(a) Certain terms used are defined for the purposes of this chapter as follows:
(1) “Fixed charges” includes interest on funded and unfunded debt, amortization of debt discount and rentals for leased properties, except that interest paid by a bank or trust company upon any deposit shall not be deemed a fixed charge of such institution.
(2) “Institution” includes corporations, joint-stock associations, investment partnerships, business joint ventures and business trusts, statutory trusts or similar entities.
(3) “Liquid assets” and “liabilities”, as to the most recent fiscal year of an issuing, assuming or guaranteeing institution, shall be determined in reliance upon the latest regular financial statement of such institution prepared as of a date not more than 15 months prior to the date of acquisition of the obligations in question by an insurer and, as to any prior fiscal year of such institution, shall be determined in reliance upon the regular financial statement of such institution as of the close of the applicable fiscal year. If net earnings are determined in reliance upon consolidated earnings statements of parent and subsidiary institutions, “liquid assets” and “liabilities” shall be determined in reliance upon consolidated financial statements of parent and subsidiary institutions after treating any minority stock interest in such subsidiary institutions as a liability.
(4) “Liquid assets” means the sum of cash, receivables or portions thereof, as the case may be, payable on demand or not more than 12 years after the date as of which determination thereof shall be made for purposes of § 1308 of this title, and readily marketable securities, in each case less applicable reserves and unearned income.
(5) “Lower grade obligations” means obligations rated 4, 5 or 6 by the Securities Valuation Office of the National Association of Insurance Commissioners.
(6) “Medium grade obligations” means obligations rated 3 by the Securities Valuation Office of the National Association of Insurance Commissioners.
(7) “Net earnings available for fixed charges” means net income after deducting operating and maintenance expenses, taxes (other than federal, state and other income taxes), depreciation and depletion, but excluding extraordinary nonrecurring items of income or expense appearing in the regular financial statements of such institutions.
(8) “Obligations” includes bonds, debentures, notes and other evidences of indebtedness (whether or not liability for payment extends beyond the security therefor) as well as participation interests in any of the foregoing.
(9) “SVO” means the Securities Valuation Office of the NAIC or any successor office established by the NAIC.”
(b) If net earnings are determined in reliance upon consolidated earnings statements of parent and subsidiary institutions, such net earnings shall be determined after provision for income taxes of subsidiaries in which the parent institution owns directly or indirectly less than 80% of all classes of voting stock, and after proper allowance for minority stock interest if any; and the required coverage of fixed charges shall be computed on a basis including fixed charges and preferred dividends of subsidiaries other than those payable by such subsidiaries to the parent corporation or to any other of such subsidiaries, except that if the minority common stock interest in the subsidiary corporation is substantial, the fixed charges and preferred dividends may be apportioned in accordance with regulations prescribed by the Commissioner.
(c) If the issuing, assuming or guaranteeing institution has not been in legal existence for the whole of the period for which earnings tests are being applied for purposes of § 1308, § 1310 or § 1311 of this title, but was formed as a consolidation or merger of 2 or more businesses of which at least 1 was in operation at the commencement of such period or such institution has acquired all or substantially all of the assets of a business or any divisional, branch or other unitary portion thereof which was in operation at the commencement of such period, the tests of eligibility under § 1308, § 1310 or § 1311 of this title, as the case may be, shall be based upon pro forma statements incorporating statements of the predecessor or constituent institutions or businesses or portions thereof.