Securities lending, repurchase, reverse repurchase, and dollar roll transactions.

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An insurer may enter, directly or indirectly through an investment affiliate, into securities lending transactions that are conducted directly, through a custodian bank that is a qualified bank, or through an agent, and may enter into repurchase transactions, reverse repurchase transactions, and dollar roll transactions, subject to the following conditions:

(1) the insurer's board of directors must adopt a written plan that specifies guidelines and objectives regarding such transactions, including:

(a) a description of how cash may be invested or used for general corporate purposes of the insurer;

(b) operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from reverse repurchase transactions may be used in the ordinary course of business, and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and

(c) the extent to which the insurer may engage in these transactions;

(2) the insurer must enter into a written agreement for all transactions authorized in this subsection other than dollar roll transactions. The written agreement must:

(a) require each transaction to terminate no more than one year from its inception;

(b) be made with the counterparty, except that for securities lending transactions, the agreement may be:

(i) through a custodian bank that is a qualified bank; or

(ii) with an agent acting on behalf of the insurer if the:

(A) agent or the guarantor of the agent's obligations pursuant to the agreement is a qualified bank or a qualified business entity; and

(B) agreement with the agent requires the agent to enter into separate agreements with each counterparty that are consistent with the requirements of this subsection and prohibits securities lending transactions pursuant to the agreement with the agent or its affiliates;

(3) cash received in a transaction pursuant to this subsection, if not used by the insurer for its general corporate purposes in accordance with the plan adopted by the board of directors pursuant to item (1), must be invested in accordance with this chapter and in a manner that recognizes the liquidity needs of the transaction. For so long as any transaction pursuant to this subsection remains outstanding, the insurer, its agent, or custodian, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, or other securities depositories approved by the director, shall maintain:

(a) possession of acceptable collateral for the transaction in at least the amount required pursuant to the provisions of the SVO procedures manual;

(b) a perfected security interest in the acceptable collateral; or

(c) in the case of a foreign jurisdiction, title to or rights of a secured creditor to the acceptable collateral;

(4) the limitations of Sections 38-12-220 and 38-12-290 do not apply to the counterparty exposure created by transactions pursuant to this section. For purposes of calculations made to determine compliance with this item, the insurer's future obligation to resell securities in the case of a repurchase transaction, or to repurchase securities in the case of a reverse repurchase transaction, must not be counted. An insurer may not enter into a transaction pursuant to this subsection if as a result of and after giving effect to the transaction, the aggregate amount of:

(a) securities then loaned to, sold to, or purchased from any counterparty pursuant to this subsection exceeds five percent of its admitted assets. In calculating the amount sold to or purchased from a counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions pursuant to a written master agreement; or

(b) all securities then loaned to, sold to, or purchased from all counterparties pursuant to this subsection exceeds forty percent of its admitted assets;

(5) in a dollar roll transaction, the insurer must receive cash in an amount at least equal to the market value of the securities transferred by the insurer in the transaction as of the transaction date.

HISTORY: 2002 Act No. 319, Section 2, eff June 3, 2002.


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