§ 87. Investment of surplus or reserve. 1. Any of the reserve funds belonging to the state insurance fund, by order of the commissioners, approved by the superintendent of financial services, may be invested in the types of securities described in subdivisions one, two, three, four, five, six, eleven, twelve, twelve-a, thirteen, fourteen, fifteen, nineteen, twenty, twenty-one, twenty-one-a, twenty-four, twenty-four-a, twenty-four-b, twenty-four-c and twenty-five of section two hundred thirty-five of the banking law or in paragraph two of subsection (a) of section one thousand four hundred four of the insurance law except that up to five percent of such reserve funds may be invested in the securities of any solvent American institution as described in such paragraph irrespective of the rating of such institution's obligations or other similar qualitative standards described therein. 2. Any of the surplus funds belonging to the state insurance fund, by order of the commissioners, approved by the superintendent of financial services, may be invested in the types of securities described in subdivisions one, two, three, four, five, six, eleven, twelve, twelve-a, thirteen, fourteen, fifteen, nineteen, twenty, twenty-one, twenty-one-a, twenty-four, twenty-four-a, twenty-four-b, twenty-four-c and twenty-five of section two hundred thirty-five of the banking law or, up to fifty percent of surplus funds, in the types of securities or investments described in paragraphs two, three, eight and ten of subsection (a) of section one thousand four hundred four of the insurance law, except that up to ten percent of surplus funds may be invested in the securities of any solvent American institution as described in such paragraphs irrespective of the rating of such institution's obligations or other similar qualitative standards described therein, and up to fifteen percent of surplus funds in securities or investments which do not otherwise qualify for investment under this section as shall be made with the care, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims as provided for the state insurance fund under this article, but shall not include any direct derivative instrument or derivative transaction except for hedging purposes. Notwithstanding any other provision in this subdivision, the aggregate amount that the state insurance fund may invest in the types of securities or investments described in paragraphs three, eight and ten of subsection (a) of section one thousand four hundred four of the insurance law and as a prudent person acting in a like capacity would invest as provided in this subdivision shall not exceed fifty percent of such surplus funds. 3. Any of the surplus or reserve funds belonging to the state insurance fund, upon like approval of the superintendent of financial services, may be loaned on the pledge of any such securities. The commissioners, upon like approval of the superintendent of financial services, may also sell any of such securities or investments. 4. (a) Any securities belonging to the state insurance fund may, by order of the commissioners, approved by the superintendent of financial services, be loaned under a security loan agreement, as defined in paragraph (b) of this subdivision, entered into with a registered broker-dealer, or a New York state or national bank or trust company, with the custodial bank of the state insurance fund or another person or entity, approved by the commissioner of taxation and finance, which specializes in security loan transactions acting as the agent in arranging such agreement. The commissioners shall monitor the market value of the loaned securities daily. In no event shall the commissioners allow the value of the collateral posted to fall below the market value of the loaned securities.

(b) For purposes of this section, "security loan agreement" shall mean a written contract, the terms of which have been approved by the commissioner of taxation and finance, whereby the state insurance fund (the lender) agrees to lend securities to a broker-dealer, bank or trust company described in paragraph (a) of this subdivision (the borrower) for a period not to exceed one year. However, such agreement shall be subject to the following limitations: (i) the lender must retain the right to collect from the borrower all dividends, interest, premiums, rights, and any other distributions to which the lender would otherwise have been entitled; (ii) the lender may waive the right to vote the securities during the term of such agreement; (iii) the lender must retain the right to terminate such agreement upon not more than five business days' notice; (iv) the borrower shall provide as collateral to the lender cash or direct obligations of the United States of America or any agency or instrumentality thereof or obligations fully guaranteed by the United States of America that are eligible for investment by the state insurance fund under subdivision one of this section, provided that such obligations may in no event consist of derivative securities; and (v) such agreement shall provide for payment of additional collateral on a daily basis, or at such time as the value of the loaned securities increases to agreed upon ratios. 5. All such securities or evidences of indebtedness shall be placed in the hands of the commissioner of taxation and finance who shall be the custodian thereof. He or she shall collect the principal and interest thereof, when due, and pay the same into the state insurance fund. The commissioner of taxation and finance shall pay all vouchers drawn on the state insurance fund for the making of such investments when signed by the chair of the commissioners, the executive director or a deputy executive director of the state insurance fund upon delivery of such securities or evidences of indebtedness to him or her, when there is attached to such vouchers the approval of the state superintendent of financial services. 6. For the purposes of this section, the term "reserves" does not include the estimated value of future discretionary payments that may be made by the state insurance fund under section ninety of this article. 7. Notwithstanding any provision in this section, the surplus and reserve funds of the state insurance fund shall not be invested in any investment that has been found by the superintendent of financial services to be against public policy or in any investment prohibited by the provisions of paragraph six of subsection (a) of section one thousand four hundred four of the insurance law or by the provisions of paragraph one, two, three, four, six, eight, nine or ten of subsection (a) of section one thousand four hundred seven of the insurance law.