Common use of Portfolio Guidelines Clause in Contracts

Portfolio Guidelines. (1) Portfolio duration must be managed to match projected liability duration, plus or minus 1/2 year. (2) Portfolio convexity should be maximized to a level as close as possible to that of the liabilities, not to fall below -1.0. (3) All investments have to be in US dollar denominated securities. (4) Investments must be listed with the Securities Valuation Office of the National Association of Insurance Commissioners ("NAIC"). If a given security is not listed at the time of purchase, Reinsurer shall apply for listing of such security prior to the end of the calendar quarter in which the purchase is made. (5) All investment must be rated a category 1 or category 2 by the NAIC when purchased. No more than 10% of the portfolio shall be invested in NAIC category 2 investments. (6) Investments shall be limited to bonds and short term securities (maturity of less than 1 year). (7) Short term securities shall be limited to (a) US Treasury Bills, Bonds, or Notes; commercial notes of US corporations, bankers acceptances and loan participations having an A-1 or P-1 quality rating and not to exceed 5% of the portfolio per issuer; interest-bearing accounts and certificates of deposit of US banks and savings and loan associations not to exceed FDIC or FSLIC limits; shares in money market mutual funds not to exceed 5% of the portfolio. (8) No investments will be made in mortgage backed security derivatives (inverse-floaters, interest only strips, and principal only strips). (9) In regard to mortgage backed securities: no Z-Class, Accrual Bonds, and similar tranches such as Jump-Z tranches should be held in the portfolio; no inverse floating or super-floating CMOs should be held in the portfolio; no synthetic mortgage securities should be held in the portfolio. Mortgage backed securities will be managed so as to minimize prepayment risk. (10) No more than 25% of the portfolio will be invested in mortgage backed and asset backed securities. (11) No investments will be made in callable securities (12) No investments will be made in municipal bonds. (13) No more than 5% of the portfolio will be invested in any one corporate issuer. (14) No transaction that will result in a realized capital loss in excess of $3,000 will be executed without the advance written approval of the Company. (15) No investment will be made in a security that is not publicly traded without the advance written approval of the Company.