underlying interests.(50) "Person" means an individual, a business entity, a multilateral development bank, or a government or quasi-governmental body, such as a political subdivision or a government-sponsored enterprise.(51) "Potential exposure" means the amount determined in accordance with the NAIC Annual Statement Instructions, as amended.(52) "Preferred stock" means 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.(53) "Qualified bank" means any of the following:(a) A national bank, state bank, or trust company that at all times is no less than adequately capitalized as determined by standards adopted by United States banking regulators and that is either regulated by state banking laws or is a member of the Federal Reserve System.(b) A bank or trust company incorporated or organized under the laws of a country other than the United States that is regulated as a bank or trust company by that country's government or an agency thereof and that at all times is no less than adequately capitalized as determined by the standards adopted by international banking authorities.(54) "Qualified business entity" means a business entity that is one of the following:(a) An issuer of obligations or preferred stock that are rated one or two by the SVO or an issuer of obligations, preferred stock or derivative instruments that are rated the equivalent of one or two by the SVO, or by a nationally recognized statistical rating organization recognized by the SVO.(b) A primary dealer in United States government securities, recognized by the Federal Reserve Bank of New York.(55) "Qualified exchange" means any of the following:(a) A securities exchange registered as a national securities exchange or a securities market regulated under 15 U.S.C. 78a et seq., as amended.(b) A board of trade or commodities exchange designated as a contract market by the Commodity Futures Trading Commission or any successor thereof.(c) Private Offerings, Resales, and Trading through Automated Linkages (PORTAL).(d) A designated offshore securities market as defined in 17 CFR 230.902, as amended.(e) A qualified foreign exchange.(56) "Qualified foreign exchange" means a foreign exchange, board of trade, or contract market located outside the United States, its territories, or possessions meeting all of the following criteria: (a) That has received regulatory comparability relief under Commodity Futures Trading Commission Rule 30.10, as set forth in Appendix C to Part 30 of the Commodity Futures Trading Commission's Regulations, 17 CFR Part 30.(b) That is, or its members are, subject to the jurisdiction of a foreign futures authority that has received regulatory comparability relief under Commodity Futures Trading Commission Rule 30.10, as set forth in Appendix C to Part 30 of the Commodity Futures Trading Commission's Regulations, 17 CFR Part 30, as to futures transactions in the jurisdiction where the exchange, board of trade, or contract market is located.(c) Upon which foreign stock index futures contracts are listed that are the subject of no-action relief issued by the Commodity Futures Trading Commission's Office of General Counsel, provided that an exchange, board of trade, or contract market that qualifies as a "qualified foreign exchange" only pursuant to this Subparagraph shall only be a "qualified foreign exchange" as to foreign stock index futures contracts that are the subject of no-action relief.(57) "Real estate" means: (a) Any of the following: (ii) Interests in immovable property, such as leaseholds, minerals, and oil and gas that have not been separated from the underlying fee interest of the property.(iii) Improvements and fixtures located on or in immovable property.(iv) The seller's equity in a contract providing for a deed of real estate.(b) 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 the leasehold estate by a period equal to at least twenty percent of the original term of the obligation or ten years, whichever is greater.(58) "Replication transaction" means a derivative transaction that is intended to replicate the performance of one or more assets that an insurer is authorized to acquire pursuant to this Subpart. A derivative transaction that is entered into as a hedging transaction shall not be considered a replication transaction.(59) "Repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period or upon demand.(60) "Reverse repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or upon demand.(61) "Secured location" means the contiguous real estate owned by one person.(62) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or upon demand.(63) "Series company" means an investment company that is organized as a series company, as defined in 17 CFR 270.18f-2 adopted pursuant to 15 U.S.C. 80a-1 et seq., as amended.(64) "State" means a state, territory, or possession of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico.(65) "Substantially similar securities" means securities that meet all criteria for substantially similar specified in the NAIC Accounting Practices and Procedures Manual, as amended, and in an amount that constitutes good delivery form as determined from time to time by the Public Securities Association.(66) "SVO" means the Securities Valuation Office of the NAIC or any successor office established by the NAIC.(67) "Swap" means an agreement to exchange or to net payments at one or more times based on the actual or expected price, level, performance, or value of one or more underlying interests.(68) "Underlying interest" means the assets, liabilities, other interests, or a combination thereof underlying a derivative instrument, such as any one or more securities, currencies, rates, indices, commodities, or derivative instruments.(69) "Warrant" means an instrument that gives the holder the right to purchase an underlying financial instrument at a given price and time or at a series of prices and times outlined in the warrant agreement. Warrants may be issued alone or in connection with the sale of other securities, for example, as part of a merger or recapitalization agreement, or to facilitate divestiture of the securities of another business entity. Acts 2021, No. 165, §1, eff. Jan. 1, 2022.Added by Acts 2021, No. 165,s. 1, eff. 1/1/2022.