Montana Code 33-12-110. Special rated credit instrument
33-12-110. Special rated credit instrument. (1) (a) Subject to subsection (1)(b), a rated credit instrument is a special rated credit instrument if it is an instrument that is:
Terms Used In Montana Code 33-12-110
- Asset-backed security: means a security or other instrument, excluding a mutual fund, evidencing an interest in or the right to receive payments from or payable from distributions on an asset, a pool of assets, or specifically divisible cash flows that are legally transferred to a trust or another special purpose bankruptcy-remote business entity, on the following conditions:
(i)the trust or other business entity is established solely for the purpose of acquiring specific types of assets or rights to cash flows, issuing securities and other instruments representing an interest in or right to receive cash flows from those assets or rights, and engaging in activities required to service the assets or rights and any credit enhancement or support features held by the trust or other business entity; and
(ii)the assets of the trust or other business entity consist solely of interest-bearing obligations or other contractual obligations representing the right to receive payment from the cash flows from the assets or rights. See Montana Code 33-12-102
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Class one bond mutual fund: means a mutual fund that at all times qualifies for investment using the bond class one reserve factor under the Purposes and Procedures of the Securities Valuation Office or any successor publication. See Montana Code 33-12-102
- Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Rated credit instrument: means a contractual right to receive cash or another rated credit instrument from another entity if the instrument:
(i)is rated or required to be rated by the SVO;
(ii)in the case of an instrument with a maturity of 397 days or less, is issued, guaranteed, or insured by an entity that is rated by, or another obligation of the entity is rated by, the SVO or by a nationally recognized statistical rating organization recognized by the SVO;
(iii)in the case of an instrument with a maturity of 90 days or less, is issued by a qualified bank;
(iv)is a share of a class one bond mutual fund; or
(v)is a share of a money market mutual fund. See Montana Code 33-12-102
- Variable Rate: Having a "variable" rate means that the APR changes from time to time based on fluctuations in an external rate, normally the Prime Rate. This external rate is known as the "index." If the index changes, the variable rate normally changes. Also see Fixed Rate.
(i)structured so that if it is held until retired by or on behalf of the issuer, its rate of return, based on its purchase cost and any cash flow stream possible under the structure of the transaction, may become negative because of reasons other than the credit risk associated with the issuer of the instrument; or
(ii)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 with the prepayment threshold assumption defined as either:
(I)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. The prepayment expectation used in this calculation must be, at the insurer’s election, the prepayment expectation for passthrough 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, in either case with a gross weighted average coupon comparable to the gross weighted average coupon of the assets that underlie the asset-backed security.
(II)another prepayment threshold assumption specified by the commissioner by rule adopted under 33-12-111.
(b)A rated credit instrument may not be a special rated credit instrument under this section if it is:
(i)a share in a class one bond mutual fund;
(ii)an instrument, other than an asset-backed security, with payments of par value fixed as to amount and timing or callable but in any event payable only at par or greater and with interest or dividend cash flows that are based on either a fixed or variable rate determined by reference to a specified rate or index;
(iii)an instrument, other than an asset-backed security, that has a par value and is purchased at a price no greater than 110% of par;
(iv)an instrument, including an asset-backed security, with a rate of return that would become negative only as a result of a prepayment due to casualty, condemnation, economic obsolescence of collateral, or change of law;
(v)an asset-backed security that relies on collateral that meets the requirements of subsection (1)(b)(ii), the par value of which collateral:
(A)is not permitted to be paid sooner than one-half of the remaining term to maturity from the date of acquisition;
(B)is permitted to be paid prior to 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
(C)is permitted to be paid prior to maturity at a premium at least equal to the yield of a treasury issue of comparable remaining life; or
(vi)an asset-backed security that relies on cash flows from assets that are not prepayable at any time at par, but is not otherwise governed by subsection (1)(b)(v), 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 no greater than 105% of the par amount.
(2)For purposes of subsection (1), 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. The insurer shall maintain documentation demonstrating that the securities were acquired and are continuing to be held in combination.