Issued or written with the issuer of the underlying interest on which the derivative instrument is based.Ĥ. Entered into with or guaranteed by a business entity.ģ. Each derivative instrument shall be one of the following:Ģ. The director may approve of additional transactions involving the use of derivative instruments in excess of the limits of subsection B of this section or for other risk management purposes, except that replication transactions shall be permitted only for risk management purposes.į. The asset being replicated is subject to all the provisions of this article relating to the making of investments by the insurer in that type of asset as if the transaction constituted a direct investment by the insurer in the replicated asset.Į. The insurer would otherwise be authorized to invest its funds under this article in the asset being replicated.Ģ. An insurer may enter into replication transactions with the prior written approval of the director if both of the following apply:ġ. Sales of covered caps or floors, if the insurer holds in its portfolio the investments generating the cash flow to make the required payments under the caps or floors during the complete term that the cap or floor is outstanding.ĭ. Sales of covered puts on investments that the insurer is permitted to acquire under this article, if the insurer has escrowed or entered into a custodian agreement segregating, cash or cash equivalents with a market value equal to the amount of its purchase obligations under the put during the complete term of the put option sold.Ĥ. Sales of covered call options on equity securities, if the insurer holds in its portfolio or can immediately acquire through the exercise of options, warrants or conversion rights already owned, the equity securities subject to call during the complete term of the call option sold.ģ. Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms before the end of the noncallable period or derivative instruments based on fixed income securities.Ģ.
PUT OR CALL TRANSACTION DEFINITION PLUS
An insurer may enter into the following types of income generation transactions if after giving effect to the transactions the aggregate statement value of the fixed income assets that are subject to call or that generate the cash flows for payments under the caps or floors, plus the face value of fixed income securities underlying a derivative instrument subject to call, plus the amount of the purchase obligations under the puts, does not exceed ten per cent of its admitted assets:ġ. The aggregate potential exposure of collars, swaps, forwards and futures used in hedging transactions does not exceed six and one-half per cent of its admitted assets.Ĭ. The aggregate statement value of options, caps and floors written in hedging transactions does not exceed three per cent of its admitted assets.ģ. The aggregate statement value of options, caps, floors and warrants not attached to another financial instrument purchased and used in hedging transactions does not exceed seven and one-half per cent of its admitted assets.Ģ. An insurer may enter into hedging transactions if, after giving effect to such transactions, all of the following apply:ġ. An insurer, directly or indirectly through an investment subsidiary, may use derivative instruments to engage in hedging transactions, income generation transactions and replication transactions pursuant to this section.ī. 20-560 - Derivative transactions definitionsĢ0-560.
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