Texas Statutes
Subchapter C. Authorized Investments and Transactions for Capital Stock Life, Health, and Accident Insurers
Section 425.129. Risk Control Transactions: Limitations on Income Generation Transactions

Sec. 425.129. RISK CONTROL TRANSACTIONS: LIMITATIONS ON INCOME GENERATION TRANSACTIONS. An insurance company may enter into an income generation transaction only if:
(1) as a result of and after making the transaction, the sum of the following amounts does not exceed 10 percent of the company's assets:
(A) the aggregate statement value of admitted assets that at the time of the transaction are subject to call or that generate the cash flows for payments the company is required to make under caps and floors sold by the company and that at the time of the transaction are outstanding under Sections 425.124-425.132;
(B) the statement value of admitted assets underlying derivative instruments that at the time of the transaction are subject to calls sold by the company and outstanding under those sections; and
(C) the purchase price of assets subject to puts that at the time of the transaction are outstanding under those sections; and
(2) the transaction is one of the following types, is covered in the manner specified by this subdivision, and meets the other requirements of this subdivision:
(A) a sale of a call option on assets, if during the entire period the option is outstanding, the company holds, or has a currently exercisable right to acquire, the underlying assets;
(B) a sale of a put option on assets, if:
(i) during the entire period the option is outstanding, the company holds sufficient cash, cash equivalents, or interests in a short-term investment pool to purchase the underlying assets on exercise of the option;
(ii) the company has the ability to hold the underlying assets in the company's portfolio; and
(iii) during the entire period the option is outstanding, when the total market value of all put options sold by the company exceeds two percent of the company's assets, the company sets aside, under a custodial or escrow agreement, cash or cash equivalents that have a market value equal to the amount of the company's put option obligations in excess of two percent of the company's assets;
(C) a sale of a call option on a derivative instrument, including a swaption, if:
(i) during the entire period the call option is outstanding, the company holds, or has a currently exercisable right to acquire, assets generating the cash flow to make any payment for which the company is liable under the underlying derivative instrument; and
(ii) the company has the ability to enter into the underlying derivative transaction for the company's portfolio; and
(D) a sale of a cap or floor, if during the entire period the cap or floor is outstanding, the company holds, or has a currently exercisable right to acquire, assets generating the cash flow to make any payment for which the company is liable under the cap or floor.
Added by Acts 2005, 79th Leg., Ch. 727 (H.B. 2017), Sec. 1, eff. April 1, 2007.

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