Sec. 424.206. INTERNAL CONTROL PROCEDURES. An insurer that enters into a derivative transaction shall establish written internal control procedures that require:
(1) a quarterly report to the board of directors that reviews:
(A) each derivative transaction entered into, outstanding, or closed out;
(B) the results and effectiveness of the derivatives program; and
(C) the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount;
(2) a system for determining whether hedging or replication strategies used by the insurer have been effective;
(3) a system of reports, at least as frequent as monthly, to the insurer's management, that include:
(A) a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report;
(B) the purpose of each outstanding derivative transaction;
(C) a performance review of the derivative instrument program; and
(D) the counterparty exposure amount for each over-the-counter derivative transaction;
(4) a written authorization that identifies the responsibilities and limitations of authority of each person authorized to effect and maintain derivative transactions; and
(5) appropriate documentation for each transaction, including:
(A) the purpose of the transaction;
(B) the assets or liabilities to which the transaction relates;
(C) the specific derivative instrument used in the transaction;
(D) for an over-the-counter derivative transaction, the name of the counterparty and the counterparty exposure amount; and
(E) for an exchange-traded derivative instrument, the name of the exchange and the name of the firm that handled the transaction.
Added by Acts 2005, 79th Leg., Ch. 727 (H.B. 2017), Sec. 1, eff. April 1, 2007.
Structure Texas Statutes
Title 4 - Regulation of Solvency
Subtitle B - Reserves and Investments
Chapter 424 - Investments for Certain Insurers
Subchapter E. Risk Control Transactions
Section 424.202. Risk Control Transactions Authorized
Section 424.203. Notice of Intent to Engage in Risk Control Transactions Required
Section 424.204. Trading Requirements for Derivative Instruments
Section 424.205. Derivative Use Plan
Section 424.206. Internal Control Procedures
Section 424.207. Ability to Demonstrate Hedging Characteristics and Effectiveness
Section 424.208. Offsetting Transactions
Section 424.209. Inclusion of Counterparty Exposure Amounts
Section 424.210. Oversight by Commissioner
Section 424.211. Authority to Enter Into Hedging Transaction
Section 424.212. Authority to Enter Into Income Generation Transaction
Section 424.213. Limitation on Sale of Call Option on Assets
Section 424.214. Limitation on Sale of Put Option on Assets
Section 424.215. Limitation on Sale of Call Option on Derivative Instrument
Section 424.216. Limitation on Sale of Cap or Floor