3 AAC 21.261. Securities lending, repurchase, reverse repurchase, and dollar roll transactions for a life and health insurer

(a) A life and health insurer may enter into a securities lending, repurchase, reverse repurchase, or dollar roll transaction with a business entity if the life and health insurer's board of directors adopts a written plan that is consistent with the requirements of the written plan in 3 AAC 21.211(a) , and that specifies guidelines and objectives to be followed, including

(1) a description of how cash received will be invested or used for general corporate purposes of the life and health insurer;

(2) operational procedures to manage interest rate risk, counterparty default risk, the conditions under which proceeds from a reverse repurchase transaction may be used in the ordinary course of business, and the use of acceptable collateral in a manner that reflects the liquidity needs of the transaction; and

(3) the extent to which the life and health insurer may engage in these transactions.

(b) A life and health insurer shall enter into a written agreement for each transaction authorized in this section other than a dollar roll transaction. The written agreement must require that each transaction terminate not more than one year from the transaction's inception or upon the earlier demand of the life and health insurer. The agreement must be with a business entity counterparty, except that, for a securities lending transaction, the agreement may be with an agent acting on behalf of the life and health insurer if the agent is a qualified business entity and if the agreement

(1) requires the agent to enter into a separate agreement with each counterparty that is consistent with the requirements of this subsection; and

(2) prohibits a securities lending transaction under the agreement with the agent or its affiliates.

(c) A life and health insurer shall use cash received in a transaction under this section for a general corporate purpose of the life and health insurer or shall invest it in accordance with 3 AAC 21.201 - 3 AAC 21.399 and in a manner that recognizes the liquidity needs of the transaction. For as long as the transaction remains outstanding, acceptable collateral received by a life and health insurer in a transaction under this section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or another securities depository of comparable quality in the United States and approved in advance by the director in writing, must be maintained by the life and health insurer through

(1) the possession of the acceptable collateral;

(2) a perfected security interest in the acceptable collateral; or

(3) if the collateral is located in a jurisdiction outside of the United States, the title to or rights of a secured creditor to the acceptable collateral.

(d) The limitations of 3 AAC 21.231 and 3 AAC 21.266 do not apply to a business entity counterparty exposure created by a transaction under this section. For purposes of calculations made to determine compliance with this subsection, a life and health insurer may not give effect to the life and health insurer's future obligation, in the case of a repurchase transaction, to resell a security or, in the case of a reverse repurchase transaction, to repurchase a security. A life and health insurer may not enter into a transaction under this section if, as a result of and after giving effect to the transaction, the aggregate amount of

(1) securities then loaned to, sold to, or purchased from any one business entity counterparty under this section would exceed five percent of the life and health insurer's admitted assets, except that, in calculating the amount sold to or purchased from a business entity counterparty under a repurchase or reverse repurchase transaction, a life and health insurer may give effect to the provisions under a master written agreement with the business entity counterparty that provides for the net settlement of all contracts between the insurer and the counterparty; or

(2) all securities then loaned to, sold to, or purchased from all business entities under this section would exceed 40 percent of the life and health insurer's admitted assets.

(e) A life and health insurer may not engage in a

(1) security lending transaction unless the life and health insurer receives acceptable collateral having a market value as of the transaction date at least equal to 102 percent of the market value of the securities loaned by the life and health insurer in the transaction as of that date; if, at any time, the market value of the acceptable collateral is less than the market value of the loaned securities, the business entity counterparty must be obligated under the transaction 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, is at least equal to 102 percent of the market value of the loaned securities;

(2) reverse repurchase transaction, other than a dollar roll transaction, unless the life and health insurer receives acceptable collateral having a market value as of the transaction date at least equal to 95 percent of the market value of the securities transferred by the life and health insurer in the transaction as of that date; if, at any time, the market value of the acceptable collateral is less than 95 percent of the market value of the securities transferred, the business entity counterparty must be obligated under the transaction 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, is at least equal to 95 percent of the market value of the transferred securities;

(3) dollar roll transaction unless the life and health insurer receives cash in an amount at least equal to the market value of the securities transferred by the life and health insurer in the transaction as of the transaction date; or

(4) repurchase transaction unless the life and health insurer receives as acceptable collateral transferred securities having a market value at least equal to 102 percent of the purchase price paid by the life and health insurer for the securities; if, at any time, the market value of the acceptable collateral is less than 100 percent of the purchase price paid by the life and health insurer, the business entity counterparty must be obligated under the transaction 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 is at least equal to 102 percent of the purchase price; securities acquired by a life and health insurer in a repurchase transaction may not be sold in a reverse repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.

(f) In this section, "acceptable collateral" has the meaning given in 3 AAC 21.399, except that "acceptable collateral" includes a letter of credit only if it has an expiration date that is beyond the term of the subject transaction.

History: Eff. 12/28/2001, Register 160

Authority: AS 21.06.090

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