AI-assisted research summary: An insurer entering a derivative transaction must set up written internal controls with specified reporting, authorization, and documentation requirements.
Sec. 424.206. INTERNAL CONTROL PROCEDURES. An insurer that enters into a derivative transaction shall establish written internal control procedures that require: (1) a quarterly report to the board of directors that reviews: (A) each derivative transaction entered into, outstanding, or closed out; (B) the results and effectiveness of the derivatives program; and (C) the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount; (2) a system for determining whether hedging or replication strategies used by the insurer have been effective; (3) a system of reports, at least as frequent as monthly, to the insurer's management, that include: (A) a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report; (B) the purpose of each outstanding derivative transaction; (C) a performance review of the derivative instrument program; and (D) the counterparty exposure amount for each over-the-counter derivative transaction; (4) a written authorization that identifies the responsibilities and limitations of authority of each person authorized to effect and maintain derivative transactions; and (5) appropriate documentation for each transaction, including: (A) the purpose of the transaction; (B) the assets or liabilities to which the transaction relates; (C) the specific derivative instrument used in the transaction; (D) for an over-the-counter derivative transaction, the name of the counterparty and the counterparty exposure amount; and (E) for an exchange-traded derivative instrument, the name of the exchange and the name of the firm that handled the transaction. Added by Acts 2005, 79th Leg., Ch. 727 (H.B. 2017), Sec. 1, eff. April 1, 2007.