{"data":{"id":"us-ky/krs-304.7-012","jurisdiction":"us-ky","citation":"KRS 304.7-012","heading":"Definitions.","body":"As used in this subtitle:\n(1) \"Acceptable collateral\" means:\n(a) As to securities lending transactions, and for the purpose of calculating\ncounterparty exposure amount, cash, cash equivalents, letter of credit, direct\nobligations of, or securities that are fully guaranteed as to principal and\ninterest by, the gover nment of the United States, any agency of the United\nStates, the Federal National Mortgage Association, or the Federal Home Loan\nMortgage Corporation, and as to lending foreign securities, sovereign debt\nrated 1 by the SVO;\n(b) As to repurchase transaction s, cash, cash equivalents, direct obligations of, or\nsecurities that are fully guaranteed as to principal and interest by, the\ngovernment of the United States, any agency of the United States, the Federal\nNational Mortgage Association, or the Federal Home Loan Mortgage\nCorporation; and\n(c) As to reverse repurchase transactions, cash and cash equivalents;\n(2) \"Acceptable private mortgage insurance\" means insurance written by a private\ninsurer protecting a mortgage lender against loss occasioned by a mortgage  loan\ndefault and issued by a licensed mortgage insurance company, with an SVO 1\ndesignation or a rating issued by a nationally recognized statistical rating\norganization equivalent to an SVO 1 designation, that covers losses to an eighty\npercent (80%) loan-to-value ratio;\n(3) \"Accident and health insurance\" means protection that provides payment of benefits\nfor covered sickness or accidental injury, excluding credit insurance, disability\ninsurance, accidental death and dismemberment insurance, and long -term care\ninsurance;\n(4) \"Accident and health insurer\" means a licensed life or health insurer or health\nservice corporation whose insurance premiums and required statutory reserves for\naccident and health insurance constitute at least ninety -five percent (95 %) of total\npremium considerations or total statutory required reserves, respectively;\n(5) \"Admitted assets\" means assets permitted to be reported as admitted assets in\naccordance with Subtitle 6 of KRS Chapter 304 on the statutory financial statement\nof t he insurer most recently required to be filed with the commissioner, but\nexcluding assets of separate accounts;\n(6) \"Affiliate\" means, as to any person, another person that, directly or indirectly\nthrough one (1) or more intermediaries, controls, is contro lled by, or is under\ncommon control with the person;\n(7) \"Asset-backed security\" means a security or other instrument, excluding a mutual\nfund, evidencing an interest in, or the right to receive payments from, or payable\nfrom distributions on, an asset, a pool of assets, or specifically divisible cash flows\nthat are legally transferred to a trust or another special purpose bankruptcy -remote\nbusiness entity, on the following conditions:\n(a) The trust or other business entity is established solely for the pur pose of\nacquiring specific types of assets or rights to cash flows, issuing securities and\nother instruments representing an interest in or right to receive cash flows\nfrom those assets or rights, and engaging in activities required to service the\nassets o r rights and any credit enhancement or support features held by the\ntrust, or other business entity; and\n(b) The assets of the trust or other business entity consist solely of interest bearing\nobligations or other contractual obligations representing the r ight to receive\npayment from the cash flows from the assets or rights. However, the existence\nof credit enhancement, such as letters of credit or guarantees, or support\nfeatures such as swap agreements, shall not cause a security or other\ninstrument to be ineligible as an asset-backed security;\n(8) \"Business entity\" includes a sole proprietorship, corporation, limited liability\ncompany, association, partnership, joint stock company, joint venture, mutual fund,\ntrust, joint tenancy, or other similar form of business organization, whether\norganized for profit or not-for-profit;\n(9) \"Cap\" means an agreement obligating the seller to make payments to the buyer, with\neach payment based on the amount by which a reference price, level, or the\nperformance or value of one (1) or more underlying interests exceeds a\npredetermined number, sometimes called the strike rate or strike price;\n(10) \"Capital and surplus\" means the sum of the capital and surplus of the insurer\nrequired to be shown on the statutory financial statement of the insurer most\nrecently required to be filed with the commissioner;\n(11) \"Cash equivalents\" means short-term, highly rated, and highly liquid investments or\nsecurities readily convertible to known amounts of cash without penalty and so near\nmaturity that they present insignificant risk of change in value. Cash equivalents\ninclude government money market mutual funds and class one money market\nmutual funds. For purposes of this definition:\n(a) \"Short-term\" means investments with a remaining term to maturity of ninety\n(90) days or less; and\n(b) \"Highly rated\" means an investment rated P -1 by Moody's Investors Service,\nInc., or A-1 by Standard and Poor's division of The McGraw -Hill Companies,\nInc. or its equivalent rating by a nationally recognized statistical rating\norganization recognized by the SVO;\n(12) \"Class one bond mutual fund\" means a mutual fund that at all times qualifies for\ninvestment using the bond class one reserve factor under the Purposes and\nProcedures of the Securities Valuation Office, or any successor publication;\n(13) \"Class one money market mutual fund\" means a money market mutual fund that at\nall times qualifies for investment using the bond class one reserve factor under the\nPurposes and Procedures of the Securities Valuation Office, or any successor\npublication;\n(14) \"Code\" means KRS Chapter 304 and all administrative regulations promulgated as\nauthorized;\n(15) \"Collar\" means an agreement to receive payments as the buyer of an option, cap, or\nfloor and to make payment as the seller of a different option, cap, or floor;\n(16) \"Commercial mortgage loan\" means a loan secured by a mortgage, other than a\nresidential mortgage loan;\n(17) \"Construction loan\" means a loan of less than three (3) years in term, made for\nfinancing the cost of construction of a building or other improvement to re al estate,\nthat is secured by the real estate;\n(18) \"Control\" means the possession, directly or indirectly, of the power to direct, or\ncause the direction of the management and policies of a person, whether through the\nownership of voting securities, by co ntract other than a commercial contract for\ngoods or nonmanagement services, or otherwise, unless the power is the result of an\nofficial position with or corporate office held by the person. Control shall be\npresumed to exist if a person, directly or indir ectly, owns, controls, holds with the\npower to vote, or holds proxies representing ten percent (10%) or more of the\nvoting securities of another person. This presumption may be rebutted by a showing\nthat control does not exist in fact. The commissioner may  determine, after\nfurnishing all interested persons notice and an opportunity to be heard and making\nspecific findings of fact to support the determination, that control exists in fact,\nnotwithstanding the absence of a presumption to that effect;\n(19) \"Counterparty exposure amount\" means:\n(a) The net amount of credit risk attributable to a derivative instrument entered\ninto with a business entity other than through a qualified exchange, qualified\nforeign exchange, or cleared through a qualified clearinghous e (\"over -the-\ncounter derivative instrument\"). The amount of credit risk equals:\n1. The market value of the over -the-counter derivative instrument if the\nliquidation of the derivative instrument would result in a final cash\npayment to the insurer; or\n2. Zero (0) if the liquidation of the derivative instrument would not result\nin a final cash payment to the insurer;\n(b) If over -the-counter derivative instruments are entered into under a written\nmaster agreement that provides for netting of payments owed by the respective\nparties, and the domicilary jurisdiction of the counterparty is either within the\nUnited States or if not within the United States, within a foreign jurisdiction\nlisted in the Purposes and Procedures of the Securities Valuation Office as\neligible for netting, the net amount of credit risk shall be the greater of zero\n(0) or the net sum of:\n1. The market value of the over -the-counter derivative instruments entered\ninto under the agreement, the liquidation of which would result in a final\ncash payment to the insurer; and\n2. The market value of the over -the-counter derivative instruments entered\ninto under the agreement, the liquidation of which would result in a final\ncash payment by the insurer to the business entity; and\n(c) For open transactions, market value shall be determined at the end of the most\nrecent quarter of the insurer's fiscal year and shall be reduced by the market\nvalue of acceptable collateral held by the insurer or placed in escrow by one\n(1) or both parties;\n(20) \"Covered\" mean s that an insurer owns or can immediately acquire, through the\nexercise of options, warrants, or conversion rights already owned, the underlying\ninterest in order to fulfill or secure its obligations under a call option, cap, or floor it\nhas written, or ha s set aside under a custodial or escrow agreement, cash, or cash\nequivalents with a market value equal to the amount required to fulfill its\nobligations under a put option it has written, in an income generation transaction;\n(21) \"Credit tenant loan\" means a mortgage loan that is made primarily in reliance on the\ncredit standing of a major tenant, structured with an assignment of the rental\npayments to the lender with real estate pledged as collateral in the form of a first\nlien;\n(22) (a) \"Derivative instrument\" means an agreement, option, instrument, a series, or\ncombination thereof:\n1. To make or take delivery of, or assume or relinquish, a specified amount\nof one (1) or more underlying interests, or to make a cash settlement in\nlieu thereof; or\n2. That has a price, performance, value, or cash flow based primarily upon\nthe actual or expected price, level, performance, value, or cash flow of\none (1) or more underlying interests.\n(b) Derivative instruments include options, warrants used in a hedging transaction\nand not attached to another financial instrument, caps, floors, collars, swaps,\nforwards, futures, any other agreements, options, or instruments substantially\nsimilar thereto, or any series or combination thereof, and any agreements,\noptions, or instruments permitted under administrative regulations\npromulgated under KRS 304.7 -367. Derivative instruments shall not include\nan investment authorized by KRS 304.7 -365, 304.7 -367, 304.7 -401, 304.7 -\n403, 304.7 -405, 304.7 -407, 304.7 -409, 304.7 -411, 304.7 -413, 304.7 -415,\n304.7-417, 304.7 -421, 304.7 -459, 304.7 -461, 304.7 -463, 304.7 -465, 304.7 -\n467, and 304.7-469;\n(23) \"Derivative transaction\" means a transaction involving the use of one (1) or more\nderivative instruments;\n(24) \"Direct\" or \"directly\", when used  in connection with an obligation, means that the\ndesignated obligor is primarily liable on the instrument representing the obligation;\n(25) \"Dollar roll transaction\" means two (2) simultaneous transactions with different\nsettlement dates no more than nine ty-six (96) days apart, so that in the transaction\nwith the earlier settlement date, an insurer sells to a business entity, and in the other\ntransaction the insurer is obligated to purchase from the same business entity,\nsubstantially similar securities of the following types:\n(a) Asset-backed securities issued, assumed, or guaranteed by the Government\nNational Mortgage Association, the Federal National Mortgage Association,\nthe Federal Home Loan Mortgage Corporation, or their respective successors;\nand\n(b) Other asset -back securities referred to in Section 106 of Title I of the\nSecondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. sec. 77r-1),\nas amended;\n(26) \"Domestic jurisdiction\" means the United States, Canada, any state, any province of\nCanada, or any political subdivision of any of the foregoing;\n(27) \"Equity interest\" means any of the following that are not rated credit instruments:\n(a) Common stock;\n(b) Preferred stock;\n(c) Trust certificate;\n(d) Equity investment in an investment company oth er than a money market\nmutual fund or a class one bond mutual fund;\n(e) Investment in a common trust fund of a bank regulated by a federal or state\nagency;\n(f) An ownership interest in mineral, oil, or gas, the rights to which have been\nseparated from the underlying fee interest in the real estate where the mineral,\noil, or gas are located;\n(g) Instruments that are mandatorily, or at the option of the issuer, convertible to\nequity;\n(h) Limited partnership interests and those general partnership interests\nauthorized under KRS 304.7-363(4);\n(i) Member interests in limited liability companies;\n(j) Warrants or other rights to acquire equity interests that are created by the\nperson that owns or would issue the equity to be acquired; or\n(k) Instruments that would be rated credit instruments except for the provisions of\nsubsection (70)(b) of this section;\n(28) \"Equivalent securities\" means:\n(a) In a securities lending transaction, securities that are identical to the loaned\nsecurities in all features including the a mount of the loaned securities, except\nas to certificate number if held in physical form, but if any different security\nshall be exchanged for a loaned security by recapitalization, merger,\nconsolidation, or other corporate action, the different security s hall be deemed\nto be the loaned security;\n(b) In a repurchase transaction, securities that are identical to the purchased\nsecurities in all features including the amount of the purchased securities,\nexcept as to the certificate number if held in physical form; or\n(c) In a reverse repurchase transaction, securities that are identical to the sold\nsecurities in all features including the amount of the sold securities, except as\nto the certificate number if held in physical form;\n(29) \"Floor\" means an agreement  obligating the seller to make payments to the buyer in\nwhich each payment is based on the amount by which a predetermined number,\nsometimes called the floor rate or price, exceeds a reference price, level,\nperformance, or value of one (1) or more underlying interests;\n(30) \"Foreign currency\" means a currency other than that of a domestic jurisdiction;\n(31) (a) \"Foreign investment\" means an investment in a foreign jurisdiction, or an\ninvestment in a person, real estate, or asset domiciled in a foreign juris diction,\nthat is substantially of the same type as those eligible for investment under this\nsubtitle, other than KRS 304.7-417 and 304.7-469. An investment shall not be\ndeemed to be foreign if the issuing person, qualified primary credit source, or\nqualified guarantor is a domestic jurisdiction or a person domiciled in a\ndomestic jurisdiction, unless:\n1. The issuing person is a shell business entity; and\n2. The investment is not assumed, accepted, guaranteed, insured, or\notherwise backed by a domestic jurisdiction or a person that is not a\nshell business entity, domiciled in a domestic jurisdiction.\n(b) For purposes of this definition:\n1. \"Shell business enti ty\" means a business entity having no economic\nsubstance, except as a vehicle for owning interests in assets issued,\nowned, or previously owned by a person domiciled in a foreign\njurisdiction;\n2. \"Qualified guarantor\" means a guarantor against which an ins urer has a\ndirect claim for full and timely payment, evidenced by a contractual\nright for which an enforcement action can be brought in a domestic\njurisdiction; and\n3. \"Qualified primary credit source\" means the credit source to which an\ninsurer looks for payment as in an investment and against which an\ninsurer has a direct claim for full and timely payment, evidenced by a\ncontractual right for which an enforcement action can be brought in a\ndomestic jurisdiction;\n(32) \"Foreign jurisdiction\" means a jurisdiction other than a domestic jurisdiction;\n(33) \"Forward\" means an agreement other than a future, to make, take delivery of, or\neffect a cash settlement based on the actuarial or expected price, level, performance,\nor value of one (1) or more underlying interests;\n(34) \"Future\" means an agreement, traded on a qualified exchange or qualified foreign\nexchange, to make, take delivery of, or effect a cash settlement based on the actual\nor expected price, level, performance, or value of one (1) or more underlying\ninterest;\n(35) \"Government money market mutual fund\" means a money market mutual fund that\nat all times:\n(a) Invests only in obligations issued, guaranteed, or insured by the federal\ngovernment of the United States or collateralized repurchase agreements\ncomposed of these obligations; and\n(b) Qualifies for investment without a reserve under the Purposes and Procedures\nof the Securities Valuation Office or any successor publication;\n(36) \"Government sponsored enterprise\" means a:\n(a) Governmental agency; or\n(b) Corporation, limited liability company, association, partnership, joint stock\ncompany, joint venture, trust, or other entity or instrumentality organized\nunder the laws of any domestic jurisdiction to accomplish a public policy or\nother governmental purpose;\n(37) \"Guaranteed or insured\", when used in connection with an obligation acquired\nunder this subtitle, means that the guarantor or insurer has agreed to:\n(a) Perform or insure the obligation of the obligor or purchase the obligation; or\n(b) Be unconditionally obligated until the obligation is repaid to maintain in the\nobligor a minimum net worth, fixed charge coverage, stockholders' equity, or\nsufficient liquidity to enable the obligor to pay the obligation in full;\n(38) \"Hedging transaction\" means a derivative transaction that is entered into and\nmaintained to reduce:\n(a) The risk of a change in the value, yield, price, cash flow, or quantity of assets\nor liabilities that the insurer has acquired or incurred or anticipates acquiring\nor incurring; or\n(b) The currency exchange rate risk or the degree of exposure as to assets or\nliabilities that an insurer has acquired or incurred or anticipates acquiring or\nincurring;\n(39) \"High grade investment\" means a rated credit instrument rated 1 or 2 by the SVO;\n(40) \"Income\" means, as to a security, interest, accrual of discount, dividends, or other\ndistributions, such as rights, tax or assessment, or assessment credits, warrants, and\ndistributions in kind;\n(41) \"Income generation transaction\" means a derivative  transaction involving the\nwriting of covered call options, covered put options, covered caps, or covered floors\nthat is intended to generate income or enhance return;\n(42) \"Initial margin\" means that amount of cash, securities, or other consideration\ninitially required to be deposited to establish a futures position;\n(43) \"Insurance future\" means a future relating to an index or pool that is based on\ninsurance-related items;\n(44) \"Insurance futures option\" means an option on an insurance future;\n(45) \"Investment company\" means an investment company as defined in Section 3(a) of\nthe Investment Company Act of 1940 (15 U.S.C. secs. 80a -1 et seq.), as amended,\nand a person described in Section 3(c) of that Act;\n(46) \"Investment company series\" means an inv estment portfolio of an investment\ncompany that is organized as a series company and to which assets of the\ninvestment company have been specifically allocated;\n(47) \"Investment practices\" means transactions of the types described in KRS 304.7-415,\n304.7-419, 304.7-467, and 304.7-471;\n(48) \"Investment subsidiary\" means a subsidiary of an insurer engaged or organized to\nengage exclusively in the ownership and management of assets authorized as\ninvestment for the insurer if each subsidiary agrees to limit its  investment in any\nasset so that its investments will not cause the amount of the total investment of the\ninsurer to exceed any of the investment limitations or avoid any other provisions of\nthis subtitle applicable to the insurer. As used in this subsecti on, the total\ninvestment of the insurer shall include:\n(a) Direct investment by the insurer in an asset; and\n(b) The insurer's proportionate share of an investment in an asset by an\ninvestment subsidiary of the insurer, that shall be calculated by multiply ing\nthe amount of the subsidiary's investment by the percentage of the insurer's\nownership interest in the subsidiary;\n(49) \"Investment strategy\" means the techniques and methods used by an insurer to meet\nits investment objectives, such as active bond por tfolio management, passive bond\nportfolio management, interest rate anticipation, growth investing, and value\ninvesting;\n(50) \"Letter of credit\" means a clean, irrevocable, and unconditional letter of credit\nissued or confirmed by, and payable and presentable at, a financial institution on the\nlist of financial institutions meeting the standards for issuing letters of credit under\nthe Purposes and Procedures of the Securities Valuation Office or any successor\npublication. To constitute acceptable collateral  for the purposes of KRS 304.7 -415\nand 304.7-467, a letter of credit shall have an expiration date beyond the term of the\nsubject transaction;\n(51) \"Limited liability company\" means a business organization, excluding partnerships\nand ordinary business corp orations, organized or operating under the laws of the\nUnited States or any state thereof that limits the personal liability of investors to the\nequity investment of the investor in the business entity;\n(52) \"Lower grade investment\" means a rated credit in strument rated 4, 5, or 6 by the\nSVO;\n(53) \"Market value\" means:\n(a) As to cash and letters of credit, the amounts thereof; and\n(b) As to security as of any date, the price for the security on that date obtained\nfrom a generally recognized source or the mo st recent quotation from such a\nsource or, to the extent no generally recognized source exists, the price for the\nsecurity as determined in good faith by the parties to a transaction, plus\naccrued but unpaid income thereon to the extent not included in the price as of\nthat date;\n(54) \"Medium grade investment\" means a rated credit instrument rated 3 by the SVO;\n(55) \"Money market mutual fund\" means a mutual fund that meets the conditions of 17\nCode of Federal Regulations Par. 270.2a -7, under the Investment C ompany Act of\n1940 (15 U.S.C. secs. 80a-1 et seq.), as amended or renumbered;\n(56) \"Mortgage loan\" means an obligation secured by a mortgage, deed of trust, trust\ndeed, or other consensual lien on real estate;\n(57) \"Multilateral development bank\" means an international development organization\nof which the United States is a member;\n(58) \"Mutual fund\" means an investment company or, in the case of an investment\ncompany that is organized as a series company, an investment company series, that,\nin either case , is registered with the United States Securities and Exchange\nCommission under the Investment Company Act of 1940 (15 U.S.C. secs. 80a -1 et\nseq.), as amended;\n(59) \"NAIC\" means the National Association of Insurance Commissioners;\n(60) \"Obligation\" means a  bond, note, debenture, or a trust certificate including an\nequipment certificate, production payment, negotiable bank certificate of deposit,\nbankers' acceptance, credit tenant loan, loan secured by financing net leases, and\nother evidence of indebtedness  for the payment of money or participations,\ncertificates, or other evidences of an interest in any of the foregoing, whether\nconstituting a general obligation of the issuer or payable only out of certain\nrevenues or certain funds pledged or otherwise dedicated for payment;\n(61) \"Option\" means an agreement giving the buyer the right to buy or receive (a \"call\noption\"), sell or deliver (a \"put option\"), enter into, extend, terminate, or effect a\ncash settlement based on the actual or expected price level, pe rformance or value of\none (1) or more underlying interests;\n(62) \"Person\" means an individual, a business entity, a multilateral development bank, or\na government or quasi -governmental body, such as a political subdivision or a\ngovernment sponsored enterprise;\n(63) \"Potential exposure\" means the amount determined in accordance with the NAIC\nAnnual Statement Instructions;\n(64) \"Preferred stock\" means preferred, preference, or guaranteed stock of a business\nentity authorized to issue the stock, that has a pre ference in liquidation over the\ncommon stock of the business entity;\n(65) \"Qualified bank\" means:\n(a) A national bank, state bank, or trust company that at all times is no less than\nadequately capitalized as determined by standards adopted by the United\nStates banking regulators and that is either regulated by state banking laws, or\nis a member of the Federal Reserve Bank of New York; or\n(b) A bank or trust company incorporated or organized under the laws of a\ncountry other than the United States that is regulated as a bank or trust\ncompany by that country's government or an agency thereof and that at all\ntimes is no less than adequately capitalized as determined by the standards\nadopted by international banking authorities;\n(66) \"Qualified business entity\" means a business entity that is:\n(a) An issuer of obligations or preferred stock that are rated 1 or 2 by SVO or an\nissuer of obligations, preferred stock, or derivative instruments that are rated\nthe equivalent of 1 or 2 by the SVO or by a natio nally recognized statistical\nrating organization recognized by the SVO; or\n(b) A primary dealer in United States government securities, recognized by the\nFederal Reserve Bank of New York;\n(67) \"Qualified clearinghouse\" means a clearinghouse for, and subjec t to the rules of, a\nqualified exchange or a qualified foreign exchange, that provides clearing service,\nincluding acting as a counterparty to each of the parties to a transaction such that the\nparties no longer have credit risks as to each other;\n(68) \"Qualified exchange\" means:\n(a) A securities exchange registered as a national securities exchange, or a\nsecurities market regulated under the Securities Exchange Act of 1934 (15\nU.S.C. secs. 78 et seq.), as amended;\n(b) A board of trade or commodities exchan ge designated as a contract market by\nthe Commodity Futures Trading Commission or any successor thereof;\n(c) Private Offerings, Resales, and Trading through Automated Linkages\n(PORTAL);\n(d) A designated offshore securities market as defined in Securities E xchange\nCommission Regulation S, 17 C.F.R. Part 230, as amended; or\n(e) A qualified foreign exchange;\n(69) \"Qualified foreign exchange\" means a foreign exchange, board of trade, or contract\nmarket located outside the United States, its territories, or possessions:\n(a) That has received regulatory comparability relief under Commodity Futures\nTrading Commission (CFTC) Rule 30.10, as set forth in Appendix C to Part\n30 of the CFTC's Regulations, 17 C.F.R. Part 30;\n(b) That is, or its members are, subject to the  jurisdiction of a foreign futures\nauthority that has received regulatory comparability relief under CFTC Rule\n30.10, as set forth in Appendix C to Part 30 of the CFTC's Regulations, 17\nC.F.R. Part 30, as to futures transactions in the jurisdiction where t he\nexchange, board of trade, or contract market is located; or\n(c) Upon which foreign stock index futures contracts are listed that are the subject\nof no-action relief issued by the CFTC's Office of General Counsel, provided\nthat an exchange, board of trad e, or contract market that qualifies as a\nqualified foreign exchange only under this subsection shall only be a qualified\nforeign exchange as to foreign stock index futures contracts that are the\nsubject of no-action relief;\n(70) (a) \"Rated credit instrument\" means a contractual right to receive cash or another\nrated credit instrument from another entity that:\n1. Is rated or required to be rated by the SVO;\n2. In the case of an instrument with a maturity of three hundred ninety -\nseven (397) days or less, is issued, guaranteed, or insured by an entity\nthat is rated by, or another obligation of the entity is rated by, the SVO\nor by a nationally recognized statistical rating organization recognized\nby the SVO;\n3. In the case of an instrument with a maturity of n inety (90) days or less is\nissued by a qualified bank;\n4. Is a share of a class one bond mutual fund; or\n5. Is a share of a money market mutual fund.\n(b) However, \"rated credit instrument\" does not mean:\n1. An instrument that is mandatorily, or at the opti on of the issuer,\nconvertible to an equity interest; or\n2. A security that has a par value and whose terms provide that the issuer's\nnet obligation to repay all or part of the security's par value is\ndetermined by reference to the performance of an equity, a commodity, a\nforeign currency, or an index of equities, commodities, foreign\ncurrencies, or combinations thereof;\n(71) \"Real estate\" means:\n(a) 1. Real property;\n2. Interests in real property, such as leaseholds, minerals, oil, a nd gas that\nhave not been separated from the underlying fee interest;\n3. Improvements and fixtures located on or in real property; and\n4. The seller's equity in a contract providing for a deed of real estate.\n(b) As to a mortgage on a leasehold estate, rea l estate shall include the leasehold\nestate only if it has an unexpired term, including renewal options exercisable\nat the option of the lessee, extending beyond the scheduled maturity date of\nthe obligation that is secured by a mortgage on the leasehold estate by a period\nequal to at least twenty percent (20%) of the original term of the obligation or\nten (10) years, whichever is greater;\n(72) \"Replication transaction\" means a derivative transaction that is intended to replicate\nthe performance of one (1) or more assets that an insurer is authorized to acquire\nunder this subtitle. A derivative transaction that is entered into as a hedging\ntransaction shall not be considered a replication transaction;\n(73) \"Repurchase transaction\" means a transaction in whic h an insurer purchases\nsecurities from a business entity that is obligated to repurchase the purchased\nsecurities or equivalent securities from the insurer at a specified price, either within\na specified period of time or upon demand;\n(74) \"Required liabilities\" means total liabilities required to be reported on the statutory\nfinancial statement of the insurer most recently required to be filed with the\ncommissioner;\n(75) \"Residential mortgage loan\" means a loan primarily secured by a mortgage on real\nestate improved with a one (1) to four (4) family residence;\n(76) \"Reverse repurchase transaction\" means a transaction in which an insurer sells\nsecurities to a business entity and is obligated to repurchase the sold securities or\nequivalent securities from the  business entity at a specified price, either within a\nspecified period of time or upon demand;\n(77) \"Secured location\" means the contiguous real estate owned by one (1) person;\n(78) \"Securities lending transaction\" means a transaction in which securities are loaned\nby an insurer to a business entity that is obligated to return the loaned securities or\nequivalent securities to the insurer, either within a specified period of time or upon\ndemand;\n(79) \"Series company\" means an investment company that is orga nized as a series\ncompany, as defined in Rule 18f -2(a) adopted under the Investment Company Act\nof 1940 (15 U.S.C. sec. 80a-1 et seq.), as amended;\n(80) \"Sinking fund stock\" means preferred stock that:\n(a) Is subject to a mandatory sinking fund or similar arrangement that will\nprovide for the redemption or open market purchase of the entire issue over a\nperiod not longer than forty (40) years from the date of acquisition; and\n(b) Provides for mandatory sinking fund installments or open market purchases\ncommencing not more than ten and one -half (10 1/2) years from the date of\nissue, with the sinking fund installments providing for the purchase or\nredemption, on a cumulative basis commencing ten (10) years from the date of\nissue, of at least two and one -half p ercent (2.5%) per year of the original\nnumber of shares of that issue of preferred stock;\n(81) \"Special rated credit instrument\" means a rated credit instrument that is:\n(a) An instrument that is structured so that, if it is held until retired by or on\nbehalf of the issuer, its rate of return, based on its purchase cost and any cash\nflow stream possible under the structure of the transaction, may become\nnegative due to reasons other than the credit risk associated with the issuer of\nthe instrument; however, a rated credit instrument shall not be a special rated\ncredit instrument under this subsection if it is:\n1. A share in a class one bond mutual fund;\n2. An instrument, other than an asset-backed security, with payments of par\nvalue fixed as to amount and timing, or callable but in any event payable\nonly at par or greater, and interest or dividend cash flows that are based\non either a fixed or variable rate determined by reference to a specified\nrate or index;\n3. An instrument, other than an asset -backed security, that has a par value\nand is purchased at a price not greater than one hundred ten percent\n(110%) of par;\n4. An instrument, including an asset -backed security, whose rate of return\nwould become negative only as a result of a prepayment due to casualt y,\ncondemnation, or economic obsolescence of collateral or change of law;\n5. An asset -backed security that relies on collateral that meets the\nrequirements of subparagraph 2. of this paragraph, the par value of\nwhich collateral:\na. Is not permitted to be p aid sooner than one -half (1/2) of the\nremaining term to maturity from the date of acquisition;\nb. Is permitted to be paid prior to maturity only at a premium\nsufficient to provide a yield to maturity for the investment,\nconsidering the amount prepaid and r einvestment rates at the time\nof early repayment, at least equal to the yield to maturity of the\ninitial investment; or\nc. Is permitted to be paid prior to maturity at a premium at least equal\nto the yield of a Treasury issue of comparable remaining life; or\n6. An asset -backed security that relies on cash flows from assets that are\nnot prepayable at any time at par, but is not  otherwise governed by\nsubparagraph 5. of this paragraph, if the asset -backed security has a par\nvalue reflecting principal payments to be received if held until retired by\nor on behalf of the issuer and is purchased at a price no greater than one\nhundred five percent (105%) of the par amount;\n(b) An asset-backed security that:\n1. Relies on cash flows from assets that are prepayable at par at any time;\n2. Does not make payments of par that are fixed as to amount and timing;\nand\n3. Has a negative rate of ret urn at the time of acquisition if a prepayment\nthreshold assumption is used with the prepayment threshold assumption\ndefined as either:\na. Two (2) times the prepayment expectation reported by a\nrecognized, publicly available source as being the median of\nexpectations contributed by broker dealers or other entities, except\ninsurers, engaged in the business of selling or evaluating the\nsecurities or assets. The prepayment expectation used in this\ncalculation shall be, at the insurer's election, the prepayment\nexpectation for pass -through securities of the Federal National\nMortgage Association, the Federal Home Loan Mortgage\nCorporation, the Government National Mortgage Association, or\nfor other assets of the same type as the assets that underlie the\nasset-backed security, in either case with a gross weighted average\ncoupon comparable to the gross weighted average coupon of the\nassets that underlie the asset-backed security; or\nb. Another prepayment threshold assumption specified by the\ncommissioner by administr ative regulation promulgated under\nKRS 304.7-367; or\n(c) For purposes of paragraph (b) of this subsection, if the asset-backed security is\npurchased in combination with one (1) or more other asset -backed securities\nthat are supported by identical underlyin g collateral, the insurer may calculate\nthe rate of return for these specific combined asset -backed securities in\ncombination. The insurer shall maintain documentation demonstrating that the\nsecurities were acquired and are continuing to be held in combination;\n(82) \"State\" means a state, territory, or possession of the United States, the District of\nColumbia, or the Commonwealth of Puerto Rico;\n(83) \"Substantially similar securities\" means securities that meet all criteria for\nsubstantially similar securit ies specified in the NAIC Accounting Practices and\nProcedures manual, as amended, and in an amount that constitutes good delivery\nform as determined from time to time by the Public Securities Administration;\n(84) \"SVO\" means the Securities Valuation Office  of the NAIC or any successor office\nestablished by the NAIC;\n(85) \"Swap\" means an agreement to exchange or to net payments at one (1) or more\ntimes based on the actual or expected price, level, performance, or value of one (1)\nor more underlying interests;\n(86) \"Underlying interest\" means the assets, liabilities, other interests, or a combination\nthereof underlying a derivative instrument, such as any one (1) or more securities,\ncurrencies, rates, indices, commodities, or derivative instruments;\n(87) \"Unrestricted surplus\" means the amount by which total admitted assets exceed one\nhundred twenty-five percent (125%) of the insurer's required liabilities; and\n(88) \"Warrant\" means an instrument that gives the holder the right to purchase an\nunderlying financial instrument at a given price and time or at a series of prices and\ntimes outlined in the warrant agreement. Warrants may be issued alone or in\nconnection with the sale of other securities, for example, as part of a merger,\nrecapitalization agreement, or t o facilitate divestiture of the securities of another\nbusiness entity.","path":[],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=16794","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:57:38Z","sha256":"cdde1a127027e819a4b4a3c337ec61d4ac42dde4f0ad4bca75a42031feead3b0","source_id":"us-ky","stale":false,"prev":"us-ky/krs-304.7-010","next":"us-ky/krs-304.7-014"},"notice":"GroundRules: Original legal text. Not legal advice."}