Louisiana Revised Statutes 22:601.11 – Securities transactions; lending, repurchase, reverse repurchase, dollar roll
Terms Used In Louisiana Revised Statutes 22:601.11
- Acceptable collateral: means any of the following:
(a) As to securities lending transactions, and for the purpose of calculating counterparty exposure amount, cash, cash equivalents, letters of credit, direct obligations of, or securities that are fully guaranteed as to principal and interest by, the government of the United States or any agency of the United States, or by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, or any state or territory of the United States or the District of Columbia and as to lending foreign securities, sovereign debt rated one by the SVO. See Louisiana Revised Statutes 22:601.1
- Admitted assets: means assets permitted to be reported as admitted assets on the statutory financial statement of the insurer most recently required to be filed with the commissioner, but excluding assets of separate accounts, the investments of which are not subject to the provisions of this Subpart. See Louisiana Revised Statutes 22:601.1
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Business entity: includes a sole proprietorship, corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund, trust, joint tenancy, or other similar form of business organization, whether organized for-profit or not-for-profit. See Louisiana Revised Statutes 22:601.1
- Dollar roll transaction: means two simultaneous transactions with different settlement dates no more than ninety-six days apart, so that in the transaction with the earlier settlement date, an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of any of the following types:
(a) Asset-backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or their respective successors. See Louisiana Revised Statutes 22:601.1
- Future: means an agreement, traded on a qualified exchange or qualified foreign exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance, or value of, one or more underlying interests. See Louisiana Revised Statutes 22:601.1
- Interest rate: The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures. Source: OCC
- Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
- Market value: means :
(a) As to cash and letters of credit, the amounts thereof. See Louisiana Revised Statutes 22:601.1
- Qualified business entity: means a business entity that is one of the following:
(a) An issuer of obligations or preferred stock that are rated one or two by the SVO or an issuer of obligations, preferred stock or derivative instruments that are rated the equivalent of one or two by the SVO, or by a nationally recognized statistical rating organization recognized by the SVO. See Louisiana Revised Statutes 22:601.1
- Repurchase transaction: means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period or upon demand. See Louisiana Revised Statutes 22:601.1
- Reverse repurchase transaction: means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or upon demand. See Louisiana Revised Statutes 22:601.1
- Securities lending transaction: means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or upon demand. See Louisiana Revised Statutes 22:601.1
An insurer may execute securities lending, repurchase, reverse repurchase, and dollar roll transactions with business entities having a net worth of at least one hundred million dollars, 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 La. Rev. Stat. 22:601.3(A) that specifies guidelines and objectives to be followed, including but not limited to the following:
(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 repurchase transactions 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.
(c) The extent to which the insurer may engage in these transactions.
(2) The insurer shall execute a written agreement for all transactions authorized in this Section other than dollar roll transactions. The written agreement shall require that each transaction terminate no more than one 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 does all of the following:
(a) Requires the agent to execute separate agreements with each counterparty that are consistent with the requirements of this Section.
(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 Subpart and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. While 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.
(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 La. Rev. Stat. 22:601.6 and 601.12 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 reverse repurchase transaction, or to repurchase securities, in the case of a repurchase transaction. No insurer shall execute a transaction under this Section if, as a result of and after giving effect to the transaction, any of the following occur:
(a) The aggregate amount of securities then loaned, sold to, or purchased from any one business entity counterparty under this Section would exceed five percent of its admitted assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement.
(b) The aggregate amount of all securities then loaned, sold to, or purchased from all business entities under this Section would exceed forty percent of its admitted assets, but the limitation of this Paragraph shall not apply to reverse repurchase transactions if 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 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 of the market value of the loaned securities.
(6) In a 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 of the market value of the securities 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 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 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 reverse repurchase transaction, the insurer shall receive as acceptable collateral transferred securities having a market value at least equal to one hundred two percent of the purchase price paid by the insurer for the securities. If at any time the market value of the acceptable collateral is less than one hundred percent 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 market value of all acceptable collateral then held in connection with the transaction, at least equals one hundred two percent of the purchase price. No securities acquired by an insurer in a reverse repurchase transaction shall be sold in a repurchase transaction, loaned in a securities lending transaction, or otherwise pledged.
Acts 2021, No. 165, §1, eff. Jan. 1, 2022.