§ 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.