TITLE XXXVII
INSURANCE

CHAPTER 402
INSURANCE COMPANIES AND AGENTS

Investments and Reserves

Section 402:28

    402:28 Types of Investments. –
I. Except for those investments which are authorized by RSA 401-B:2, which investments shall be governed exclusively by those sections respectively, every domestic insurance company, other than a life insurance company, shall invest and keep invested all its funds in investments enumerated below, except such cash as may be required in the transaction of its business. Such investments shall include:
(a) Government Obligations. Bonds, notes, or obligations issued, assumed, guaranteed, or insured by the United States, or by any state, territory, or possession thereof, the District of Columbia or by any county, city, town, village, municipality, or district therein or by any political subdivision or public instrumentality of one or more of the foregoing.
(b) Government Agencies. Bonds, notes, obligations, or stock issued, assumed, guaranteed, or insured by the following agencies of the United States or in which such government is a participant, whether or not such obligations are guaranteed by such government:
(1) Farm loan bank.
(2) Commodity credit corporation.
(3) Federal intermediate credit banks.
(4) Federal land banks.
(5) Central bank for cooperatives.
(6) Federal home loan banks and stock of such banks.
(7) Federal national mortgage association and stock of such association.
(8) Government national mortgage association.
(9) Federal home loan mortgage corporation.
(10) International bank for reconstruction and development.
(11) Inter-American development bank.
(12) Asian development bank.
(13) African development bank.
(14) Any other similar agency of, or in which there is participation by, the government of the United States, and the instruments are of similar financial quality.
(c) Business Obligations and Equity Interests. Stock, warrants, rights or other securities, bonds, notes or obligations issued, assumed, guaranteed, insured, or accepted by any solvent corporation, joint-stock association, trust, partnership, joint venture, or other entity or combination of entities incorporated or existing under the laws of the United States or of any state, district, or territory thereof, and any interest in any of the foregoing. An insurer shall not short sell equity investments unless the insurer covers the short sale by owning the equity investment or an unrestricted right to the equity instrument exercisable within 6 months of the short sale.
(d) Limited Partnerships. A domestic company may become a limited partner in a limited partnership on the following conditions:
(1) The partnership shall be organized under the limited partnership laws of the state of the partnership formation.
(2) The company's interest in any one limited partnership shall be subject to the general 5 percent diversification requirement in RSA 402:29-d, I(a).
(3) All investments in limited partnerships shall be subject, as applicable, to the limitations on equity interests in RSA 402:29-d, I(b) and the limitations on interests in mortgage loans and real estate in RSA 402:29-d, IV-VII.
(e) Bank Obligations. Interest-bearing deposits, banks' and bankers' acceptances, including bills of exchange, or certificates of deposit in banks, bank and trust companies, savings banks, savings associations, savings and loan associations or national banking associations, incorporated or existing under the laws of the United States or any state, district, or territory thereof, including branches of any of the foregoing, or foreign banking institutions or branches of such institutions located in the United States or any state, district, or territory thereof.
(f) Revenue Obligations. Obligations or participations in obligations which are not issued, assumed, guaranteed, or accepted by any person described under subparagraph I(c), but are:
(1) Adequately secured by an assignment or right to receive rent or other payment or revenues payable or guaranteed by any one or more persons or entities; or adequately secured by a mortgage, interest in a mortgage pool, or mortgage participation, or lien or security interest in real or personal property or any interest therein.
(2) The obligations or participations in such obligations of any person or entity whose principal assets are any one of the foregoing obligations or participations secured in accordance with subparagraph (f)(1).
(g) Mortgage Backed Securities. Mortgage backed securities include, but are not limited to: mortgage pass-through securities; mortgage backed bonds; collateralized mortgage obligations; and real estate mortgage investments conduits, adequately secured by a pool of mortgages and served by a governmental unit or instrumentality of the United States or any entity incorporated under the laws of the United States or of any state thereof.
(h) Mortgage Loans.
(1) Subject to the limitations of RSA 402:29-d, I(a), an insurer may acquire, either directly, indirectly through limited partnership interests, joint ventures, stock of an investment subsidiary, or membership interests in a limited liability company, trust certificates, or other similar instruments, obligations secured by mortgages on real estate situated within a domestic jurisdiction, but a mortgage loan which is secured by other than a first lien shall not be acquired unless the insurer is the holder of the first lien. The obligations held by the insurer and any obligations with an equal lien priority, shall not, at the time of acquisition of the obligation, exceed:
(A) Ninety percent of the fair market value of the real estate, if the mortgage loan is secured by a purchase money mortgage or like security received by the insurer upon disposition of the real estate;
(B) Eighty percent of the fair market value of the real estate, if the mortgage loan requires immediate scheduled payment in periodic installments of principal and interest, has an amortization period of 30 years or less and periodic payments made no less frequently than annually. Each periodic payment shall be sufficient to assure that at all times the outstanding principal balance of the mortgage loan shall not be greater than the outstanding principal balance that would be outstanding under a mortgage loan with the same original principal balance, with the same interest rate and requiring equal payments of principal and interest with the same frequency over the same amortization period. Mortgage loans permitted under this subparagraph are permitted notwithstanding the fact that they provide for a payment of the principal balance prior to the end of the period of amortization of the loan. For residential mortgage loans, the 80 percent limitation may be increased to 97 percent if acceptable private mortgage insurance has been obtained; or
(C) Seventy-five percent of the fair market value of the real estate for mortgage loans that do not meet the requirements of subparagraphs (1) and (2).
(2) For the purposes of subparagraph (1), the amount of an obligation required to be included in the calculation of the loan-to-value ratio may be reduced to the extent the obligation is insured by the Federal Housing Administration or guaranteed by the Administrator of Veterans Affairs, or their successors.
(3) A mortgage loan that is held by an insurer as an admitted asset on December 31, 2016 and is restructured in a manner that meets the requirements of a restructured mortgage loan in accordance with the NAIC Accounting Practices and Procedures Manual or successor publication shall continue to qualify as a mortgage loan under this subparagraph.
(4) Subject to the limitations of RSA 402:29-d, I(a), credit lease transactions that do not qualify as rated securities under subparagraph (n) with the following characteristics shall be exempt from the provisions of subparagraph (1).
(A) The loan amortizes over the initial fixed lease term at least in an amount sufficient so that the loan balance at the end of the lease term does not exceed the original appraised value of the real estate;
(B) The lease payments cover or exceed the total debt service over the life of the loan;
(C) A tenant or its affiliated entity whose rated credit instruments have a SVO 1 or 2 designation from the Securities Valuation Office of the National Association of Insurance Commissioners or a comparable rating from a nationally recognized statistical rating organization recognized by the Securities Valuation Office has a full faith and credit obligation to make the lease payments;
(D) The insurer holds or is the beneficial holder of the first lien mortgage on the real estate;
(E) The expenses of the real estate are passed through to the tenant, excluding exterior, structural, parking, and heating, ventilation, and air conditioning replacement expenses, unless annual escrow contributions, from cash flows derived from the lease payments, cover the expense shortfall; and
(F) There is a perfected assignment of the rents due pursuant to the lease to, or for the benefit of, the insurer.
(i) Income Producing Real Estate.
(1) An insurer may acquire, manage, and dispose of real estate situated in a domestic jurisdiction either directly or indirectly through limited partnership interests, joint ventures, stock of an investment subsidiary or membership interests in a limited liability company, trust certificates, or other similar instruments. The real estate shall be income producing or intended for improvement or development for investment purposes under an existing program in which case the real estate shall be deemed to be income producing.
(2) The real estate may be subject to mortgages, liens, or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens, or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with RSA 402:29-d, IV and V.
(j) Real Estate for the Accommodation of Business. An insurer may acquire, manage, and dispose of real estate for the convenient accommodation of the insurer, which may include its affiliates, business operations, including home office, branch office and field office operations.
(1) Real estate acquired under this subparagraph may include excess space for rent to others, if the excess space, valued at its fair market value, would otherwise be a permitted investment under subparagraph (i) of this section and is so qualified by the insurer;
(2) The real estate acquired under this subparagraph may be subject to one or more mortgages, liens, or other encumbrances, the amount of which shall, to the extent that the obligations secured by the mortgages, liens, or encumbrances are without recourse to the insurer, be deducted from the amount of the investment of the insurer in the real estate for purposes of determining compliance with RSA 402:29-d, V; and
(3) For purposes of this subparagraph, business operations shall not include that portion of real estate used for the direct provision of health care services by an insurer whose insurance premiums and required statutory reserves for accident and health insurance constitute at least 95 percent of total premium considerations or total statutory required reserves, respectively. An insurer may acquire real estate used for these purposes under RSA 402:28, I(h) and subject to the limitations set out in RSA 402:29-d, V.
(k) Collateral Loans. Direct obligations for the payment of money adequately secured by the pledge of any property which would be authorized as an investment under this subdivision.
(l) Derivative transactions. An insurer may use derivative instruments to engage in hedging transactions, income generation transactions, and replication transactions on the following conditions:
(1) An insurer may enter into hedging transactions if, measured at the time of acquisition after giving effect to such transactions, all of the following apply:
(A) The aggregate statement value of options, caps, floors, and warrants not attached to another financial instrument purchased and used in hedging transactions does not exceed 7-1/2 percent of its admitted assets.
(B) The aggregate statement value of options, caps, and floors written in hedging transactions does not exceed 3 percent of its admitted assets.
(C) The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions does not exceed 6-1/2 percent of its admitted assets.
(D) Transactions entered into to hedge the currency risk of investments denominated in a currency other than United States dollars shall not be included in the limits under this subparagraph. An insurer may purchase, sell, or enter into one or more derivative transactions to offset, in whole or in part, any derivative instrument or derivative transaction previously purchased, sold, or entered into, without regard to the quantitative limitations of this paragraph, provided that such derivative instrument or derivative transaction is an exact offset, in whole or in part, to the original derivative instrument or derivative transaction being offset.
(2) An insurer may enter into the following types of income generation transactions if, at the time of acquisition after giving effect to the transactions the aggregate statement value of the fixed income assets that are subject to call or that generate the cash flows for payments under the caps or floors, plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed 10 percent of its admitted assets:
(A) Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms before the end of the noncallable period or derivative instruments based on fixed income securities.
(B) Sales of covered call options on equity securities, if the insurer holds in its portfolio or can immediately acquire through the exercise of options, warrants, or conversion rights already owned the equity securities subject to call during the complete term of the call option sold.
(C) Sales of covered puts on investments that the insurer is permitted to acquire under this section, if the insurer has escrowed, or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold.
(D) Sales of covered caps or floors, if the insurer holds in its portfolio the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding.
(3) An insurer may enter into replication transactions if both of the following apply:
(A) The insurer would otherwise be authorized to invest its funds under this section in the asset being replicated.
(B) The asset being replicated is subject to all the provisions of this section relating to the making of investments by the insurer in that type of asset as if the transaction constituted a direct investment by the insurer in the replicated asset.
(4) The commissioner may approve of additional transactions involving the use of derivative instruments in excess of the limits of this paragraph or for other risk management purposes, except that replication transactions under this subparagraph shall be permitted only for risk management purposes.
(m) Each derivative instrument shall be one of the following:
(1) Traded on or entered into with a qualified exchange.
(2) Entered into with or guaranteed by a business entity.
(3) Issued or written with the issuer of the underlying interest on which the derivative instrument is based.
(4) Traded on or entered into with a qualified foreign exchange.
(n) For the purposes of subparagraphs I(l) and (m), unless the context otherwise requires:
(1) "Business entity" includes a sole proprietorship, corporation, limited liability company, association, bank, 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.
(2) "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.
(3) "Collar" means an agreement, or series of agreements 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.
(4) "Derivative instrument" means an agreement, option, or instrument, or a series or combination that:
(A) Either requires a party 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 has a price, performance, value, or cash flow based primarily on the actual or expected price, level, performance, value, or cash flow of one or more underlying interests.
(B) Includes options, warrants used in a hedging transaction and not attached to another financial instrument, caps, floors, collars, swaps, forwards, futures, and any other agreements, options, or instruments substantially similar thereto or any series or combination thereof and any agreements, options, or instruments permitted under rules adopted to carry out the provisions of subparagraphs I(l) and (m).
(C) Does not include an investment authorized by RSA 402:28, I(a) through (k), RSA 402:28, I(o) through (p), RSA 402:28, I(r) through (s), or RSA 402:28, II through IV.
(5) "Derivative transaction" means a transaction involving the use of one or more derivative instruments.
(6) "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 exceeds a reference price, level, performance, or value of one or more underlying interests.
(7) "Forward" means an agreement, other than a future, 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, but shall not mean or include spot transactions effected within customary settlement periods, when-issued purchases, or other similar cash market transactions.
(8) "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.
(9) "Hedging transaction" means a derivative transaction that is entered into and maintained to reduce either:
(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 either directly or indirectly through an investment in an underlying entity.
(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 either directly or indirectly through an investment in an underlying entity.
(10) "Income generation transaction" means a derivative transaction involving the writing of covered call options, covered put options, covered caps, or covered floors that is intended to generate income or enhance return.
(11) "Option" means an agreement giving the buyer the right to buy or receive, referred to as a "call option", to sell or deliver, referred to as a "put option", to enter into, extend, or terminate, or to effect a cash settlement based on the actual or expected price, spread, level, performance, or value of one or more underlying interests.
(12) "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, as amended.
(B) A board of trade, commodities exchange, or clearing organization designated as a contract market or derivatives clearing organization by the Commodity Futures Trading Commission or any successor thereof.
(C) Private offerings, resales, and trading through automated linkages.
(D) A designated offshore securities market as defined in securities exchange commission regulations, 17 C.F.R. part 230, as amended.
(E) A qualified foreign exchange.
(13) "Qualified foreign exchange" means a foreign exchange, board of trade, or contract market located outside the United States or its territories or possessions if one of the following applies:
(A) The exchange, board of trade, or contract market has received regulatory comparability relief under Commodity Futures Trading Commission rule 30.10, as set forth in 17 C.F.R. part 30, appendix C.
(B) The exchange, board of trade, or contract market is, or its members are, subject to the jurisdiction of a foreign futures authority that has received regulatory comparability relief under Commodity Futures Trading Commission rule 30.10, as set forth in 17 C.F.R. part 30, appendix C as to futures transactions in the jurisdiction where the exchange, board of trade, or contract market is located.
(C) Foreign stock index futures contracts are listed on the exchange, board of trade, or contract market and the contracts are the subject of no-action relief issued by the Commodity Futures Trading Commission office of general counsel if the exchange, board of trade, or contract market that qualifies as a qualified foreign exchange under this subdivision is a qualified foreign exchange only as to foreign stock index futures contracts that are the subject of no-action relief.
(14) "Replication transaction":
(A) 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 section.
(B) Does not include a derivative transaction that is entered into as a hedging transaction.
(15) "Spot transaction" means a transaction that settles via an actual delivery of the underlying asset within the standard settlement period for such asset.
(16) "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.
(17) "Underlying interest" means the assets, liabilities, other interests or a combination thereof underlying a derivative instrument, including any securities, currencies, rates, indices, commodities, or derivative instruments.
(18) "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. Warrants may be issued alone or in connection with the sale of other securities, including as part of a merger or recapitalization agreement or to facilitate divestiture of the securities of another business entity.
(o) Securities Lending. The investment practice of lending securities and entering into repurchase agreements and reverse repurchase agreements is authorized on the following conditions:
(1) "Lending of securities" means an investment other than a repurchase agreement, whereby an agreement is entered into which transfers ownership rights and possession of securities to the borrower of such securities with the agreement providing for a return of ownership rights and possession of the securities to the lender at a specified date or upon demand.
(2) "Repurchase agreement" means a bilateral agreement whereby a company purchases securities with a related agreement that the seller will purchase or repurchase at a specified price the equivalent or similar securities within a specified period of time or on demand.
(3) "Reverse repurchase agreement" means a bilateral agreement whereby a company:
(A) Sells securities with a related agreement to purchase or repurchase at a specified price the equivalent or similar securities within a specified period of time or upon demand; or
(B) Borrows funds and transfers securities to the lender with a related agreement that equivalent or similar securities shall be returned to the company upon repayment of the loan within a specified period of time or on demand.
(4) Lending of securities, repurchase agreements, and reverse repurchase agreements are authorized on the following conditions:
(A) The agreement for each transaction or the master agreement for a series of transactions shall be reduced to writing.
(B) Securities acquired by a company owned subject to reacquisition pursuant to an outstanding repurchase agreement may not be sold pursuant to a reverse repurchase agreement nor lent pursuant to a lending of securities agreement. Consideration, or collateral, received from a reverse repurchase agreement or lending of securities agreement may be used to acquire securities which are equivalent or similar to the securities transferred pursuant to such repurchase agreement or lending of securities agreement; however, such acquired securities may not be sold pursuant to a reverse repurchase agreement nor lent pursuant to a lending of securities agreement.
(C) A company is limited to no more than 10 percent of its admitted assets being subject to lending of securities, repurchase agreements or reverse repurchase agreements transactions outstanding with any one entity under this paragraph.
(D) A company may engage in lending its securities or repurchase or reverse repurchase agreements not to exceed 40 percent of its admitted assets, provided, however, that such transactions are collateralized 102 percent of the market value of loaned securities at the close of every business day in which such agreement remains open.
(p) Rated Securities. Obligations which are rated by a securities rating agency, which agency is acceptable to the commissioner, and which securities are rated so as to be in one of the highest 4 generic lettered rating classifications, or awarded a "yes" rating by the Securities Valuation Office of the National Association of Insurance Commissioners.
(q) Basket Provision. Any investment of any kind not otherwise authorized by this subdivision up to an amount not exceeding in the aggregate 10 percent of such company's admitted assets.
(r) Mutual Funds. Equity interest in an open-ended investment company registered with the United States Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. section 80a-1 et seq.) as amended, provided that substantially all the investments of such mutual funds are traded on a nationally recognized stock exchange or on the NASDAQ system.
(s) With approval of the commissioner, funds loaned to the New Hampshire Insurance Guaranty Association pursuant to RSA 404-H:8, II(b).
II. (a) Foreign Securities; Insurance Policy Related. A domestic company which is lawfully doing business in any foreign country may also invest its funds in:
(1) Bonds, notes, or obligations of such foreign country, or of a political subdivision, governmental corporation or agency, of such foreign country.
(2) Stocks, warrants, rights or other securities, bonds, notes, or obligations of any business entity formed or located in such foreign country, which are of the same kinds, classes and grades as those eligible for investments under this subdivision.
(b) The aggregate carrying value of all investments under this paragraph shall not exceed 150 percent of the liabilities arising from the outstanding policies of insurance issued or delivered in such foreign country.
III. United States Dollar Denominated Foreign Investments. A domestic company may invest in stocks, warrants, rights or other securities, bonds, notes, or obligations, of foreign entities which are denominated in United States dollars, which are of the same kind, class and grade of United States investments which are authorized under any other provision of this subdivision. Any investment authorized under this paragraph shall be aggregated with United States investments of the same category in determining compliance with percentage limitations, if any, contained in other provisions of this subdivision.
IV. Foreign Investments Denominated in Foreign Currency. A domestic company may invest in stocks, warrants, rights or other securities, bonds, notes, or obligations, of foreign entities which are denominated in a foreign currency, which are of the same kind, class and grade of United States investments which are authorized under any other provision of this subdivision. The aggregate carrying value of all investments under this paragraph shall be 10 percent of such company's admitted assets.

Source. 1917, 30:4. PL 273:23. RL 323:28. RSA 402:28. 1975, 232:1. 1977, 334:1. 1991, 372:2. 1997, 221:4. 2004, 197:3. 2016, 254:1, eff. Aug. 9, 2016. 2021, 119:2, Pt. II, Sec. 1, eff. July 9, 2021.