TITLE 33 INSURANCE

Section 11. Investments, 33-11-1 through 33-11-89.

ARTICLE 2 INVESTMENTS OF LIFE, ACCIDENT AND SICKNESS, PROPERTY, AND CASUALTY INSURERS

33-11-51. Definitions.

For purposes of this article, the term:

1. "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.
2. "Asset-backed/mortgage-backed securities" shall include single-class mortgage-backed/asset-backed securities, multiclass residential mortgage-backed securities, and multiclass commercial mortgage-backed/asset-backed securities.
3. "Asset-valuation reserve" means the reserve required to be computed and reported in the annual and quarterly financial statements, adopted for use by the Commissioner, which is designed to address the credit related and equity risks of a domestic life or accident and sickness insurer's assets.
4. "Cap" means an option contract in which the cap writer (seller), in return for a premium, agrees to limit, or cap, the cap holder's (purchaser's) risk associated with an increase in a reference rate or index.
5. "Collar" means a combination of a cap and a floor (one purchased and one written). A collar fixes the rate between two levels (the strike prices of the cap and the floor).
6. "Counterparty exposure amount" means:
   1. The net amount of credit risk attributable to an over-the-counter derivative instrument. The amount of credit risk equals:
      1. 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
      2. 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 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 Securities Valuation Office as eligible for netting in accordance with procedures adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner, the net amount of credit risk shall be the greater of zero or the net sum of:
      1. 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
      2. 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; and
   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.
7. "Debt-like preferred stock" means an investment with the structure of a preferred stock that has the cash flow characteristics of a debt instrument.
8. "Derivative instrument" means a cap, collar, floor, forward, future, option, swap, or warrant.
9. "Derivative transaction" means a transaction involving the use of one or more derivative instruments.
10. "Domestic jurisdiction" means the United States, Canada, any state, any province of Canada, or any political subdivision of any of the foregoing.
11. "Equity-like preferred stock" means an investment with the structure of a preferred stock that has the characteristics of an equity instrument.
12. "Floor" means an option contract in which the floor writer (seller), in return for a premium, agrees to limit the risk associated with a decline in a reference rate or index.
13. "Forward" means a contract in which there is an agreement (other than a futures) between two parties that commits one party to purchase and the other to sell the instrument or commodity underlying the contract at a specified future date.
14. "Future" means a standardized forward contract traded on organized exchanges. Each exchange specifies the standard terms of futures contracts it sponsors. Futures contracts are available for a wide variety of underlying instruments, including insurance, agricultural commodities, minerals, debt instruments (such as United States Treasury bonds and bills), composite stock indices, and foreign currencies.
15. "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.
16. "Hedging transaction" means a derivative transaction which is entered into and maintained to reduce or manage:
    1. 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; or
    2. 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.
17. "High-grade investment" means an investment rated 1 or 2 by the Securities Valuation Office or any successor office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner.
18. "Lower grade investment" means an investment rated 4, 5, or 6 by the Securities Valuation Office or any successor office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner.
19. "Medium grade investment" means an investment rated 3 by the Securities Valuation Office or any successor office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner.
20. "Minimum asset requirement" means the sum of an insurer's liabilities and its minimum financial security benchmark.
21. "Minimum financial security benchmark" means the amount an insurer is required to maintain under Code Section 33-11-52.
22. "Multiclass commercial mortgage-backed/asset-backed securities" means securities which have been divided into two or more classes, which do not receive proportionate payments of principal and interest, each of which represents an ownership interest in instruments or cash flows, but not including those secured by liens on one-family to four-family residential properties, including:
    1. Defined multiclass commercial mortgage-backed securities which have been divided into two or more classes, which do not receive proportionate payments of principal and interest, each of which represents an ownership interest in instruments, directly or indirectly secured by a first lien on one or more parcels of real estate upon which is located one or more commercial structures, and rated in one of the two highest generic rating categories established by a nationally recognized statistical rating organization that is recognized by the Securities Valuation Office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner; and
    2. Other multiclass commercial mortgage-backed/asset-backed securities which have been divided into two or more classes, which do not receive proportionate payments of principal and interest, each of which represents an ownership interest in instruments or cash flows, including, but not limited to, instruments secured by liens on one or more parcels of real estate upon which is located one or more commercial structures that are not first liens or, if secured by first liens, the securities are rated below the two highest generic rating categories established by a nationally recognized statistical rating organization that is recognized by the Securities Valuation Office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner.
23. "Multiclass residential mortgage-backed securities" means mortgage-backed securities which have been divided into two or more classes, which do not receive proportionate payments of principal and interest, each of which represents an ownership interest in instruments which are directly or indirectly secured by liens on one-family to four-family residential properties, including:
    1. Defined multiclass residential mortgage-backed securities which are first liens and are rated in one of the two highest generic rating categories established by a nationally recognized statistical rating organization that is recognized by the Securities Valuation Office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner; and
    2. Other multiclass residential mortgage-backed securities which are not first liens or, if secured by first liens, are rated below the two highest generic rating categories established by a nationally recognized statistical rating organization that is recognized by the Securities Valuation Office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner.
24. "Option" means a contract that gives the option holder (purchaser of the option rights) the right, but not the obligation, to enter into a transaction with the option writer (seller of the option rights) on terms specified in the contract. A call option allows the holder to buy the underlying instrument, while a put option allows the holder to sell the underlying instrument.
25. "Over-the-counter derivative instrument" means a derivative instrument entered into with a business entity other than through a qualified exchange, qualified foreign exchange, or cleared through a qualified clearing-house.
26. "Potential exposure" means the amount determined in accordance with the Annual Statement Instructions adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner.
27. "Replication" means a derivative transaction involving one or more derivative instruments being used to modify the cash flow characteristics of one or more investments held by an insurer in a manner so that the aggregate cash flows of the derivative instruments and investments reproduce the cash flows of another investment having a higher risk-based capital charge than the risk-based capital charge of the original investments or investments.
28. "Single-class mortgage-backed/asset-backed securities" means pass-through certificates and other securitized loans issued using only one class where the payment of interest or principal or both of the security is directly proportional to interest or principal or both received by the business entity from the loans supporting the security.
29. "Special rated credit instrument" means an asset-backed/mortgage-backed security authorized by paragraph (2) of subsection (a) of Code Section 33-11-55 where the investment is structured such that:
    1. The payments are the interest only portion of the underlying collateral;
    2. Such payments are reduced as the balance of the underlying collateral is reduced; and
    3. Such reduction may cause a significant loss of the original investment. For purposes of this subparagraph, "significant" shall mean a loss of 15 percent or more.
30. "SVO listed mutual fund" means a money market mutual fund or short-term bond fund that is registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 and that has been determined by the Securities Valuation Office or any successor office in accordance with valuation standards adopted by the National Association of Insurance Commissioners and adopted by regulation promulgated by the Commissioner or as otherwise prescribed by regulation promulgated by the Commissioner to be eligible for special reserve and reporting treatment other than as common stock.
31. "Swap" means a contract to exchange, for a period of time, the investment performance of one underlying instrument for the investment performance of another underlying instrument, typically without exchanging the instruments themselves. An interest rate swap is a contractual agreement between two parties to exchange interest rate payments (usually fixed for variable) based on a specified amount of underlying assets or liabilities (known as the notional amount) for a specified period. The swap does not involve an exchange of principal. The result of these transactions is to transform payments from a variable rate to a fixed rate, from a fixed rate to a variable rate, or from one variable rate index to another variable rate index.
32. "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.

(Code 1981, §33-11-51, enacted by Ga. L. 1999, p. 592, § 12; Ga. L. 2000, p. 136, § 33.)