KRS 304.7-467: Securities lending, repurchase, reverse repurchase, and dollar roll

transactions.

An insurer may enter into securities lending, repurchase, reverse repurchase and dollar

roll transactions with business entities, subject to the following requirements:

(1) The insurer's board of directors shall adopt a written plan that is consistent with the

requirements of the written plan in KRS 304.7 -361(1) that specifies guidelines and

objectives to be followed, such as:

(a) A description of how cash received will be invested or used for general

corporate purposes of the insurer;

(b) Operational procedures to manage interest rate risk, counterparty default risk,

the conditions under which proceeds from reverse repurchase transactions

may be used in the ordinary cou rse of business, and the use of acceptable

collateral in a manner that reflects the liquidity needs of the transaction; and

(c) The extent to which the insurer may engage in these transactions.

(2) The insurer shall enter into a written agreement for all t ransactions authorized in

this section other than dollar roll transactions. The written agreement shall require

that each transaction terminate not more than one (1) year from its inception or

upon the earlier demand of the insurer. The agreement shall be with the business

entity counterparty, but for securities lending transactions, the agreement may be

with an agent acting on behalf of the insurer, if the agent is a qualified business

entity, and if the agreement:

(a) Requires the agent to enter into sepa rate agreements with each counterparty

that are consistent with the requirements of this section; and

(b) Prohibits securities lending transactions under the agreement with the agent or

its affiliates.

(3) Cash received in a transaction under this section shall be invested in accordance

with this subtitle and in a manner that recognizes the liquidity needs of the

transaction or used by the insurer for its general corporate purposes. For so long as

the transaction remains outstanding, the insurer, its agent, or custodian shall

maintain, as to acceptable collateral received 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 other securities

depositories approved by the commissioner:

(a) Possession of the acceptable collateral;

(b) A perfected security interest in the acceptable collateral; or

(c) In the case of a jurisdiction outside of the United States, title to, or rights of a

secured creditor to, the acceptable collateral.

(4) The limitations of KRS 304.7 -455 and 304.7 -469 shall not apply to the business

entity counterparty exposure created by transactions under this section. For purposes

of calculations made to determine compliance with this subsection, no effect will be

given to the insurer's future obligation to resell securities, in the case of a repurchase

transaction, or to repurchase securities, in the case of a reverse repurchase

transaction. An insurer shall not enter into a transact ion under this section if, as a

result of and after giving effect to the transaction:

(a) The aggregate amount of securities then loaned, sold to, or purchased from

any one (1) business entity counterparty under this section would exceed five

percent (5%) of its admitted assets. In calculating the amount sold to or

purchased from a business entity counterparty under repurchase or rev erse

repurchase transactions, effect may be given to netting provisions under a

master written agreement; or

(b) The aggregate amount of all securities then loaned, sold to, or purchased from

all business entities under this section would exceed forty perc ent (40%) of its

admitted assets, but the limitation of this subsection shall not apply to reverse

repurchase transactions for so long as the borrowing is used to meet

operational liquidity requirements resulting from an officially declared

catastrophe and subject to a plan approved by the commissioner.

(5) In a securities lending transaction, the insurer shall receive acceptable collateral

having a market value as of the transaction date at least equal to one hundred two

percent (102%) of the market value of the securities loaned by the 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 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 one hundred two percent

(102%) of the market value of the loaned securities.

(6) 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 ninety -five percent (95%) of the market value of the secur ities

transferred by the insurer in the transaction as of that date. If at any time the market

value of the acceptable collateral is less than ninety -five percent (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 ninety-five percent (95%) of the market value of

the transferred securities.

(7) 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.

(8) In a repurcha se transaction, the insurer shall receive as acceptable collateral

transferred securities having a market value at least equal to one hundred two

percent (102%) of the purchase price paid by the insurer for the securities. If at any

time the market value o f the acceptable collateral is less than one hundred percent

(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 mar ket value of all acceptable collateral then held in

connection with the transaction, at least equals one hundred two percent (102%) of

the purchase price. Securities acquired by an insurer in a repurchase transaction

shall not be sold in a reverse repurcha se transaction, loaned in a securities lending

transaction, or otherwise pledged.