Montana Code > Title 33 > Chapter 12 > Part 1 – General Provisions


§ 33-12-101	Purpose and scope
§ 33-12-102	Definitions
§ 33-12-103	General investment qualifications
§ 33-12-104	Authorization of investments by board of directors
§ 33-12-105	Prohibited investments
§ 33-12-106	Loans to officers and directors
§ 33-12-107	Valuation of investments
§ 33-12-108	Presumption of control
§ 33-12-109	Credit risk attributable to derivative statement
§ 33-12-110	Special rated credit instrument
§ 33-12-111	Rules
§ 33-12-112	Foreign and alien insurers
§ 33-12-113	Indemnification agreement

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Terms Used In Montana Code > Title 33 > Chapter 12 > Part 1 - General Provisions

Acceptable collateral: means :

(a)(i) as to securities lending transactions and for the purpose of calculating the counterparty exposure amount, cash, cash equivalents, letters of credit, or direct obligations of or securities that are fully guaranteed as to principal and interest by the government of the United States, by any agency of the United States, by the federal national mortgage association, or by the federal home loan mortgage corporation; and

(ii)as to lending foreign securities, sovereign debt rated 1 by the SVO;

(b)as to repurchase transactions, cash, cash equivalents, and direct obligations of or securities that are fully guaranteed as to principal and interest by the government of the United States, by an agency of the United States, by the federal national mortgage association, or by the federal home loan mortgage corporation; and

(c)as to reverse repurchase transactions, cash and cash equivalents. See Montana Code 33-12-102
Accident and health insurance: means insurance protection that provides payment of benefits for covered sickness or accidental injury, excluding credit insurance, disability insurance, accidental death and dismemberment insurance, and long-term care insurance. See Montana Code 33-12-102
Admitted assets: means , subject to subsection (5)(b), assets determined in accordance with the requirements of 33-2-501. See Montana Code 33-12-102
Affiliate: has the meaning provided in 33-2-1101. See Montana Code 33-12-102
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.
Business entity: includes a sole proprietorship, corporation, limited liability company, association, partnership, joint-stock company, joint venture, mutual fund, trust, joint tenancy, or other similar form of business organization, whether organized for profit or not for profit. See Montana Code 33-12-102
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. See Montana Code 33-12-102
Capital and surplus: means the sum of the capital and surplus of the insurer required to be shown on the most recent statutory financial statement of the insurer required to be filed with the commissioner. See Montana Code 33-12-102
Cash equivalents: means short-term, highly rated, and highly liquid investments or securities readily convertible to known amounts of cash without penalty and so near maturity that they present insignificant risk of change in value. See Montana Code 33-12-102
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
Contract: A legal written agreement that becomes binding when signed.
Control: means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract (other than a commercial contract for goods or nonmanagement services), or otherwise, unless the power is the result of an official position with a corporation or a corporate office held by the person. 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.
Counterparty exposure amount: means the net amount of credit risk attributable to a derivative instrument, pursuant to 33-12-109, entered into with a business entity other than through a qualified exchange or qualified foreign exchange or cleared through a qualified clearinghouse. See Montana Code 33-12-102
Covered: means that an insurer:

(a)owns or can immediately acquire, through the exercise of options, warrants, or already-owned conversion rights, the underlying interest in order to fulfill or secure its obligations under a call option, cap, or floor it has written; or

(b)has set aside, under a custodial or escrow agreement, cash or cash equivalents with a market value equal to the amount required to fulfill its obligations under a put option it has written in an income generation transaction. See Montana Code 33-12-102
Credit tenant loan: means a mortgage loan that is made primarily in reliance on the credit standing of a major tenant, structured with an assignment of the rental payments to the lender with real estate pledged as collateral in the form of a first lien. See Montana Code 33-12-102
Deed: The legal instrument used to transfer title in real property from one person to another.
Derivative instrument: means an agreement, an option, an instrument, or a series or combination of agreements, options, or instruments:

(i)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 of delivery; or

(ii)that has a price, level, 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. See Montana Code 33-12-102
Derivative transaction: means a transaction involving the use of one or more derivative instruments. See Montana Code 33-12-102
directly: when used in connection with an obligation, means that the designated obligor is primarily liable on the instrument representing the obligation. See Montana Code 33-12-102
Dollar roll transaction: means two simultaneous transactions with different settlement dates that are no more than 96 days apart, so that in the transaction with the earlier settlement date, an insurer sells to a business entity, and in the other transaction, the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:

(a)asset-backed securities issued, assumed, or guaranteed by the government national mortgage association, the federal national mortgage association, or the federal home loan mortgage corporation or their successors; and

(b)other asset-backed securities referred to in section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U. See Montana Code 33-12-102
Domestic jurisdiction: means the United States, any state, Canada, any province of Canada, or any political subdivision of a state or province. See Montana Code 33-12-102
Equity interest: means any of the following that are not rated credit instruments:

(a)common stock;

(b)preferred stock;

(c)trust certificate;

(d)equity investment in an investment company other than a money market mutual fund or a class one bond mutual fund;

(e)investment in a common trust fund of a bank regulated by a federal or state agency;

(f)an ownership interest in minerals, oil, or gas, the rights to which have been separated from the underlying fee interest in the real estate where the minerals, oil, or gas is located;

(g)instruments that are mandatorily, or at the option of the issuer, convertible to equity;

(h)limited partnership interests and those general partnership interests authorized under 33-12-104(4);

(i)member interests in limited liability companies;

(j)warrants or other rights to acquire equity interests that are created by the person that owns or would issue the equity to be acquired; or

(k)instruments that would be rated credit instruments except for the provisions of subsection (70)(b). See Montana Code 33-12-102
Equivalent securities: means :

(a)in a securities lending transaction, securities that are identical to the loaned securities in all features including the amount of the loaned securities, except as to certificate number if held in physical form, but if any different security is exchanged for a loaned security by recapitalization, merger, consolidation, or other corporate action, the different security is considered to be the loaned security;

(b)in a repurchase transaction, securities that are identical to the purchased securities in all features including the amount of the purchased securities, except as to the certificate number if held in physical form; or

(c)in a reverse repurchase transaction, securities that are identical to the sold securities in all features including the amount of the sold securities, except as to the certificate number if held in physical form. See Montana Code 33-12-102
Escrow: Money given to a third party to be held for payment until certain conditions are met.
Evidence: Information presented in testimony or in documents that is used to persuade the fact finder (judge or jury) to decide the case for one side or the other.
Federal Reserve System: The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States. ^{Source: OCC}
Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
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 price, level, performance, or value of one or more underlying interests. See Montana Code 33-12-102
Foreign currency: means a currency other than that of a domestic jurisdiction. See Montana Code 33-12-102
Foreign jurisdiction: means a jurisdiction other than a domestic jurisdiction. See Montana Code 33-12-102
Future: means an agreement, traded on a qualified exchange or qualified foreign 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. See Montana Code 33-12-102
Guaranteed or insured: when used in connection with an obligation acquired under this chapter, means that the guarantor or insurer has agreed to:

(a)perform or insure the obligation of the obligor or purchase the obligation; or

(b)be unconditionally obligated until the obligation is repaid to maintain in the obligor a minimum net worth, fixed charge coverage, stockholders' equity, or sufficient liquidity to enable the obligor to pay the obligation in full. See Montana Code 33-12-102
Guarantor: A party who agrees to be responsible for the payment of another party's debts should that party default. ^{Source: OCC}
Hedging transaction: means a derivative transaction that is entered into and maintained to reduce:

(a)the risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities that the insurer has acquired or incurred or anticipates acquiring or incurring; or

(b)the currency exchange rate risk or the degree of exposure as to assets or liabilities that an insurer has acquired or incurred or anticipates acquiring or incurring. See Montana Code 33-12-102
Highly rated: means an investment rated "P-1" by Moody's investors service, inc. See Montana Code 33-12-102
Income: means , as to a security, interest, accrual of discount, dividends, or other distributions, such as rights, tax or assessment credits, warrants, and distributions in kind. See Montana Code 33-12-102
Indemnification: In general, a collateral contract or assurance under which one person agrees to secure another person against either anticipated financial losses or potential adverse legal consequences. ^{Source: FDIC}
Insurance future: means a future relating to an index or pool that is based on insurance-related items. See Montana Code 33-12-102
Insurance futures option: means an option on an insurance future. See Montana Code 33-12-102
Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. ^{Source: OCC}
Investment company: means an investment company as defined in section 80a-3 of the Investment Company Act of 1940 (15 U. See Montana Code 33-12-102
Investment company series: means an investment portfolio of an investment company that is organized as a series company and to which assets of the investment company have been specifically allocated. See Montana Code 33-12-102
Investment practices: means transactions of the types described in 33-12-208, 33-12-210, 33-12-308, or 33-12-310. See Montana Code 33-12-102
Investment strategies: means the techniques and methods used by an insurer to meet its investment objectives, such as active bond portfolio management, passive bond portfolio management, interest rate anticipation, growth investing, and value investing. See Montana Code 33-12-102
Investment subsidiary: means a subsidiary of an insurer engaged or organized to engage exclusively in the ownership and management of assets authorized as investments for the insurer if each subsidiary agrees to limit its investment in any asset so that its investments will not cause the amount of the total investment of the insurer to exceed any of the investment limitations or avoid any other provisions of this chapter applicable to the insurer. See Montana Code 33-12-102
Joint tenancy: A form of property ownership in which two or more parties hold an undivided interest in the same property that was conveyed under the same instrument at the same time. A joint tenant can sell his (her) interest but not dispose of it by will. Upon the death of a joint tenant, his (her) undivided interest is distributed among the surviving joint tenants.
Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
Letter of credit: means a clean, irrevocable, and unconditional letter of credit issued or confirmed by and payable and presentable at a financial institution on the list of financial institutions meeting the standards for issuing letters of credit under the Purposes and Procedures of the Securities Valuation Office or any successor publication. See Montana Code 33-12-102
Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
Lien: A claim against real or personal property in satisfaction of a debt.
Limited liability company: means a business organization, excluding partnerships and ordinary business corporations, organized or operating under the laws of the United States or any state that limits the personal liability of investors to the equity investment of the investor in the business entity. See Montana Code 33-12-102
Lower-grade investment: means a rated credit instrument rated 4, 5, or 6 by the SVO. See Montana Code 33-12-102
Market value: means :

(a)as to cash and letters of credit, the amounts of cash or a letter of credit; and

(b)as to a security, as of any date, the price for the security on that date obtained from a generally recognized source or the most recent quotation from a generally recognized source or, to the extent that a generally recognized source does not exist, the price for the security as determined in good faith by the parties to a transaction, plus accrued but unpaid income on a security to the extent not included in the price as of that date. See Montana Code 33-12-102
Medium-grade investment: means a rated credit instrument rated 3 by the SVO. See Montana Code 33-12-102
Money market mutual fund: means a mutual fund that meets the conditions of 17 C. See Montana Code 33-12-102
Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
Mortgage loan: A loan made by a lender to a borrower for the financing of real property. ^{Source: OCC}
Mortgage loan: means an obligation secured by a mortgage, deed of trust, trust deed, or other consensual lien on real estate. See Montana Code 33-12-102
Multilateral development bank: means an international development organization of which the United States is a member. See Montana Code 33-12-102
Mutual fund: means an investment company or an investment company series that is registered with the United States securities and exchange commission under the Investment Company Act of 1940 (15 U. See Montana Code 33-12-102
NAIC: means the national association of insurance commissioners. See Montana Code 33-12-102
National Bank: A bank that is subject to the supervision of the Comptroller of the Currency. The Office of the Comptroller of the Currency is a bureau of the U.S. Treasury Department. A national bank can be recognized because it must have "national" or "national association" in its name. ^{Source: OCC}
Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
Obligation: means a bond, note, debenture, trust certificate including an equipment certificate, production payment, negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, loan secured by financing net leases, and other evidence of indebtedness for the payment of money (or participations, certificates, or other evidences of an interest in any of the foregoing), whether constituting a general obligation of the issuer or payable only out of certain revenue or certain funds pledged or otherwise dedicated for payment. See Montana Code 33-12-102
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, level, performance, or value of one or more underlying interests. See Montana Code 33-12-102
Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
Person: has the meaning provided in 33-1-202. See Montana Code 33-12-102
Potential exposure: means the amount determined in accordance with the NAIC Annual Statement Instructions. See Montana Code 33-12-102
Preferred stock: means preferred, preference, or guaranteed stock of a business entity authorized to issue the stock that has a preference in liquidation over the common stock of the business entity. See Montana Code 33-12-102
Property: means real and personal property. See Montana Code 1-1-205
Qualified bank: means :

(a)a national bank, state bank, or trust company that at all times is adequately capitalized as determined by standards adopted by United States banking regulators and that is either regulated by state banking laws or is a member of the federal reserve system; or

(b)a bank or trust company incorporated or organized under the laws of a country other than the United States that is regulated as a bank or trust company by that country's government or an agency of that government and that at all times is adequately capitalized as determined by the standards adopted by international banking authorities. See Montana Code 33-12-102
Qualified business entity: means a business entity that is:

(a)an issuer of obligations or preferred stock that is rated 1 or 2 by the SVO or an issuer of obligations, preferred stock, or derivative instruments that are rated the equivalent of 1 or 2 by the SVO or by a nationally recognized statistical rating organization recognized by the SVO; or

(b)a primary dealer in United States government securities recognized by the federal reserve bank of New York. See Montana Code 33-12-102
Qualified clearinghouse: means a clearinghouse for, and subject to the rules of, a qualified exchange or a qualified foreign exchange, which provides clearing services, including acting as a counterparty to each of the parties to a transaction so that the parties no longer have a credit risk as to each other. See Montana Code 33-12-102
Qualified exchange: means :

(a)a securities exchange registered as a national securities exchange or a securities market regulated under the Securities Exchange Act of 1934 (15 U. See Montana Code 33-12-102
Qualified foreign exchange: means a foreign exchange, board of trade, or contract market located outside the United States or its territories or possessions:

(a)that has received regulatory comparability relief under commodity futures trading commission rule 30. See Montana Code 33-12-102
Qualified guarantor: means a guarantor against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction. See Montana Code 33-12-102
Qualified primary credit source: means the credit source to which an insurer looks for payment as to an investment and against which an insurer has a direct claim for full and timely payment, evidenced by a contractual right for which an enforcement action can be brought in a domestic jurisdiction. See Montana Code 33-12-102
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
Real estate: means :

(i)real property;

(ii)interests in real property, such as leaseholds, minerals, oil, and gas, that have not been separated from the underlying fee interest;

(iii)improvements and fixtures located on or in real property; and

(iv)the seller's equity in a contract providing for a deed of real estate. See Montana Code 33-12-102
Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
Real property: means lands, tenements, hereditaments, and possessory title to public lands. See Montana Code 1-1-205
Replication transaction: means a derivative transaction that is intended to replicate the performance of one or more assets that an insurer is authorized to acquire under this chapter. See Montana Code 33-12-102
Repurchase transaction: means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period of time or upon demand. See Montana Code 33-12-102
Required liabilities: means total liabilities required to be reported on the statutory financial statement of the insurer most recently required to be filed with the commissioner. See Montana Code 33-12-102
Residential mortgage loan: means a loan primarily secured by a mortgage on real estate improved with a residence for no more than four families. See Montana Code 33-12-102
Reverse repurchase transaction: means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or upon demand. See Montana Code 33-12-102
Secured location: means the contiguous real estate owned by one person. See Montana Code 33-12-102
Securities lending transaction: means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or upon demand. See Montana Code 33-12-102
Series company: means an investment company that is organized as a series company, as defined in rules adopted under the Investment Company Act of 1940 (15 U. See Montana Code 33-12-102
Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.
Shell business entity: means a business entity having no economic substance, except as a vehicle for owning interests in assets issued, owned, or previously owned by a person domiciled in a foreign jurisdiction. See Montana Code 33-12-102
Short-term: means investments with a remaining term to maturity of 90 days or less. See Montana Code 33-12-102
Sinking fund stock: means preferred stock that:

(a)is subject to a mandatory sinking fund or similar arrangement that will provide for the redemption or open market purchase of the entire issue over a period not longer than 40 years from the date of acquisition; and

(b)provides for mandatory sinking fund installments or open market purchases commencing not more than 10 1/2 years from the date of issue, with the sinking fund installments providing for the purchase or redemption, on a cumulative basis commencing 10 years from the date of issue, of at least 2. See Montana Code 33-12-102
State: when applied to the different parts of the United States, includes the District of Columbia and the territories. See Montana Code 1-1-201
Statute: A law passed by a legislature.
Substantially similar securities: means securities that meet all criteria for substantially similar specified in the NAIC Accounting Practices and Procedures Manual, as amended, and in an amount that constitutes good delivery form as determined from time to time by the public securities administration. See Montana Code 33-12-102
SVO: means the securities valuation office of the NAIC or any successor office established by the NAIC. See Montana Code 33-12-102
Swap: means an agreement to exchange or to net payments at one or more times based on the actual or expected price, level, performance, or value of one or more underlying interests. See Montana Code 33-12-102
Total investment of the insurer: includes :

(a)direct investment by the insurer in an asset; and

(b)the insurer's proportionate share of an investment in an asset by an investment subsidiary of the insurer, which must be calculated by multiplying the amount of the subsidiary's investment by the percentage of the insurer's ownership interest in the subsidiary. See Montana Code 33-12-102
Underlying interest: means the assets, liabilities, other interests, or a combination of assets, liabilities, or other interests underlying a derivative instrument, such as any one or more securities, currencies, rates, indices, commodities, or derivative instruments. See Montana Code 33-12-102
United States: includes the District of Columbia and the territories. See Montana Code 1-1-201
Unrestricted surplus: means the amount by which total admitted assets exceed 125% of the insurer's required liabilities. 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.
Warrant: means an instrument that gives the holder the right to purchase an underlying financial instrument at a given price and time or at a series of prices and times outlined in the warrant agreement. See Montana Code 33-12-102
Writing: includes printing. See Montana Code 1-1-203