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Texas Insurance Code - Section 425.127. Risk Control Transactions: Internal Control Procedures

Legal Research Home > Texas Lawyer > Insurance Code > Texas Insurance Code - Section 425.127. Risk Control Transactions: Internal Control Procedures

§ 425.127. RISK CONTROL TRANSACTIONS:  INTERNAL CONTROL 
PROCEDURES.  An insurance company that enters into a derivative 
transaction shall establish written internal control procedures 
that provide for:
		(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 have been effective;
		(3)  a system of regular reports, at least monthly, to 
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, § 1, eff. April 1, 2007.           

Last modified: August 11, 2007