Sec 20-540. Governmental revenue bonds and obligations; limitation; definitions

A. An insurer may invest in bonds, notes or evidences of indebtedness of any state, any political subdivision of a state or any political subdivision of the United States that are payable from revenues or earnings specifically pledged for the payment of the principal and interest on such obligations, and for which a sinking fund or reserve fund has been established and is being maintained, but only if no default in payment of principal or interest on the obligations to be purchased has occurred within five years of the date of the investment, or if such obligations were issued less than five years prior to the date of investment, no default in payment of principal or interest has occurred on the obligations to be purchased nor on any other obligations of the issuer within five years of such investment.

B. An insurer shall not invest directly or indirectly in any medium grade or lower grade obligation pursuant to this section if after giving effect to that investment the aggregate amount of all medium grade and lower grade obligations held by the insurer exceeds twenty per cent of its admitted assets and if both of the following apply:

1. No more than ten per cent of the insurer's admitted assets consist of obligations that are rated as class 4, 5 or 6 by the securities valuation office of the national association of insurance commissioners.

2. No more than one per cent of the insurer's admitted assets consist of obligations that are rated as class 5 or 6 by the securities valuation office of the national association of insurance commissioners.

C. For purposes of this section:

1. "Lower grade obligation" means any bond, note or evidence of indebtedness that is rated as class 4, 5 or 6 by the securities valuation office of the national association of insurance commissioners.

2. "Medium grade obligation" means any bond, note or evidence of indebtedness that is rated as class 3 by the securities valuation office of the national association of insurance commissioners.