There is a newer version of the Kentucky Revised Statutes
2009 Kentucky Revised Statutes
Subtitle 7. Investments
304.7.471 Derivative transactions -- Hedging -- Income generation -- Counterparty exposure amounts.
Download pdf(a) An insurer may use derivative instruments under this section to engage in hedging transactions and certain income generation transactions, as these
terms may be further defined in administrative regulations promulgated by the
commissioner; and (b) An insurer shall be able to demonstrate to the commissioner the intended hedging characteristics and the ongoing effectiveness of the derivative
transaction or combination of transactions through cash flow testing or other
appropriate analyses. (2) An insurer may enter into hedging transactions under this section if, as a result of and after giving effect to the transaction:
(a) 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 percent (7.5%) of its admitted
assets; (b) The aggregate statement value of options, caps, and floors written in hedging transactions does not exceed three percent (3%) of its admitted assets; and (c) The aggregate potential exposure of collars, swaps, forwards, and futures used in hedging transactions does not exceed six and one-half percent (6.5%) of its
admitted assets. (3) An insurer may only enter into the following types of income generation transactions if, as a result of and after giving effect to the transactions, the aggregate
statement value of the fixed income assets that are subject to call 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 percent
(10%) of its admitted assets:
(a) Sales of covered call options on noncallable fixed income securities, callable fixed income securities if the option expires by its terms prior to the end of the
noncallable period, or derivative instruments based on fixed income
securities; (b) 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; or (c) Sales of covered puts on investments that the insurer is permitted to acquire under this subtitle, 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. Page 2 of 2 (4) An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of KRS 304.7-455. (5) In accordance with administrative regulations promulgated under KRS 304.7-367, the commissioner may approve additional transactions involving the use of
derivative instruments in excess of the limits of subsection (2) of this section or for
other risk management purposes under administrative regulations promulgated by
the commissioner, but replication transactions shall not be permitted for other than
risk management purposes. Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1025, effective July 15, 2010. -- Created 2000 Ky. Acts ch. 388, sec. 29, effective July 14, 2000.
Disclaimer: These codes may not be the most recent version. Kentucky may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.