Ch. 399

2003 LAWS OF MARYLAND

(7)     (i) 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 95% of the market value of the securities
transferred by the insurer in the transaction as of that date.

(ii) If at any time the market value of the acceptable collateral is
less than 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 95% of the market value of the
transferred securities.

(8)     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.

(9)     (i) In a repurchase transaction, the insurer shall receive as
acceptable collateral transferred securities having a market value at least equal to
102% of the purchase price paid by the insurer for the securities.

(ii) If at any time the market value of the acceptable collateral is
less than 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 102% of the purchase price.

(iii) Securities acquired by an insurer in a repurchase transaction
may not be sold in a reverse repurchase transaction, loaned in a securities lending
transaction, or otherwise pledged.

(o) (1) The reserve investments of a life insurer may include derivative
transactions under this subsection, whether entered into directly or indirectly
through an investment subsidiary, under the conditions of paragraphs (2) through (7)
of this subsection.

(2) (i) An insurer may use derivative instruments under this
subsection to engage in hedging transactions.

(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 AND COLLATERAL ARRANGEMENTS SUPPORTING
DERIVATIVE TRANSACTIONS;

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.

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