{"data":{"id":"us-ky/krs-304.7-471","jurisdiction":"us-ky","citation":"KRS 304.7-471","heading":"Derivative transactions -- Hedging -- Income generation -- Counterparty","body":"exposure amounts.\n(1) An insurer may, directly or indirectly through an investment subsidiary, engage in\nderivative transactions under this section under the following conditions:\n(a) An insurer may use derivative instruments under this section to engage in\nhedging transactions and certain income generation transactions, as these\nterms may be further defined in administrative regulations promulgated by the\ncommissioner; and\n(b) An insurer shall be able to demonstrate to the commissioner the intended\nhedging characteristics and the ongoing effectiveness of the derivative\ntransaction or combination of transactions through cash flow testing or other\nappropriate analyses.\n(2) An insurer may enter into hedging transactions under this section if, as a result of\nand after giving effect to the transaction:\n(a) The aggregate statement value of options, caps, floors, and warrants not\nattached to another financial instrument purchased and use d in hedging\ntransactions does not exceed seven and one-half percent (7.5%) of its admitted\nassets;\n(b) The aggregate statement value of options, caps, and floors written in hedging\ntransactions does not exceed three percent (3%) of its admitted assets; and\n(c) The aggregate potential exposure of collars, swaps, forwards, and futures used\nin hedging transactions does not exceed six and one -half percent (6.5%) of its\nadmitted assets.\n(3) An insurer may only enter into the following types of income generation\ntransactions if, as a result of and after giving effect to the transactions, the aggregate\nstatement value of the fixed income assets that are subject to call plus the face value\nof fixed income securities underlying a derivative instrument subject to cal l, plus\nthe amount of the purchase obligations under the puts, does not exceed ten percent\n(10%) of its admitted assets:\n(a) Sales of covered call options on noncallable fixed income securities, callable\nfixed income securities if the option expires by its terms prior to the end of the\nnoncallable period, or derivative instruments based on fixed income\nsecurities;\n(b) Sales of covered call options on equity securities, if the insurer holds in its\nportfolio, or can immediately acquire through the exercise of  options,\nwarrants, or conversion rights already owned, the equity securities subject to\ncall during the complete term of the call option sold; or\n(c) Sales of covered puts on investments that the insurer is permitted to acquire\nunder this subtitle, if the  insurer has escrowed, or entered into a custodian\nagreement segregating, cash or cash equivalents with a market value equal to\nthe amount of its purchase obligations under the put during the complete term\nof the put option sold.\n(4) An insurer shall inclu de all counterparty exposure amounts in determining\ncompliance with the limitations of KRS 304.7-455.\n(5) In accordance with administrative regulations promulgated under KRS 304.7 -367,\nthe commissioner may approve additional transactions involving the use of\nderivative instruments in excess of the limits of subsection (2) of this section or for\nother risk management purposes under administrative regulations promulgated by\nthe commissioner, but replication transactions shall not be permitted for other than\nrisk management purposes.","path":[],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=16862","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:57:39Z","sha256":"ef41737e0460c543300a0bb43b3e132a4fb72db537031c416abfe9a9cc88d88f","source_id":"us-ky","stale":false,"prev":"us-ky/krs-304.7-469","next":"us-ky/krs-304.7-473"},"notice":"GroundRules: Original legal text. Not legal advice."}