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Ch. 660
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2000 LAWS OF MARYLAND
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(2) (I) AN INSURER MAY USE DERIVATIVE INSTRUMENTS UNDER THIS
SUBSECTION TO ENGAGE IN HEDGING TRANSACTIONS AND INCOME GENERATION
TRANSACTIONS.
(II) 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 THE
TRANSACTIONS THROUGH CASH FLOW TESTING OR OTHER APPROPRIATE ANALYSES.
(III) THE COMMISSIONER MAY ADOPT REASONABLE REGULATIONS
FOR INVESTMENTS AND TRANSACTIONS UNDER THIS SUBSECTION, INCLUDING
REGULATIONS TO IMPOSE FINANCIAL SOLVENCY STANDARDS, VALUATION
STANDARDS, AND REPORTING REQUIREMENTS.
(II) PRIOR TO ENTERING INTO ANY DERIVATIVE TRANSACTION.
THE BOARD OF DIRECTORS OF THE INSURER SHALL APPROVE A DERIVATIVE USE
PLAN THAT:
1. DESCRIBES INVESTMENT OBJECTIVES AND RISK
CONSTRAINTS, SUCH AS COUNTERPARTY EXPOSURE AMOUNTS;
2. DEFINES PERMISSIBLE TRANSACTIONS IDENTIFYING THE
RISKS TO BE HEDGED, THE ASSETS OR LIABILITIES BEING REPLICATED; AND
3. REQUIRES COMPLIANCE WITH INTERNAL CONTROL
PROCEDURES THAT DEMONSTRATE THE INTENDED HEDGING CHARACTERISTICS
AND THE ONGOING EFFECTIVENESS OF THE DERIVATIVE TRANSACTION OR
COMBINATION OF THE TRANSACTIONS THROUGH CASH FLOW TESTING OR OTHER
APPROPRIATE ANALYSES.
(IV) (III) WHENEVER THE DERIVATIVE TRANSACTIONS ENTERED
INTO UNDER THIS SUBSECTION ARE NOT IN COMPLIANCE WITH THIS SUBSECTION
OR, IF CONTINUED, MAY NOW OR SUBSEQUENTLY, CREATE A HAZARDOUS FINANCIAL
CONDITION TO THE INSURER THAT AFFECTS ITS POLICYHOLDERS, CREDITORS, OR
THE GENERAL PUBLIC, THE COMMISSIONER MAY, AFTER NOTICE AND AN
OPPORTUNITY FOR A HEARING, ORDER THE INSURER TO TAKE ANY ACTION AS MAY
BE REASONABLY NECESSARY TO:
1. RECTIFY A HAZARDOUS FINANCIAL CONDITION; OR
2. PREVENT AN IMPENDING HAZARDOUS FINANCIAL
CONDITION FROM OCCURRING.
(3) AN INSURER MAY ENTER INTO HEDGING TRANSACTIONS UNDER
THIS SUBSECTION IF, AS A RESULT OF AND AFTER GIVING EFFECT TO THE
TRANSACTION:
(I) 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 7.5% OF ITS
ADMITTED ASSETS;
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- 3382 -
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