Model state law of the NAIC that stipulates that the total sum of medium grade bonds (bonds carrying a rating of 3, assigned by the Securities Valuation Office of the NAIC) and lower grade bonds (bonds carrying a rating of 4, 5, or 6, assigned by the Securities Valuation Office of the NAIC) cannot be greater than 20% of the insurance company's admitted assets. The total sum of bonds rated 4, 5, or 6 cannot exceed 10% of the company's admitted assets. In addition, no more than 3% of the admitted assets can be in bonds carrying a rating of 5 or 6; and no more than 1% of the admitted assets can be in bonds carrying a rating of 6. Bonds are rated by the Securities Valuation office from 1 (highest rating representing debt obligations of companies in excellent financial condition) to 6 (lowest rating representing debt obligations of companies in very poor financial condition).
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