304.7-415 Securities lending, repurchase, reverse repurchase, and dollar roll
transactions.
An insurer may enter into securities lending, repurchase, reverse repurchase, and dollar
roll transactions with business entities, subject to the following requirements:
(1) The insurer's board of directors shall adopt a written plan that is consistent with the
requirements of the written plan in KRS 304.7-361 that specifies guidelines and
objectives to be followed, such as:
(a) A description of how cash received will 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 transactions; and
(c) The extent to which the insurer may engage in these transactions;
(2) The insurer shall enter into a written agreement for all transactions authorized in
this section other than dollar roll transactions. The written agreement shall require
that each transaction terminate not more than one (1) year from its inception or
upon the earlier demand of the insurer. The agreement shall be with the business
entity counterparty, but for securities lending transactions, the agreement may be
with an agent acting on behalf of the insurer, if the agent is a qualified business
entity, and if the agreement:
(a) Requires the agent to enter into separate agreements with each counterparty
that are consistent with the requirements of this section; and
(b) Prohibits securities lending transactions under the agreement with the agent or
its affiliates;
(3) Cash received in a transaction under this section shall be invested in accordance
with this subtitle and in a manner that recognizes the liquidity needs of the
transaction or used by the insurer for its general corporate purposes. For so long as
the transaction remains outstanding, the insurer, its agent, or its custodian shall
maintain, as to acceptable collateral received in a transaction under this section,
either physically or through the book entry systems of the Federal Reserve,
Depository Trust Company, Participants Trust Company, or other securities
depositories approved by the commissioner:
(a) Possession of the acceptable collateral;
(b) A perfected security interest in the acceptable collateral; or
(c) In the case of a jurisdiction outside of the United States, title to, or rights of a
secured creditor to, the acceptable collateral;
(4) The limitations of KRS 304.7-403 and 304.7-417 shall not apply to the business
entity counterparty exposure created by transactions under this section. For purposes
of calculations made to determine compliance with this subsection, no effect will be
given to 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
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transaction. An insurer shall not enter into a transaction under this section if, as a
result of and after giving effect to the transaction:
(a) The aggregate amount of securities then loaned, sold to, or purchased from
any one (1) business entity counterparty under this section would exceed five
percent (5%) of its admitted assets. In calculating the amount sold to or
purchased from a business entity counterparty under repurchase or reverse
repurchase transactions, effect may be given to netting provisions under a
master written agreement; or
(b) The aggregate amount of all securities then loaned, sold to, or purchased from
all business entities under this section would exceed forty percent (40%) of its
admitted assets;
In a securities lending transaction, the insurer shall receive acceptable collateral
having a market value as of the transaction date at least equal to one hundred two
percent (102%) of the market value of the securities loaned by the insurer in the
transaction as of that date. If at any time the market value of the acceptable
collateral is less than the market value of the loaned securities, the business entity
counterparty shall be obligated to deliver additional acceptable collateral, the
market value of which, together with the market value of all acceptable collateral
then held in connection with the transaction, at least equals one hundred two percent
(102%) of the market value of the loaned securities;
In a reverse repurchase transaction, other than a dollar roll transaction, the insurer
shall receive acceptable collateral having a market value as of the transaction date at
least equal to ninety-five percent (95%) of the market value of the securities
transferred by the insurer in the transaction as of that date. If at any time the market
value of the acceptable collateral is less than ninety-five percent (95%) of the
market value of the securities so transferred, the business entity counterparty shall
be obligated to deliver additional acceptable collateral, the market value of which,
together with the market value of all acceptable collateral then held in connection
with the transaction, at least equals ninety-five percent (95%) of the market value of
the transferred securities;
In a dollar roll transaction, the insurer shall 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; and
In a repurchase transaction, the insurer shall receive as acceptable collateral
transferred securities having a market value at least equal to one hundred two
percent (102%) of the purchase price paid by the insurer for the securities. If at any
time the market value of the acceptable collateral is less than one hundred percent
(100%) of the purchase price paid by the insurer, the business entity counterparty
shall be obligated to provide additional acceptable collateral, the market value of
which, together with the market value of all acceptable collateral then held in
connection with the transaction, at least equals one hundred two percent (102%) of
the purchase price. Securities acquired by an insurer in a repurchase transaction
shall not be sold in a reverse repurchase transaction, loaned in a securities lending
transaction, or otherwise pledged.
Effective: July 15, 2010
History: Amended 2010 Ky. Acts ch. 24, sec. 1018, effective July 15, 2010. -- Created
2000 Ky. Acts ch. 388, sec. 14, effective July 14, 2000.
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