§ 1401. Definitions and rules of general application. (a) In this
article: (1) "Invested assets" means the admitted assets of an insurer
that conform to the requirements of paragraphs one and two of subsection
(a) of section one thousand three hundred one of this chapter, but
excluding the income due or accrued thereon.

(2) "Mortgage-related security" means an obligation that is rated AA
or higher (or the equivalent thereto) by a nationally recognized
securities rating agency and either:

(A) represents ownership of one or more promissory notes or
certificates of interest or participation in such notes (including any
rights designed to assure servicing of, or the receipt or timeliness of
receipt by the holders of such notes, certificates, or participation of
amounts payable under, such notes, certificates, or participation),
which notes:

(i) are directly secured by a first lien on a single parcel of real
estate, including stock allocated to a dwelling unit in a residential
cooperative housing corporation, upon which is located a dwelling or
mixed residential and commercial structure, or on a residential
manufactured home as defined in section 5402(6) of Title 42 of the
U.S.C.A., whether such manufactured home is considered real or personal
property under the laws of the state in which it is to be located; and

(ii) were originated by a savings and loan association, savings bank,
commercial bank, credit union, insurance company, or similar institution
which is supervised and examined by a federal or state authority, or by
a mortgage approved by the secretary of housing and urban development
pursuant to sections 1709 and 1715-b of Title 12 of the U.S.C.A., or,
where such notes involve a lien on the manufactured home, by any such
institution or by any financial institution approved for insurance by
the secretary of housing and urban development pursuant to section 1703
of Title 12 of the U.S.C.A.; or

(B) is secured by one or more promissory notes or certificates of
interest or participations in such notes (with or without recourse to
the issuer thereof) and, by its terms, provides for payments of
principal in relation to payments, or reasonable projections of
payments, or notes meeting the requirements of items (i) and (ii) of
subparagraph (A) of this paragraph or certificates of interest or
participation in promissory notes meeting such requirements.

For the purpose of this paragraph the term "promissory note", when
used in connection with a manufactured home, shall also include a loan,
advance or credit sale as evidence by a retail installment sales
contract or other instrument.

(3) "Partnership interests" when used in connection with the
permissible types of investments made by any domestic insurer, other
than a domestic life insurer, means, an interest as a limited partner in
a limited partnership. A "limited partnership" means a partnership
formed by two or more persons pursuant to the provisions of the
applicable law, having as members one or more general partners and one
or more limited partners. The limited partners as such shall not be
bound by the obligations of the partnership.

(4) "United States" means, when used to signify place, only the states
of the United States, the Commonwealth of Puerto Rico, the District of
Columbia and includes lands and waters adjacent to the foregoing and
under the jurisdiction of the United States.

(5) "Cap" means an agreement obligating the seller to make payments to
the buyer with each payment based on the amount by which a reference
price or level or the performance or value of one or more underlying
interests exceeds a predetermined number, sometimes called the strike
rate or strike price.

(6) "Collar" means an agreement to receive payments as the buyer of an
option, cap or floor and to make payments as the seller of a different
option, cap or floor.

(7) "Derivative instrument" means an agreement, option, instrument or
a series or combination thereof:

(A) to make or take delivery of, or assume or relinquish, a specified
amount of one or more underlying interests, or to make a cash settlement
in lieu thereof; or

(B) that has a price, performance, value or cash flow based primarily
upon the actual or expected price, level, performance, value or cash
flow of one or more underlying interests.

The term "derivative instrument" includes options, warrants, caps,
floors, collars, swaps, swaptions, forwards, and futures.

(8) "Derivative transaction" means a transaction involving the use of
one or more derivative instruments.

(9) "Floor" means an agreement obligating the seller to make payments
to the buyer in which each payment is based on the amount by which a
predetermined number, sometimes called the floor rate or price, exceeds
a reference price, level, performance or value of one or more underlying
interests.

(10) "Forward" means an agreement (other than a future) to make or
take delivery in the future of one or more underlying interests, or
effect a cash settlement, based on the actual or expected price, level,
performance or value of such underlying interests, but shall not mean or
include spot transactions effected within customary settlement periods,
when-issued purchases, or other similar cash market transactions.

(11) "Future" means agreement traded on a futures exchange, to make or
take delivery of, or effect a cash settlement based on the actual or
expected price, level, performance or value of, one or more underlying
interests.

(12) "Hedging transaction" means a derivative transaction which is
entered into and at all times maintained to reduce:

(A) the risk of economic loss due to 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

(B) the risk of economic loss due to changes in the currency exchange
rate or the degree of exposure as to assets or liabilities denominated
in a foreign currency which an insurer has acquired or incurred or
anticipates acquiring or incurring.

(13) "Option" means an agreement giving the buyer the right to buy or
receive (a "call option"), sell or deliver (a "put option"), enter into,
extend or terminate or effect a cash settlement based on the actual or
expected price, spread, level, performance or value of one or more
underlying interests.

(14) "Swap" means an agreement to exchange or to net payments at one
or more times based on the actual or expected price, yield, level,
performance or value of one or more underlying interests.

(15) "Swaption" means an option to purchase or sell a swap at a given
price and time or at a series of prices and times. A swaption does not
mean a swap with an embedded option.

(16) "Underlying interest" means the assets, liabilities, other
interests, or a combination thereof, underlying a derivative instrument,
such as any one or more securities, currencies, rates, indices,
commodities or derivative instruments.

(17) "Warrant" means an instrument that gives the holder the right to
purchase or sell the underlying interest at a given price and time or at
a series of prices and times outlined in the warrant agreement.

(18) "Replication transaction" means a derivative transaction or
combination of derivative transactions effected either separately or in
conjunction with cash market investments included in the insurer's
investment portfolio in order to replicate the investment characteristic
of another authorized transaction, investment or instrument and/or
operate as a substitute for cash market transactions. A derivative
transaction entered into by the insurer as a hedging transaction or
income generation transaction authorized pursuant to this section shall
not be considered a replication transaction.

(b) All financial tests and other requirements for the making of any
investment are satisfied if complied with on the date of acquisition by
the insurer, except as otherwise permitted by this chapter or by
regulation.

(c) None of the financial tests or other requirements for the making
of any investment under this article, or as otherwise required by this
chapter or by regulation promulgated pursuant thereto, are preempted by
the provisions of section 106 of Title I of the Secondary Mortgage
Market Enhancement Act of 1984 (15 U.S.C. § 77r-1)("SMMEA"). The
provisions of this chapter and any regulation promulgated pursuant
thereto that pertain to investments in the categories of securities
specified in paragraphs one and two of subsection (a) of section 106 of
such act shall remain in full force and effect notwithstanding the
enactment of SMMEA.