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PARRIS N. GLENDENING, Governor
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Ch. 660
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(II) THE AGGREGATE STATEMENT VALUE OF OPTIONS, CAPS, AND
FLOORS WRITTEN IN HEDGING TRANSACTIONS DOES NOT EXCEED 3% OF, ITS
ADMITTED ASSETS; AND
(III) THE AGGREGATE POTENTIAL EXPOSURE OF COLLARS, SWAPS,
FORWARDS, AND FUTURES USED IN HEDGING TRANSACTIONS DOES NOT EXCEED
6.5% OF ITS ADMITTED ASSETS.
(4) (I) AN INSURER MAY ENTER INTO THE FOLLOWING TYPES OF
INCOME GENERATION TRANSACTIONS SUBJECT TO THE QUANTITATIVE LIMITS OF
SUBPARAGRAPH (II) OF THIS PARAGRAPH;
1. 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;
2. 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;
3. 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; OR
4. 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.
(II) THE TRANSACTIONS DESCRIBED IN SUBPARAGRAPH (I) OF THIS
PARAGRAPH ARE SUBJECT TO THE FOLLOWING QUANTITATIVE LIMITS: 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 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 10% OF ITS ADMITTED ASSETS.
(5) (4) AN INSURER SHALL INCLUDE ALL COUNTERPARTY EXPOSURE
AMOUNTS IN DETERMINING COMPLIANCE WITH THE LIMITATIONS OF § 5-507 OF
THIS SUBTITLE.
(6) (I) IN ACCORDANCE WITH REGULATIONS ADOPTED UNDER THIS
SUBSECTION, THE COMMISSIONER MAY APPROVE ADDITIONAL TRANSACTIONS
INVOLVING THE USE OF DERIVATIVE INSTRUMENTS IN EXCESS OF THE LIMITS OF
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- 3383 -
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