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(1) must consist of a contractual right to receive, from another entity, cash or a credit instrument, and
(A) if the instrument has a maturity at the time of issue of more than 397 days, must be rated, be required to be rated, or be exempt from rating under the requirements of the purposes and procedures manual of the securities valuation office;
(B) if the instrument has a maturity at the time of issue of 397 days or less, must be issued, guaranteed, or insured by an entity that is rated by, or that has another obligation that is rated by, the securities valuation office or by a nationally recognized statistical rating organization;
(C) if the instrument has a maturity at the time of issue of 90 days or less, must be issued by a qualified bank;
(D) must be a share of a class one bond mutual fund; or
(E) must be a share of a money market mutual fund; and
(2) may not include
(A) an instrument that is mandatorily or at the option of the issuer convertible to an equity interest;
(B) a security that has a par value and the terms of which 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, an index of equities, commodities, or foreign currencies, or a combination of equities, commodities, or foreign currencies.
(1) structured in a manner that, if it is held until retired by or on behalf of the issuer, the instrument's 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 may not be treated as a special rated credit instrument under this paragraph if it is
(A) a share in a class one bond mutual fund;
(B) an instrument
(i) other than an asset-backed security;
(ii) with payments of par value fixed as to amount and timing, or callable;
(iii) payable only at par or greater; and
(iv) with interest and 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
(i) other than an asset-backed security; and
(ii) that has a par value and is purchased at a price no greater than 110 percent 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 relying on collateral that meets the requirements of (B) of this paragraph and has a par value that is permitted to be paid
(i) not sooner than one-half of the remaining term to maturity from the date of acquisition;
(ii) before 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) before 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 is not governed by (E) of this paragraph, and that relies on cash flows from assets that are not prepayable at any time at par, 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 not greater than 105 percent of the par amount; or
(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; for purposes of this subparagraph,
(i) the prepayment threshold assumption is calculated as 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 the securities or assets; as the prepayment expectation used in this calculation, the insurer may use the prepayment expectation for pass through securities of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association, or for other assets of the same type as the assets that underlie the asset-backed security; the prepayment expectation must have a gross weighted average coupon comparable to the gross weighted average coupon of the assets that underlie the asset-backed security; and
(ii) 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 if the insurer maintains documentation demonstrating that the securities were acquired in and continue to be held in combination.
History: Eff. 12/28/2001, Register 160
Authority: AS 21.06.090
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Last modified 7/05/2006