215 ILCS 5/126.2
2021 Illinois Compiled Statutes|Chapter 215 - INSURANCE|215 ILCS 5/ - Illinois Insurance Code.|Article VIII - Investments Of Domestic Companies

Sec. 126.2.     Definitions.     For purposes of this Article:A. "Acceptable collateral" means:(1) 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, and as to lending foreign securities, sovereign debt rated 1 by the SVO;(2) As to 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; and(3) As to reverse repurchase transactions, cash and     cash equivalents.B. "Acceptable private mortgage insurance" means 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 80% loan-to-value ratio.C. "Accident and health insurance" means protection which 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.D. "Accident and health insurer" means 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  95% of total premium considerations or total statutory required  reserves, respectively.E. "Admitted assets" means assets defined by Section 3.1 of this Code  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, the investments of which are not  subject to the provisions of this Article except to the extent that the  provisions of Article XIV 1/2 so provide.F. "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.G. "Asset-backed security" means 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:(1) 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(2) 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. 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.H. "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.I. "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.J. "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 Director.K. "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 government money market mutual funds and class one money  market mutual funds. For purposes of this definition:(1) "Short-term" means investments with a remaining     term to maturity of 90 days or less; and(2) "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.L. "Class one bond mutual fund" means a mutual fund that at all times  qualifies for investment using the bond class one reserve factor under the  Purposes and Procedures of the Securities Valuation Office or any successor  publication.M. "Class one money market mutual fund" means a money market mutual fund  that at all times qualifies for investment using the bond class one reserve  factor under the Purposes and Procedures of the Securities Valuation Office or  any successor publication.N. "Code" means the Illinois Insurance Code.O. "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.P. "Commercial mortgage loan" means a mortgage loan, other than a  residential mortgage loan.Q. "Construction loan" means a loan of less than 3 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.R. "Control" means 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 services), 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 the power to vote or holds proxies  representing 10% 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.S. "Counterparty exposure amount" means:(1) The amount of credit risk attributable to a     derivative instrument entered into with a business entity other than through a qualified exchange, qualified foreign exchange, or cleared through a qualified clearinghouse ("over-the-counter derivative instrument"). The amount of credit risk equals:(a) 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; or(b) Zero if the liquidation of the derivative         instrument would not result in a final cash payment to the insurer.(2) If over-the-counter derivative instruments are     entered into under a written master agreement which provides for netting of payments owed by the respective parties, and the domicile 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 of the Securities Valuation Office as eligible for netting, the net amount of credit risk shall be the greater of zero or the net sum of:(a) The market value of the over-the-counter         derivative instruments entered into under the agreement, the liquidation of which would result in a final cash payment to the insurer; and(b) The market value of the over-the-counter         derivative instruments entered into under the agreement, the liquidation of which would result in a final cash payment by the insurer to the business entity.(3) 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.T. "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, pursuant to 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.U. "Credit tenant loan" means 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.V. (1) "Derivative instrument" means an agreement,     option, instrument or a series or combination thereof:(a) 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; or(b) 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.(2) Derivative instruments include options, 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 rules adopted under Section 126.8.  Derivative instruments shall not include an investment authorized by Sections 126.11 through 126.17, 126.19 and 126.24 through 126.30.W. "Derivative transaction" means a transaction involving the use of one or  more derivative instruments.X. "Direct" or "directly," when used in connection with an obligation, means  the designated obligor is primarily liable on the instrument representing the  obligation.Y. "Dollar roll transaction" means 2 simultaneous transactions with  settlement dates no more than 96 days apart, so that in one  transaction 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:(1) 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(2) 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.  77r1), as amended.Z. "Domestic jurisdiction" means the United States, Canada, any state, any  province of Canada or any political subdivision of any of the foregoing.AA. "Equity interest" means any of the following that are not rated credit  instruments: common stock; preferred stock; trust certificate; equity  investment in an investment company other than a money market mutual fund or a  class one bond  mutual fund; investment in a common trust fund of a bank regulated by a federal  or state agency; an ownership interest in minerals, oil or gas, the rights to  which have been separated from the underlying fee interest in the real estate  where the minerals, oil or gas are located; instruments which are mandatorily,  or at the option of the issuer, convertible to equity; limited partnership  interests and those general partnership interests authorized under Section  126.5(D); member interests in limited liability companies; 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 instruments that would be rated credit  instruments except for the provisions of subsection RRR(2) of this Section.BB. "Equivalent securities" means:(1) 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 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 deemed to be the loaned security;(2) In a 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; or(3) In a reverse 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.CC. "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, a  level, or the performance or value of one or more underlying interests.DD. "Foreign currency" means a currency other than that of a domestic  jurisdiction.EE.  (1) "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 under this Article, other than under Sections 126.17 and 126.30.  An investment shall not be deemed 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:(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.(2) 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; and(c) "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.FF. "Foreign jurisdiction" means a jurisdiction other than a domestic  jurisdiction.GG. "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.HH. "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 and includes an insurance future.II. "Government money market mutual fund" means a money market mutual fund  that at all times:(1) 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(2) Qualifies for investment without a reserve under     the Purposes and Procedures of the Securities Valuation Office or any successor publication.JJ. "Government sponsored enterprise" means a:(1) Governmental agency; or(2) 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.KK. "Guaranteed or insured," when used in connection with an obligation  acquired under this Article, means the guarantor or insurer has agreed to:(1) Perform or insure the obligation of the obligor     or purchase the obligation; or(2) 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.LL. "Hedging transaction" means:(1) A derivative transaction that is entered into and     maintained to reduce:(a) the risk of a change in the value, yield,         price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or(b) the currency exchange rate risk or the degree         of exposure as to assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or(2) Such other derivative transactions as may be     specified to constitute hedging transactions in rules adopted pursuant to Section 126.8.MM. "High grade investment" means a rated credit instrument; rated 1, 2, P1,  P2, PSF1 or PSF2 by the SVO.NN. "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.OO. "Income generation transaction" means (1) 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,  or (2) such other derivative transactions as may be specified to constitute  income generation transactions in rules adopted pursuant to Section  126.8.PP. "Initial margin" means the amount of cash, securities or other  consideration initially required to be deposited to establish a futures  position.QQ. "Insurance future" means a future relating to an index or pool that is  based on insurance-related items.RR. "Insurance futures option" means an option on an insurance future.SS. "Investment company" means an investment company as defined in Section  3(a) of the Investment Company Act of 1940 (15 U.S.C.  80a-1 et seq.), as  amended, and a person described in Section 3(c) of that Act.TT. "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.UU. "Investment practices" means transactions of the types described in  Section 126.16, 126.18, 126.29 or 126.31.VV. "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 such 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 Article applicable to the  insurer. As used in this subsection, the total investment of the insurer shall  include:(1) Direct investment by the insurer in an asset; and(2) 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.WW. "Investment strategy" means 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.XX. "Letter of credit" means 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 acceptable  collateral for the purposes of Sections 126.16 and 126.29, a letter of credit  must have  an expiration date beyond the term of the subject transaction.YY. "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.ZZ. "Lower grade investment" means a rated credit instrument rated 4, 5, 6,  P4, P5, P6, PSF4, PSF5, or PSF6 by the SVO.AAA. "Market value" means:(1) As to cash and letters of credit, the amounts     thereof; and(2) 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 such a source or, to the extent no generally recognized source exists, the price for the security as determined in good faith by the insurer, plus accrued but unpaid income thereon to the extent not included in the price as of that date.BBB. "Medium grade investment" means a rated credit instrument rated 3, P3,  or PSF 3 by the SVO.CCC. "Money market mutual fund" means a mutual fund that meets the  conditions of 17 Code of Federal Regulations Par. 270.2a-7, under the  Investment Company Act of 1940 (15 U.S.C.  80a-1 et seq.), as amended or  renumbered.DDD. "Mortgage loan" means an obligation secured by a mortgage, deed of  trust, trust deed or other consensual lien on real estate.EEE. "Multilateral development bank" means an international development  organization of which the United States is a member.FFF. "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 the Investment Company Act of 1940 (15 U.S.C.  80a-1 et  seq.), as amended.GGG. "NAIC" means the National Association of Insurance Commissioners.HHH. "Obligation" means 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 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.III. "Option" means an agreement giving the buyer the right to buy or  receive (a "call option"), sell or deliver (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 and includes an  insurance futures option.JJJ. "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.KKK. "Potential exposure" means the amount determined in accordance with the  NAIC Annual Statement Instructions.LLL. "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.MMM. "Qualified bank" means:(1) 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 either is regulated by state banking laws or is a member of the Federal Reserve System; or(2) 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.NNN. "Qualified business entity" means a business entity that is:(1) 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 by a nationally recognized statistical rating organization recognized by the SVO;(2) A primary dealer in United States government     securities, recognized by the Federal Reserve Bank of New York; or(3) With respect to securities lending arrangements     under Sections 126.16 and 126.29, an affiliate of an entity that is a qualified business entity pursuant to paragraph (1) or (2) of this subsection NNN, whose arrangement with the insurer is guaranteed by the affiliated entity that is a qualified business entity under paragraph (1) or (2).OOO. "Qualified clearinghouse" means a clearinghouse for, and subject to the  rules of, a  qualified exchange or a qualified foreign exchange, which provides clearing  services, including acting as a counterparty to each of the parties to a  transaction  such that the parties no longer have credit risk as to each other.PPP. "Qualified exchange" means:(1) A securities exchange registered as a national     securities exchange, or a securities market regulated under the Securities Exchange Act of 1934 (15 U.S.C.  78 et seq.), as amended;(2) A board of trade or commodities exchange     designated as a contract market by the Commodity Futures Trading Commission or any successor thereof;(3) Private Offerings, Resales and Trading through     Automated Linkages (PORTAL);(4) A designated offshore securities market as     defined in Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended; or(5) A qualified foreign exchange.QQQ. "Qualified foreign exchange" means a foreign exchange, board of trade  or contract market located outside the United States, its territories or  possessions:(1) That has received regulatory comparability relief     under Commodity Futures Trading Commission (CFTC) Rule 30.10 (as set forth in Appendix C to Part 30 of the CFTC's Regulations, 17 C.F.R. Part 30);(2) That is, or its members are, subject to the     jurisdiction of a foreign futures authority that has received regulatory comparability relief under CFTC Rule 30.10 (as set forth in Appendix C to Part 30 of the CFTC's Regulations, 17 C.F.R. Part 30) as to futures transactions in the jurisdiction where the exchange, board of trade or contract market is located; or(3) Upon which foreign stock index futures contracts     are listed that are the subject of no-action relief issued by the CFTC's Office of General Counsel, provided that an exchange, board of trade or contract market that qualifies as a "qualified foreign exchange" only under this subsection shall only be a "qualified foreign exchange" as to foreign stock index futures contracts that are the subject of no-action relief.RRR.  (1) "Rated credit instrument" means 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 397 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 90 days or less, the instrument has been 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.(2) However, "rated credit instrument" does 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 combinations thereof.SSS. "Real estate" means:(1)  (a) Real property;(b) Interests in real property, such as         leaseholds, minerals and 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.(2) 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 20% of the original term of the obligation or 10 years, whichever is greater.TTT. "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 under this Article. A derivative transaction that is  entered into as a hedging transaction shall not be considered a replication  transaction.UUU. "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 of time or upon demand.VVV. "Required liabilities" means total liabilities required to be reported  on the  statutory financial statement of the insurer most recently required to be filed  with the Director.WWW. "Residential mortgage loan" means a loan primarily secured by a  mortgage on real estate improved with a one to four family residence.XXX. "Reverse 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 of time or upon demand.YYY. "Secured location" means the contiguous real estate owned by one  person.ZZZ. "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 of time or upon demand.AAAA. "Series company" means an investment company that is organized as a  series company, as defined in Rule 18f-2(a) adopted under the Investment  Company Act of 1940 (15 U.S.C.  80a-1 et seq.), as amended.BBBB. "Sinking fund stock" means preferred stock that:(1) 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 40 years from the date of acquisition; and(2) Provides for mandatory sinking fund installments     (or open market purchases) commencing not more than 10.5 years from the date of issue, with the sinking fund installments providing for the purchase or redemption, on a cumulative basis commencing 10 years from the date of issue, of at least 2.5% per year of the original number of shares of that issue of preferred stock.CCCC. "Special rated credit instrument" means a rated credit instrument that  is:(1) An instrument that is 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 subsection 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 amount and timing, or callable but in any event payable only at par or greater, and interest or dividend cash flows that are based on either 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 110% of par;(d) An instrument, including an asset-backed         security, whose rate of return would become negative only as a result of a 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, 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 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         flows 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 105% of such par amount.(2) An asset-backed security that:(a) Relies on cash flows 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 (2) 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. The prepayment expectation used in this calculation shall be, at the insurer's election, 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 as the assets that underlie the asset- backed security, in either case with 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 rule promulgated under Section 126.8.(3) For purposes of subparagraph 2 of this     subsection, 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 must maintain documentation demonstrating that such securities were acquired and are continuing to be held in combination.DDDD. "State" means a state, territory or possession of the United States of  America, the District of Columbia or the Commonwealth of Puerto Rico.EEEE. "Substantially similar securities" means securities that meet all  criteria for substantially similar  securities  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 PSA The Bond Market Trade Association.FFFF. "Subsidiary" means, as to any person, an affiliate controlled by such  person, directly or indirectly through one or more intermediaries.GGGG. "SVO" means the Securities Valuation Office of the NAIC or any  successor office established by the NAIC.HHHH. "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.IIII. "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.JJJJ. "Unrestricted surplus" means the amount by which total admitted assets  exceed 125% of the insurer's required liabilities.KKKK. "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.    (Source: P.A. 90-418, eff. 8-15-97; 90-794, eff. 8-14-98.)