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PARRIS N. GLENDENING, Governor
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S.B. 763
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(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;
(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) 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
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- 4141 -
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