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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 transaction. An insurer shall not enter into
a transaction under this section if, as a result of and after giving effect to the
(5)
(6)
(7)
(8)
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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