N.Y. Insurance Law § 1404: Types of reserve investments permitted for non-life insurers

§ 1404. Types of reserve investments permitted for non-life insurers.

(a) In addition to the investments specified in subsection (b) hereof,

but excluding any investment prohibited by the provisions of paragraph

one, three, four, six, eight, nine or ten of subsection (a) of section

one thousand four hundred seven of this article, the reserve investments

of a domestic insurer authorized to make investments under the authority

of this section shall consist of the following:

(1) Government obligations. Obligations which are not in default as to

principal or interest, which are valid and legally authorized, and which

are issued, assumed, guaranteed or insured by:

(A) the United States or by any agency or instrumentality thereof,

(B) any state of the United States,

(C) any territory or possession of the United States or any other

governmental unit in the United States, or

(D) any agency or instrumentality of any governmental unit referred to

in subparagraphs (B) and (C) of this paragraph, provided that

obligations to be eligible under this paragraph shall be by law

(statutory or otherwise) payable, as to both principal and interest,

from taxes levied or by law required to be levied or from adequate

special revenues pledged or otherwise appropriated or by law required to

be provided for the purpose of such payment, but in no event shall

obligations be eligible for investment under this paragraph if payable

solely out of special assessments on properties benefited by local

improvements.

(2) Obligations of American institutions.

(A) Obligations which are issued by any solvent American institution

or which are assumed or guaranteed by any solvent American institution

(other than an insurance company) and which are not in default as to

principal or interest provided such obligations:

(i) are adequately secured by collateral security having a market

value not less than the principal amount thereof and have investment

qualities and characteristics wherein the speculative elements are not

predominant, or

(ii) are rated A or higher (or the equivalent thereto) by a securities

rating agency recognized by the superintendent, or if not so rated, are

similar in structure and in all material respects to other obligations

of the same institution which are so rated, or

(iii) are insured by one or more authorized insurance companies (other

than the investing insurer or any parent, subsidiary or affiliate of

such insurer) who are licensed to insure obligations in this state and,

after considering such insurance, are rated Aaa (or the equivalent

thereto) by a securities rating agency recognized by the superintendent,

or

(iv) have been given the highest quality designation by the Securities

Valuation Office of the National Association of Insurance Commissioners.

(B) No investment in or loan upon the obligations of any institution,

other than an institution which issues mortgage related securities, and

no investment in any one mortgage related security, made pursuant to the

provisions of this paragraph shall exceed five per centum of the

admitted assets of such insurer as shown by its last statement on file

with the superintendent.

(3) Preferred or guaranteed shares of American institutions. (A)

Preferred or guaranteed shares issued or guaranteed by a solvent

American institution if all of the institution's obligations are

eligible as investments under item (ii) or (iv) of subparagraph (A) of

paragraph two of this subsection.

(B) No investment in the preferred or guaranteed shares of any

institution made pursuant to the provisions of this paragraph shall

exceed two percent of such insurer's admitted assets as shown by its

last statement on file with the superintendent.

(4) Loans secured by real property. (A) Loans secured by first or

second mortgages which are liens on improved real property in the United

States (including leasehold estates having an unexpired term of not less

than twenty years, inclusive of the term or terms which may be provided

by enforceable terms of renewal) meeting the following requirements:

(i) Priority of mortgages. The mortgaged property shall be subject to

no prior lien, except a first mortgage and liens for non-delinquent

ground rents, taxes, assessments and similar charges. There shall be no

condition or right of re-entry or forfeiture not insured against under

which the mortgage can be cut off, subordinated or otherwise disturbed.

No loan secured by a second mortgage shall be made if the principal

amount secured by a prior first mortgage can be increased without the

insurer's consent unless the amount of increase is applied to reduce the

second mortgage.

(ii) Leaseholds. If the mortgaged property is a leasehold:

(I) the lease shall provide for a term of at least twenty-one years,

(II) the property underlying the leasehold shall be subject to no

prior lien except for liens for non-delinquent ground rents, taxes,

assessments and similar charges and there shall be no condition or right

of re-entry or forfeiture not insured against under which the insurer is

unable to continue the lease in force for the duration of the loan, and

(III) the loan shall provide for such payments that at any time during

the period of the loan the aggregate payments of principal to be made

will be sufficient to repay the loan within the lesser of forty years or

a period equal to eighty percent of the term of the lease, through

payments of interest only for five years and equal payments applicable

first to interest and then to principal at the end of each year

thereafter. "Term", as used in this paragraph six with reference to a

lease, means its unexpired term at the date of the loan, plus any term

which may be provided by options of the lessee to renew.

(iii) Participations. If the investment is a participation in a loan:

(I) all participations shall be held by the insurer, or

(II) the participation held by the insurer shall give it substantially

the rights of a first or second mortgagee, and shall be prior to those

of the holders of the other participations, or

(III) each participation shall be of equal rank, and

(aa) the loan shall comply with items (i), (ii), and (iv) of this

subparagraph (A) and with any regulations prescribed by the

superintendent for investments under this clause (III), and

(bb) if, when the participation is acquired by the insurer, there are

more than five holders of participations in the loan, or more than three

such holders and such loan is less than five million dollars in original

principal amount, the mortgagee shall be (and, in the case of a

participation in an obligation, the obligation shall be held by) a bank

or trust company duly authorized and licensed to act as a corporate

trustee (with or without a co-trustee). "Participation", as used in this

paragraph four, means an obligation forming part of an issue of bonds,

notes or other evidences of indebtedness which are secured by the same

mortgage and also an instrument evidencing a participating interest in

any such bond, note or other evidence of indebtedness.

(iv) Amount of loan. The amount of the loan (excluding any part

guaranteed or insured under title three of the Servicemen's Readjustment

Act of 1944, 38 U.S.C. §§ 1801-1827), when added to the amount unpaid on

any prior first mortgage, shall not exceed the following percentages of

the value of the real property or leasehold securing the loan, as

determined by an appraisal made by an appraiser for the purpose of the

investment:

(I) sixty-six and two-thirds percent,

(II) seventy-five percent, if the mortgage provides for such payments

of principal that at no time during the period of the loan shall the

aggregate payments of principal required to be made be less than would

have been necessary to reduce the amount of the loan (plus the amount

secured by any such prior mortgage) to sixty-six and two-thirds percent

of such value by the end of thirty-five years, through payments of

interest only for five years and equal payments applicable first to

interest and then to principal at the end of each year thereafter, or

(III) ninety percent, if the loan is secured by a first mortgage on

real property improved primarily with a residential building, which may

be a condominium unit, for not more than four families and provides for

monthly payments of principal and interest sufficient to repay the loan

within the lesser of forty years or the remaining useful life of the

building as estimated in the appraisal.

(v) Investment limitations.

(I) Investments held by an insurer, except a fraternal benefit

society, under this subparagraph (A) shall not exceed:

(aa) in the aggregate twenty-five percent of its admitted assets as

shown by its last statement on file with the superintendent excluding

any amount guaranteed or insured under the Servicemen's Readjustment Act

of 1944, 38 U.S.C. §§ 1801-1827, or

(bb) in the aggregate two percent of its admitted assets as shown by

its last statement on file with the superintendent in loans secured by

other than first mortgages.

(II) Investments held by a fraternal benefit society under this

paragraph shall not exceed:

(aa) in the aggregate fifty percent of its admitted assets as shown by

its last statement on file with the superintendent, excluding any amount

guaranteed or insured under the Servicemen's Readjustment Act of 1944,

38 U.S.C. §§ 1801-1827, or

(bb) in the aggregate two percent of its admitted assets as shown by

its last statement on file with the superintendent in loans secured by

other than first mortgages.

(III) No insurer or society shall invest in or lend upon the security

of any one property more than the greater of thirty thousand dollars or

two percent of its admitted assets as shown by its last statement on

file with the superintendent.

(IV) Separate evidences of indebtedness which are separately

transferable shall be deemed to constitute separate loans which may be

separately qualified under this paragraph whether or not secured by a

single mortgage.

(B) Purchase money mortgages. Purchase money mortgages or like

securities received by the insurer on the sale or exchange of real

property held under paragraph five hereof.

(5) Real property or interests therein. (A) The following investments

in real property (including incidental equipment thereto) located in the

United States, if acquired and held directly or through partnership

interests engaged exclusively in the business of acquiring, owing and

managing such property:

(i) The land and the building thereon in which the insurer has its

principal office.

(ii) Real property requisite for the insurer's convenient

accommodation in the transaction of its business.

(iii) Real property acquired in total or partial satisfaction of

mortgages, liens, judgments, claims or indebtedness held by the insurer

in the course of its business.

(iv) Real property acquired as an investment for the production of

income or to be improved or developed for such investment purpose.

(B) Investments under this paragraph shall be subject to the following

limitations:

(i) The cost of each parcel acquired under item (iv) of subparagraph

(A) of this paragraph, including the estimated cost to the insurer of

the improvement or development thereof, shall not exceed one percent of

the insurer's admitted assets as shown by its last statement on file

with the superintendent, and when added to the book value of all other

real property then held by it pursuant to such item (iv), shall not

exceed twelve and one-half percent of such admitted assets. Unless

otherwise required by the superintendent under subsection (b) of section

one thousand four hundred fourteen of this article, each parcel of real

property held under such item (iv) together with each capital

improvement or development thereof existing at acquisition or made

subsequently shall be valued on the insurer's books as of each last

year-end so as to write down the cost of such improvement or

development, at a rate averaging at least two percent per annum

commencing on the date of acquisition or completion, as the case may be,

of such improvement or development.

(ii) The acquisition of real property serving as the residence of an

employee, except a director or trustee of such insurer, if acquired in

connection with the relocation by the insurer of the employee's place of

employment, including any relocation in connection with his initial

employment, at a purchase price not exceeding the property's value as

determined by an independent appraiser for the purpose of such

acquisition, provided such employee has made reasonable efforts

otherwise to dispose of such property during the month before such

acquisition. Such property must be acquired under item (ii) of

subparagraph (A) hereof, and, in the case of a non-director officer,

such acquisition is subject to the provisions of subsection (h) of

section one thousand four hundred eleven of this article.

(iii) Real property acquired pursuant to items (i) and (ii) of

subparagraph (A) hereof shall be disposed of within five years after it

shall have ceased to be necessary for the convenient accommodation of

such insurer in the transaction of its business, and real property

acquired pursuant to item (iii) of subparagraph (A) hereof shall be

disposed of within five years after the date of acquisition, unless the

superintendent certifies that the interests of the insurer will suffer

materially by the forced sale thereof and extends the time in such

certificate.

(iv) No real property shall be acquired by any domestic insurer

pursuant to items (i) and (ii) of subparagraph (A) hereof if its cost,

together with the book value of all real property then held pursuant to

such items (i) and (ii), exceeds ten percent of the insurer's admitted

assets as shown by its last statement on file with the superintendent.

(v) Except with the superintendent's approval, no domestic insurer

shall:

(I) acquire any real property pursuant to items (i) and (ii) of

subparagraph (A) of this paragraph, if the real property being acquired

is greater than one percent of the insurer's admitted assets as shown by

its last statement on file with the superintendent, or

(II) with respect to any building which was acquired under items (i)

and (ii) of subparagraph (A) of this paragraph, make any improvement

which should be capitalized according to generally accepted accounting

principles if the annual expenditure for such improvements for any such

building will exceed the greater of ten percent of its book value or one

percent of the insurer's admitted assets as shown by its last statement

on file with the superintendent.

(6) Foreign investments. (A) Investments in a foreign country or in a

possession of the United States which are substantially of the same

kinds, classes and investment grades as those eligible for investment

under other provisions of this subsection. The aggregate amount of

foreign investments including cash in the currency of such country or

possession, obligations of American institutions payable outside of the

United States and cash deposited in a bank, trust company or thrift

institution located outside of the United States held at any time

pursuant to the provisions of this section shall not exceed ten percent

of the insurer's admitted assets as shown by its last statement on file

with the superintendent.

(B) Investments in any one possession of the United States or in any

one foreign country, other than Canada, made pursuant to this paragraph

shall not exceed (i) in the case of any possession or country having the

highest sovereign debt rating, as established by a securities rating

agency recognized by the superintendent, three percent of the insurer's

admitted assets as shown by its last statement on file with the

superintendent, or

(ii) in the case of any other possession or country one percent of the

insurer's admitted assets as shown by its last statement on file with

the superintendent.

(7) Development bank obligations. Obligations issued or guaranteed by

the international bank for reconstruction and development, the

inter-American development bank, the Asian development bank, the African

development bank or the international finance corporation; provided that

(i) obligations of such banks and the international finance

corporation are rated AA or higher (or the equivalent thereto) by a

securities rating agency recognized by the superintendent, or if not so

rated are similar in structure and in all material respects to other

obligations of the same institution which are so rated, and

(ii) the aggregate investment made pursuant to the provisions of this

paragraph in each such bank and the international finance corporation at

any time, shall not exceed five percent of the insurer's admitted assets

as shown by its last statement on file with the superintendent, and

(iii) the aggregate investment made pursuant to the provisions of this

paragraph in all such banks and the international finance corporation

shall not exceed fifteen percent of the insurer's admitted assets as

shown by its last statement on file with the superintendent.

(8) Equity interests. (A) Investments in common shares or partnership

interests of any solvent American institution, if:

(i) all its obligations and preferred shares, if any, are eligible as

investments under this subsection and

(ii) such equity interests of any such institution except an insurance

company are registered on a national securities exchange, as provided in

the Securities Exchange Act of 1934, 15 U.S.C. §§78a-78kk or otherwise

registered pursuant to said act and, if so otherwise registered, price

quotations therefor are furnished through a nationwide automated

quotations system approved by the National Association of Securities

Dealers, Inc., provided that an insurer may invest under this paragraph

an amount not exceeding one percent of the insurer's admitted assets as

shown by its last statement on file with the superintendent even though

such equity interests are not so registered and are not issued by an

insurance company.

(B) Investment limitations. (i) No insurer subject to the provisions

of paragraph two of subsection (a) or subsection (b) of section one

thousand four hundred three of this article shall invest in or loan upon

any one institution's outstanding equity interests an amount exceeding

one percent of the insurer's admitted assets as shown by its last

statement on file with the superintendent, and (ii) the cost of any

investment in equity interests, made pursuant to this paragraph, when

added to the aggregate cost of all other investments in equity interests

then held pursuant to this paragraph, paragraph six and clause (ii) of

subparagraph (A) of paragraph ten of this subsection shall not exceed:

(I) in the case of an insurer authorized to make investments under

item (i) of this subparagraph except a retirement system organized

pursuant to article forty-six of this chapter, the lesser of its surplus

to policyholders or ten percent of its admitted assets as shown by its

last statement on file with the superintendent, and

(II) in the case of a retirement system organized pursuant to article

forty-six of this chapter, thirty percent of its admitted assets as

shown by its last statement on file with the superintendent.

(9) Investments made by subsidiaries. The net investment in real

property and loans secured by real property made by subsidiaries engaged

or organized to engage exclusively in the acquisition, ownership and

management of such investments. Such loans and real property must

qualify as a reserve investment under paragraph four or five of this

subsection. The subsidiary's net investment in such real property and

loans shall be included under such paragraph when computing any

limitations applicable to such real property and loans and excluded when

computing the limitations applicable to equity interests under paragraph

eight of this subsection. In order to qualify, a subsidiary must be

wholly-owned either by the insurer or by two or more insurance companies

domiciled in the United States who are members of the same holding

company system, as such term is defined in article fifteen of this

chapter, and each individual insurer's share of the net investments made

by such subsidiary shall be computed in proportion to its equity

interest in such subsidiary.

(10) Investment companies. (A) Securities of any investment company

registered pursuant to the federal Investment Company Act of 1940, 15

U.S.C. § 802, if such company:

(i) invests at least ninety percent of its assets in the types of

securities which qualify as a reserve investment pursuant to the

provisions of paragraph one, two or three of this subsection or which

invest in securities which are determined by the superintendent to be

substantively similar to the types of securities set forth in such

paragraphs; or

(ii) invests at least ninety percent of its assets in the types of

equity interests which qualify as a reserve investment pursuant to the

provisions of paragraph eight of this subsection.

(B) Investment limitations. Investments made by an insurer subject to

the provisions of paragraph two of subsection (a) or subsection (b) of

section one thousand four hundred three of this article shall not exceed

the following limitations:

(i) in any investment company qualifying under item (i) of

subparagraph (A) hereof, ten percent of such insurer's admitted assets

as shown by its last statement on file with the superintendent and the

aggregate amount of investment in such qualifying investment companies

shall not exceed twenty-five percent of such insurer's admitted assets

as shown by its last statement on file with the superintendent; and

(ii) in any investment company qualifying under item (ii) of

subparagraph (A) hereof, five percent of such insurer's admitted assets

as shown by its last statement on file with the superintendent and the

aggregate amount of investment in such qualifying investment companies

shall be included when calculating the permissible aggregate value of

equity interests pursuant to the provisions of subparagraph (B) of

paragraph eight of this subsection.

(11) Credit union shares, share certificates and share draft accounts.

Shares, share certificates and share draft accounts issued by credit

unions and federal credit unions not to exceed the amounts which are

assumed, guaranteed or insured by the United States or any agency or

instrumentality thereof.

(b) Leeway provision. Investments which do not qualify or are not

permitted under subsection (a) hereof, but excluding any investment

prohibited by the provisions of paragraph six of subsection (a) of this

section or by the provisions of paragraph one, two, three, four, six,

eight, nine or ten of subsection (a) of section one thousand four

hundred seven of this article, provided that:

(1) the aggregate cost of such investments shall not exceed five

percent of the admitted assets of the insurer as shown by its last

statement on file with the superintendent, and

(2) investments that are neither interest-bearing nor income-paying,

made under this subsection as provided in paragraph one of subsection

(d) of section one thousand four hundred three of this article shall not

in the aggregate exceed three percent of the admitted assets of the

insurer as shown by its last statement on file with the superintendent.