Texas Insurance Code 425.127 – Risk Control Transactions: Internal Control Procedures
Terms Used In Texas Insurance Code 425.127
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Person: includes corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, and any other legal entity. See Texas Government Code 311.005
- Written: includes any representation of words, letters, symbols, or figures. See Texas Government Code 311.005
An insurance company that enters into a derivative transaction shall establish written internal control procedures that provide for:
(1) a quarterly report to the board of directors that reviews:
(A) each derivative transaction entered into, outstanding, or closed out;
(B) the results and effectiveness of the derivatives program; and
(C) the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount;
(2) a system for determining whether hedging or replication strategies used have been effective;
(3) a system of regular reports, at least monthly, to management that include:
(A) a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report;
(B) the purpose of each outstanding derivative transaction;
(C) a performance review of the derivative instrument program; and
(D) the counterparty exposure amount for each over-the-counter derivative transaction;
(4) a written authorization that identifies the responsibilities and limitations of authority of each person authorized to effect and maintain derivative transactions; and
(5) appropriate documentation for each transaction, including:
(A) the purpose of the transaction;
(B) the assets or liabilities to which the transaction relates;
(C) the specific derivative instrument used in the transaction;
(D) for an over-the-counter derivative transaction, the name of the counterparty and the counterparty exposure amount; and
(E) for an exchange-traded derivative instrument, the name of the exchange and the name of the firm that handled the transaction.