Alaska Administrative Code
Title 3 - Commerce, Community, and Economic Development
Part 2 - Division of Insurance
Chapter 21 - Insurer - Financial
Article 2 - Investments
3 AAC 21.395 - Requirements for rated credit instruments and special rated credit instruments
Universal Citation: 3 AK Admin Code 21.395
Current through February 24, 2025
(a) For an investment to be treated as a rated credit instrument under 3 AAC 21.201 - 3 AAC 21.399, the investment
(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.
(b) A rated credit instrument will be treated as a special rated credit instrument under 3 AAC 21.201 - 3 AAC 21.399, if the instrument is
(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.
Authority:AS 21.06.090
AS 21.18.010
AS 21.18.030
AS 21.18.040
AS 21.18.170
AS 21.21.010
AS 21.21.020
AS 21.21.255
AS 21.21.420
Disclaimer: These regulations may not be the most recent version. Alaska may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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