Sec. 425.128.  RISK CONTROL TRANSACTIONS:  OVERSIGHT BY COMMISSIONER.  (a)  An insurance company must be able to demonstrate to the commissioner on request the intended hedging characteristics and continuing effectiveness of a derivative transaction or combination of transactions through:
(1)  cash flow testing;
(2)  duration analysis; or
(3)  other appropriate analysis.
(b)  Ten days before entering into an initial hedging transaction, an insurance company shall notify the commissioner in writing that:
(1)  the company's board of directors has adopted an investment plan that authorizes hedging transactions; and
(2)  each hedging transaction will comply with Sections 425.124-425.132.
(c)  After providing the notice under Subsection (b), the insurance company may enter into a hedging transaction under Section 425.124 if as a result of and after making the transaction:
(1)  the aggregate statement value of all outstanding options other than collars, and of all caps, floors, swaptions, and warrants under Sections 425.124-425.132 not attached to another financial instrument purchased by the company does not exceed 7.5 percent of the company's assets;
(2)  the aggregate statement value of all outstanding options other than collars, and of all caps, floors, swaptions, and warrants written by the company under Sections 425.124-425.132 does not exceed three percent of the company's assets; and
(3)  the aggregate potential exposure of all outstanding collars, swaps, forwards, and futures entered into or acquired by the company under Sections 425.124-425.132 does not exceed 6.5 percent of the company's assets.
(d)  If the hedging transaction does not comply with Sections 425.124-425.132, or if continuing the transaction may create a hazardous financial condition for the insurance company that affects the company's policyholders or creditors or the public, the commissioner may, after notice and an opportunity for a hearing, order the company to take action reasonably necessary to:
(1)  remedy a hazardous financial condition; or
(2)  prevent an impending hazardous financial condition from occurring.
Added by Acts 2005, 79th Leg., Ch. 727 (H.B. 2017), Sec. 1, eff. April 1, 2007.