Tex.
Ins. Code Section 425.128
Risk Control Transactions: Oversight by Commissioner
(a)
An insurance company must be able to demonstrate to the commissioner on request the intended hedging characteristics and continuing effectiveness of a derivative transaction or combination of transactions through:(1)
cash flow testing;(2)
duration analysis; or(3)
other appropriate analysis.(b)
Ten days before entering into an initial hedging transaction, an insurance company shall notify the commissioner in writing that:(1)
the company’s board of directors has adopted an investment plan that authorizes hedging transactions; and(2)
each hedging transaction will comply with Sections 425.124-425.132.(c)
After providing the notice under Subsection (b), the insurance company may enter into a hedging transaction under Section 425.124 (Authorized Investments: Risk Control Transactions) if as a result of and after making the transaction:(1)
the aggregate statement value of all outstanding options other than collars, and of all caps, floors, swaptions, and warrants under Sections 425.124-425.132 not attached to another financial instrument purchased by the company does not exceed 7.5 percent of the company’s assets;(2)
the aggregate statement value of all outstanding options other than collars, and of all caps, floors, swaptions, and warrants written by the company under Sections 425.124-425.132 does not exceed three percent of the company’s assets; and(3)
the aggregate potential exposure of all outstanding collars, swaps, forwards, and futures entered into or acquired by the company under Sections 425.124-425.132 does not exceed 6.5 percent of the company’s assets.(d)
If the hedging transaction does not comply with Sections 425.124-425.132, or if continuing the transaction may create a hazardous financial condition for the insurance company that affects the company’s policyholders or creditors or the public, the commissioner may, after notice and an opportunity for a hearing, order the company to take action reasonably necessary to:(1)
remedy a hazardous financial condition; or(2)
prevent an impending hazardous financial condition from occurring.
Source:
Section 425.128 — Risk Control Transactions: Oversight by Commissioner, https://statutes.capitol.texas.gov/Docs/IN/htm/IN.425.htm#425.128 (accessed Jun. 5, 2024).
